Pełna transkrypcja odcinka Every Dollar Needs A Job

false understanding of how cash flow works. 00:02:35.680 --> 00:02:36.000 Yeah. 00:02:36.159 --> 00:02:42.879 And that's why I get asked all the time, but you you said I've made$60,000 that quarter, but where is it? 00:02:43.120 --> 00:02:45.360 I only have$2,000 in the bank. 00:02:45.680 --> 00:02:52.879 So our listener today has really got to get this understanding between profit, cash, reserves, and available cash. 00:02:53.120 --> 00:02:54.080 How do you do that? 00:02:54.400 --> 00:02:54.719 Yeah. 00:02:54.960 --> 00:03:08.960 So what you need to do, you need to understand that, you know, your financial data, which is your reporting, is reporting what you have billed for the month and then what are the expenses for the month. 00:03:09.120 --> 00:03:14.240 But your cash that's are coming in, it's not going to land in your bank account until next month. 00:03:14.479 --> 00:03:20.080 So it's all about the timing of the cash coming in, cash going out. 00:03:20.240 --> 00:03:23.360 Why are we accruing the data in the first place? 00:03:23.520 --> 00:03:25.680 Is well, that's how it should be done. 00:03:25.759 --> 00:03:29.360 So it reflects the true financial position of the business. 00:03:29.599 --> 00:03:34.080 You accrued what you've done, what you worked on, and what you've built. 00:03:34.319 --> 00:03:39.520 But when the cash hit, that depends on when your customers are paying you. 00:03:39.680 --> 00:03:46.639 So then you can't just go out and spend that exact amount that you've built because the money won't be there. 00:03:46.960 --> 00:03:50.240 We're gonna need a teaching framework for this. 00:03:51.039 --> 00:03:56.719 Take us into one of your My Harris teaching frameworks for financial clarity flow. 00:03:56.960 --> 00:04:10.080 Yeah, so a lot of people don't understand cash flow, you know, and they always think that because the business is doing really well, the cash balance or cash out bank would reflect that. 00:04:10.319 --> 00:04:23.279 If you're actually showing a net profit of$200,000 a year, I just want people to understand that you're not going to see that$200,000 sitting in the bank available and readily for you. 00:04:23.600 --> 00:04:24.879 Where does it go then? 00:04:26.800 --> 00:04:37.519 Um it goes into business overheads because you would need to pay for the overheads as you go and um for the next month. 00:04:37.680 --> 00:04:39.920 So it's already being utilized. 00:04:40.079 --> 00:04:42.399 And that's why people are very confused. 00:04:42.560 --> 00:04:44.000 Where does my money go? 00:04:44.160 --> 00:04:54.800 So, number one for the financial clarity flow for us is step one to recognize how um reserves and cash flow is being realized. 00:04:55.040 --> 00:05:03.199 So when you actually have reserves, it means that you have spare money and for rainy day in the business. 00:05:03.360 --> 00:05:03.680 Okay. 00:05:04.079 --> 00:05:09.199 And um what what's the difference between reserves and working capital? 00:05:09.439 --> 00:05:10.720 There's two different things. 00:05:10.959 --> 00:05:16.480 Reserves is spare money, cash surplus that you can use for rainy day. 00:05:16.639 --> 00:05:34.319 Working capital is the money that you put away for growth purposes to put back into the business so that you can scale and you can um purchase new equipment, for example, because that will convert into more revenue in the future or nil hire. 00:05:34.560 --> 00:05:41.759 Okay, so that's that's the the two things that you should have within your business reserves and also working capital. 00:05:41.839 --> 00:05:46.480 But how do we have those healthy balances in the business? 00:05:46.639 --> 00:05:49.120 It comes down to making profit. 00:05:49.360 --> 00:06:03.120 So you need to realize that number one, revenue creates profit, okay, but revenue is just a turnover, so it's the leftover, and um that is equal to net profit. 00:06:03.279 --> 00:06:06.399 So profit then creates cash surplus. 00:06:06.639 --> 00:06:18.000 So if you are making a net profit of$20,000 per month, you will find that your cash surplus won't catch up in your bank account until the following month. 00:06:18.240 --> 00:06:24.639 But at least if you're making profit, you will have positive cash flow in the next month. 00:06:24.800 --> 00:06:29.680 And then um step three is to have a look at the cash surplus. 00:06:29.920 --> 00:06:32.800 How much can you push into reserves? 00:06:32.959 --> 00:06:33.279 Okay. 00:06:33.839 --> 00:06:42.000 And then um, once you're able to put some balance into reserves, then you'll have enough funds for growth. 00:06:42.160 --> 00:06:50.160 So it becomes um you can split that reserves into two is actual reserves and then also the working capital. 00:06:50.399 --> 00:06:56.399 So one is for rainy day, and then another account can be for growth purposes. 00:06:56.720 --> 00:07:00.000 So that's how cash flow works. 00:07:00.319 --> 00:07:05.040 For our business owners out there who are just taking that in, what's the biggest lesson here? 00:07:05.360 --> 00:07:15.839 The biggest lesson here is if you want to grow your business, you should have money in your reserves and healthy, you know, working capital balance. 00:07:16.079 --> 00:07:16.879 Why is that? 00:07:17.040 --> 00:07:23.360 Because people have false expectation that they're growing, so they should have more money in the bank. 00:07:23.519 --> 00:07:24.079 Not really. 00:07:24.480 --> 00:07:26.079 Pay for their wages, their super. 00:07:26.399 --> 00:07:26.879 Training. 00:07:27.120 --> 00:07:28.079 That's correct. 00:07:28.240 --> 00:07:33.839 Until they're actually generating you until they can generate and profit for you. 00:07:34.000 --> 00:07:36.000 And that could take like three months. 00:07:36.319 --> 00:07:38.480 A lot of people don't calculate the drain. 00:07:39.199 --> 00:07:45.680 And from being in education for a long period of time, the cost of onboarding could be$15,000 to$30,000.

00:07:46.399 --> 00:07:47.360 And you're paying a wage. 00:07:47.519 --> 00:07:47.680 Yeah. 00:07:47.839 --> 00:07:50.560 And they're like, but I'll put this person on and things have gone backwards. 00:07:50.720 --> 00:07:51.120 Correct. 00:07:51.279 --> 00:07:51.519 Yeah. 00:07:51.680 --> 00:07:54.480 And then if you don't have your systems and your processes, it's even worse. 00:07:54.639 --> 00:07:54.720 Yes. 00:07:54.879 --> 00:07:55.920 Because you can't even onboard them. 00:07:56.079 --> 00:07:56.319 Yeah. 00:07:56.560 --> 00:08:02.000 Give us a real life story example, and you've got one here of a real estate agency. 00:08:02.160 --> 00:08:02.800 Take us into that. 00:08:03.040 --> 00:08:03.360 Yes. 00:08:03.519 --> 00:08:05.680 So it is very close to your heart, Lee. 00:08:05.920 --> 00:08:06.480 Very much so. 00:08:06.639 --> 00:08:06.879 Yeah. 00:08:06.959 --> 00:08:18.319 So imagine with the real estate agency, you know, this is one of many businesses that will experience, you know, the cash, the cash flow mismatch. 00:08:18.639 --> 00:08:19.839 Special right now. 00:08:20.000 --> 00:08:21.040 Yes, that's right. 00:08:21.279 --> 00:08:32.639 Because you have quite a big overheads and you're paying for the overheads like, you know, staff wages, superannuation, rent, marketing costs, software subscription, insurance, vehicle, etc. 00:08:33.039 --> 00:08:33.840 Up front. 00:08:34.080 --> 00:08:36.480 And what are you what are your revenue streams? 00:08:36.720 --> 00:08:42.480 So for a real estate agency, your revenue stream can come from your sales, right? 00:08:42.720 --> 00:08:47.279 And then also your management agency commission. 00:08:47.440 --> 00:09:05.840 So there's quite a there's two streams here, but the one that you don't can't count your chicken on is the sales commission revenue stream, because you are depending on the settlement on when the property will be settled, and that's when you get your cut. 00:09:06.000 --> 00:09:11.120 So for the rental management fees, you'll get that on a monthly base. 00:09:11.279 --> 00:09:12.000 That's okay. 00:09:12.159 --> 00:09:16.799 You know, that can be you, you know, enough to just pay for your fixed costs. 00:09:16.960 --> 00:09:23.919 However, your admission, that's not going to be paid until the property settles, and usually it takes up to six weeks. 00:09:24.080 --> 00:09:25.440 Actually, minimum six weeks. 00:09:25.679 --> 00:09:26.240 Minimum six weeks. 00:09:26.320 --> 00:09:26.559 Isn't that? 00:09:26.799 --> 00:09:28.960 And at the moment we're seeing that go out to three months. 00:09:29.679 --> 00:09:30.000 Yeah. 00:09:30.240 --> 00:09:41.519 So it's so important that to realize that the cash that you have today will need to be utilized for those operating costs up front until you receive more. 00:09:41.679 --> 00:09:44.000 So your pipeline needs to support that. 00:09:44.159 --> 00:09:53.360 And that's why, you know, when I see many businesses, they have quite a substantial fluctuation in monthly revenue each month. 00:09:53.440 --> 00:10:07.120 I always encourage them to change the way their bill, the way they negotiate um their contract, because they need to be more consistent in order to withstand the monthly operating costs. 00:10:07.279 --> 00:10:14.320 You need a minute certain amount, certain minimum cash flow coming in per month, at least to pay for wages. 00:10:14.480 --> 00:10:30.960 So that's, you know, where there's cash flow mismatch and cash flow understanding need to be quite solid for business owners so that you don't have a cash flow problem because you know your business can be profitable, but without cash, you can't operate. 00:10:31.200 --> 00:10:37.519 And this is where a break-even point becomes really important that everyone in the business understands. 00:10:37.840 --> 00:10:41.679 Because in business, people see money coming in, think, oh, the owner must be killing it. 00:10:41.759 --> 00:10:49.440 But the break-even point is in a lot of businesses that that could be 10 sales a month before we break even on all these expenses that we have. 00:10:49.679 --> 00:10:50.320 Continue on. 00:10:50.559 --> 00:10:59.440 So the biggest mistake I've seen with business owner is them they are assuming that money in the bank equals money available to spend. 00:10:59.600 --> 00:11:00.720 That's not the case. 00:11:00.879 --> 00:11:12.960 So you need to have a look at the cash at bank and then think about how do I allocate these cash into appropriate expense pool. 00:11:13.120 --> 00:11:18.080 And I'll have that as, you know, a reserves for those expenses. 00:11:18.240 --> 00:11:26.720 And by the time you you know dissect it and break it all down, you probably will find that most of that cash is already spent. 00:11:26.879 --> 00:11:32.799 So yeah, the mistake a lot of people made is they go, Oh, I've got$150,000 in the bank. 00:11:32.879 --> 00:11:38.240 I'm just going to take it and I'm just going to spend it on something else or pay down my home loan. 00:11:38.399 --> 00:11:44.080 But then the next month you having, you know, cash flow issue, so you have to transfer it back in. 00:11:44.240 --> 00:11:48.159 Well, this brings it back into our title that you can explain even better. 00:11:48.399 --> 00:11:49.679 Every dollar needs a job. 00:11:49.919 --> 00:11:50.320 Yes. 00:11:50.559 --> 00:12:04.480 So what I mean by every dollar needs a job, it just means that you need to review how you spend your money and then allocate cash into different types of reserves. 00:12:04.639 --> 00:12:11.039 So number one, very close to all business owners' hearts, which is tax reserves. 00:12:11.200 --> 00:12:11.519 Okay. 00:12:12.000 --> 00:12:18.000 So the purpose of the tax reserve is to prepare for the tax obligations. 00:12:18.240 --> 00:12:24.639 That includes GST, PYG withholding, income tax, and payroll tax. 00:12:24.799 --> 00:12:27.519 The next one is payroll reserve. 00:12:27.840 --> 00:12:42.720

This will help, you know, making sure that you protect your employee obligations and you have enough money to pay for wages, superannuation, and also leave entitlements. 00:12:42.879 --> 00:13:00.159 So it does help in big businesses or medium-sized businesses that have so many employees to make sure that you accrued, you know, your employee leave entitlement because that can hit you pretty hard if you don't have that data available to you. 00:13:00.559 --> 00:13:03.360 Is that a separate account they should run for leave? 00:13:03.679 --> 00:13:07.679 Is it like a are you saying that they should have a bank account? 00:13:08.000 --> 00:13:09.279 Yeah, you've got tax reserves. 00:13:09.360 --> 00:13:15.120 But if someone says, I'm leaving and they've worked for the business for 20 years, um, that's a big payout. 00:13:15.440 --> 00:13:24.000 Yeah, and unfortunately, I would like to say yes, but a lot of businesses don't have that cash luxury to do so. 00:13:24.240 --> 00:13:33.279 So, I mean, with all of these reserves that we are talking about, you don't necessarily need a separate bank account for each one of these. 00:13:33.519 --> 00:13:43.120 You just need to have enough, you know, like um bank balance to support these different expenses that you should have reserved for. 00:13:43.360 --> 00:13:55.120 And um, you can have like a spreadsheet to track it if you want, but at the same time, like I encourage businesses to have at least three separate bank accounts. 00:13:55.360 --> 00:14:00.960 Number one is for everyday, um, day-to-day business income and expenses. 00:14:01.120 --> 00:14:04.879 Number two is definitely tax account. 00:14:05.039 --> 00:14:12.720 Number three is for super, because now we know that you know, payday super, you have to pay it straight away. 00:14:12.960 --> 00:14:19.360 So, and if you don't have money for super, you can be very heavily penalized by the ATO. 00:14:19.679 --> 00:14:22.480 And they they brought that in for a very strong reason. 00:14:23.200 --> 00:14:25.519 And the penalties are severe. 00:14:25.679 --> 00:14:25.919 Yeah. 00:14:26.159 --> 00:14:30.960 Especially if you're running a big company and you miss that one, yeah, that could shut you down. 00:14:31.120 --> 00:14:31.440 Yeah. 00:14:31.679 --> 00:14:33.440 So what about supply reserves? 00:14:33.679 --> 00:14:39.120 Yeah, with supplies reserve, well, you can't run the business if you don't pay your supplier. 00:14:39.279 --> 00:14:48.320 So you need to have money put away for your creditors, subcontractors, and also recurring supply commitments. 00:14:48.480 --> 00:14:56.559 So already you can see that you know, the money that is sitting in your bank account is being reallocated in different places. 00:14:56.799 --> 00:14:58.960 The next one is operating reserves. 00:14:59.120 --> 00:15:01.120 Well, this reserve is very important. 00:15:01.279 --> 00:15:09.759 It's like you asked me before, you know, how much money should you have in your reserves

to uh, you know, to be able to sleep at night. 00:15:09.919 --> 00:15:14.559 I said, well, definitely a month worth of operating expenses. 00:15:14.879 --> 00:15:16.080 That's a minimum willing. 00:15:16.240 --> 00:15:17.600 Yeah, that's what I think. 00:15:17.679 --> 00:15:22.080 Because if you run into trouble, you know that you're going to survive for the next month. 00:15:22.240 --> 00:15:22.960 Definitely. 00:15:23.200 --> 00:15:26.159 So your operating reserve is to keep the business running. 00:15:26.240 --> 00:15:32.879 That includes rent, subscriptions, insurance fix, overheads, and you know, for business continuity. 00:15:33.279 --> 00:15:35.759 So anything that keeps the business running. 00:15:36.000 --> 00:15:41.679 And if you are doing so well, you can have a growth reserve. 00:15:41.840 --> 00:15:46.000 And I really hope a lot of businesses have thought about this. 00:15:46.240 --> 00:15:47.279 How can I grow? 00:15:47.440 --> 00:15:51.519 So you can't grow unless you have cash to invest. 00:15:51.919 --> 00:15:55.440 It's just like how do I grow my property portfolio? 00:15:55.600 --> 00:16:02.080 Is you should really have cash and savings to put towards an investment, and that is the same concept. 00:16:02.240 --> 00:16:12.399 So it would be money put away for you know future recruitment, marketing, equipment, technology investments, and also training. 00:16:12.559 --> 00:16:15.679 And that will support the business expansion. 00:16:15.919 --> 00:16:19.759 And the last one is emergency reserve. 00:16:20.080 --> 00:16:34.080 So a lot of businesses don't have this, and it's a backup reserves for rainy day, for some if something happened, like the business downturn, etc., you want to be able to keep opening your doors. 00:16:34.320 --> 00:16:39.360 So this will this reserves will protect the business against unexpected events. 00:16:39.600 --> 00:16:41.759 So what could could that be? 00:16:41.919 --> 00:16:48.720 It would be economic downturns, equipment failure, major debtors, defaults, and unexpected expenses. 00:16:48.960 --> 00:16:54.799 Another thing that I want to encourage, you know, businesses to think about is key person insurance. 00:16:54.960 --> 00:17:03.120 Okay, so there are some businesses out there that have a key person, and without that key person, the business will fall. 00:17:03.360 --> 00:17:06.000 So look into key person insurance. 00:17:06.079 --> 00:17:07.440 It is tax deductible. 00:17:07.599 --> 00:17:11.920 And should something happen to that person, the business can still keep going. 00:17:12.160 --> 00:17:16.400 What is the mindset shift that most owners need to have? 00:17:16.640 --> 00:17:19.119 And what questions do you have around this? 00:17:19.440 --> 00:17:22.079 Yeah, so that's a good question, Lee. 00:17:22.240 --> 00:17:27.519 So most owners often ask how much money is in the bank account at the moment. 00:17:27.759 --> 00:17:35.359 But what question they should actually ask is how much of the money in the bank has already been allocated. 00:17:35.599 --> 00:17:45.599 And so that they look at cash in the bank differently and they're not spending unnecessarily on something else that they shouldn't they shouldn't be spending on. 00:17:45.920 --> 00:17:48.559 So what's some questions we should be asking ourselves? 00:17:48.880 --> 00:17:58.640 We we should really ask how much cash is currently is in my bank account, and then are they being allocated already? 00:17:58.880 --> 00:18:06.160 And after we've spoken about all these different reserves, most likely they have already been allocated. 00:18:06.319 --> 00:18:07.519 And what's left? 00:18:07.759 --> 00:18:09.920 Can I take the the balance? 00:18:10.319 --> 00:18:23.359 If you already have the cash allocated into different reserves and it's paid for, and the projected number is that you still have cash left, the answer is yes. 00:18:23.599 --> 00:18:25.920 So whatever's left, you can take. 00:18:26.240 --> 00:18:28.559 Well, that gives every dollar a job. 00:18:28.880 --> 00:18:31.920 Give us our final wrap-up of this program. 00:18:32.559 --> 00:19:05.279 Yeah, so the final wrap-up I want to leave with everyone or the listeners here is that you need to understand how cash works and the timing of the cash coming in, the timing of cash going out, very important in order to manage your cash flow and have your reserves worked out so that every dollar is being allocated and utilized, and then you can determine what is available at the end of the day. 00:19:05.680 --> 00:19:07.279 A wonderful episode. 00:19:12.400 --> 00:19:13.200 Thank you, Lee. 00:19:13.279 --> 00:19:14.799 See you next week.