Everybody knows that cash flow is the lifeblood to any business. But many businesses have chronic and cyclical cash flow issues that inhibit their ability to grow. In fact, 80 to 90% of businesses have most of their wealth tied up within their business.
Within a small business, there are two main factors that could cause these chronic and cyclical cash flow issues. Number one is reinvesting all of your profits back into your business. When you do this, you have little to no access to cash because you’re constantly trying to grow and expand your business, which makes sense because that directly impacts your income. And number two is paying off debt as quickly as possible.
A lot of times business owners are in a race to get out of debt, and so they have a ton of money going every single month, to entities outside of their control. But what happens with this is when they need money again they haven’t built any up for themselves, so they’re forced to go back and borrow the next time something comes up.
That’s why we always say it’s not what you buy, it’s how you pay for it that matters. And when you look at purchases through the lens of you being in control of your money and your cash flow, your decision becomes much, much more clear.
You see, what they don’t tell us is that every single purchase we make is financed, whether we pay cash and give up interest or finance and pay interest. You’re either going to pay up or give up. There are no other choices. This is exactly why it’s so important to be strategic with how you’re using your money.
You see, when it comes to golfing, it’s easy. There are only two ways you can improve. You could either buy the best clubs and hope that you have the best golf game ever, or you could practice and work on your swing. We work on the swing in the sense that we focus on the process and how you’re using your money instead of where your money is parked. And that is the difference between us and other advisors. Most other advisors are looking to manage your assets, while we are focused on showing you strategies to increase your cash flow by working on how you’re using your money.
And when it comes to business owners, a lot of times, like we said, their assets are tied up in their business, so it can feel difficult for them to get financial advice on how to maximize their assets and grow their business because their financial advisors are simply there to manage the money. Another thing we see with business owners is that they get their financial advice from their accountants. They have a good relationship with their accountants. They’re there every year. Maybe they have their books done by the accountants, but with accountants they’re looking through the lens of, how can I save my client taxes this year?
Let me give you an example. Your accountant approaches you and says, “Hey, you had a really good year last year, but you’re going to owe the IRS $100,000. However, if you take that $100,000 and put it into a retirement account, it’ll reduce your taxes by $40,000.”
Well, that sounds great. You certainly would rather pay 60,000 in taxes instead of 100,000 in taxes. But what they don’t tell you or what you don’t maybe realize is that you have to take the whole hundred thousand invest it in a retirement account. So now you don’t have use or control of that 100,000. Now you got to come up with another 60,000 on top of that in order to pay the IRS. Are you in a much better position or are you in a more illiquid position as a result of that advice?
This is why we always look at things through the lens of control. Sure, there are tax benefits associated with the methods that we use, but when we look at things through the lens of control, is this going to leave you in more control of your cash flow or a less control of your cash flow? Are you going to have access to this money in the near future or are you going to have to wait 15, 20, 30 years to access that money penalty free? Everything becomes much more clear.
It’s our goal to help as many people as possible to make the best financial decisions possible. We do that by looking at things through the lens of how can we help you be in more control of your money? You see, when you’re in control of your money and your cash flow, you’re in a much better position to address your short term, intermediate and long term goals and objectives, whether it’s from a business perspective or on a personal basis. Our mentor, Nelson Nash, used to say when you have access to money, opportunities will find you.
If you’d like to learn more about how to put these strategies to work for you and your business, be sure to visit our website at Tier1Capital.com and schedule your free strategy session today. We’d love to chat with you, or if you’d like to learn about how we put this process to work for business owners, check out our free guide for business owners right on our website.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.