There is a river called the mighty Hudson River, and it is calm. But that’s a lie because it is a fjord (half fresh and half salt water).
Water flows in both directions depending upon the time. And it appears calm although it is moving most of the times.
Let’s try to learn about a movement of another kind – cash.
But first, remember that you need to understand the cash flow if you interact with money in any way.
Thanks to capitalism from ages, money is everywhere. And everything has value in relation to money.
But it isn’t a measure of your value. The world’s richest person means they have more money than anyone else, and that’s all it means.
If you set out to make money and you fail – then it doesn’t mean you are a terrible person. You just were unable to make money.
But if you set out to make a difference, then the money isn’t the point.
Money always flows. If you put it in the right place, then it increases in its value. And if you put it in the wrong place, then it’s value decreases.
So even the money in your mattress is moving – it is decreasing in value.
The entire economy is based on the movement of money.
Understanding Cash Flow
If you are selling a product to big supermarket and you are getting to paid after two months, then you will not have cash for two months.
And if your supplier has to be paid two months before the product arrives, then you will not have the cash invested back for at least four months.
So you might get a profit, but your cash flow went in the wrong direction.
Another way to look at this: if you are Amazon then there are chances that in 5 days the product is sold and the inventory is filled again.
But the companies who put their product on Amazon they get paid only after 30 days.
Which means the more Amazon grew, their cash flow grew too which is interest-free money from suppliers.
Why Cash Flow Matters
Because if you are doing a project and you end up with zero, then you are out of the game.
Unless there is a bank to loan you money and they might charge you high-interest rate which might be all your profit. But companies do this so they can have enough cash flow to get the product going.
One thing to do is to organize your work, so you have positive cash flow.
For example, bootstrappers find customers who are in tremendous need, so they pay up upfront. For example, you buy a ticket for airlines for five months in advance.
So you need to approach clients who have a significant problem that pays up in advance.
Let’s say you are selling lemonade, so you price it to $2.50 because you got it made for $2.
But that’s not true – if you add up all the costs before making that sale, then you need to charge at least $8 to stay in business. This is different than some greedy profit maker.
You need to pay bills every month even if you didn’t make the sale consistently. So you need to account for that, so you stay in business. Not accounting for that means, you as a small business will fail.
Yes, you can scale and then profit from volume game. But it is unlikely you will become the next Starbucks.
So the alternative is to find clients who have burning pain, so they pay upfront and charge them a fair and good margin price, so you keep doing your projects.
Also, there is an inventory cost you need to pay for all the stuff you made in advance. And every day it doesn’t sell you need to pay for it.
One thing is to clear it off for discount, but then it will create a problem to sell later for a fair price.
But taking a lesson from the fashion industry – they clear out the stock. And use the cash to create the next fashion thing.
Four Types Of Services
Based on the Boston Consulting Group, all services can be classified as follows:
Stars: If something is growing and giving you money. Good on you if you get one.
Cash Cows: It doesn’t grow but gives good cash flow. Use them to pay your bills. And invest in problem children.
Problem Children: Anything that can grow but needs money. Use your cash cows to invest in here.
Dogs: Low cash flow, and they aren’t growing, shut down them.
Either you are managing money or money is managing you.
Banks are all over the place to give you credit cards so you can get money in advance.
And if you fail to pay in time, then there is a charge of 20 to 30 percent interest rates. No wonder the banks make billions.
Here is a pointer to use debt.
If you are investing in something that goes high in value compared to debt costing you then go for it. Maybe higher education or anything crucial to your business.
Also, don’t borrow money for anything that goes less in value. So don’t get a car loan.
If you calculate how much you save within interest over the years, then it would be upwards of $1000.
It is you who need to be disciplined to save for things to buy which you desire. So you break the cycle with the bank.
Advice For Artist Doing Projects
When you are starting, you can decide to cut back as much as you can and not to borrow. This will create positive cash flow for your business.
So when a right opportunity comes, then you can invest it in, and if necessary you may take debt.
It’s Not Personal
Money management is a game. So when money is involved, you are playing a game. And it’s not personal.
As soon as you tie it with your value, then you will lose the game.
Because if you are checking your bank balance for your value, then others will push you down. The alternative is to play the game as it is.
And use the means to create something because you are capable of making an impact.
- How does Moore’s law apply to writer/blogger?
Moore’s law and its principle apply to everything. Earlier, there were only physical book printing with many limitations. But because of technology advancement, it was natural that publishing will become easy and it will be cheap. And it did.
But the quality degraded. So you as a writer, need to give something more than words on paper because now everyone can write.
Similarly, in other jobs. Say in plumbing the tool to check on pipes have gone down by a Margin of 90 percent. So everyone has that device which is connected and cheaper.
So you need to upgrade yourself, and that’s how everything will follow.
That’s why there are Akimbo workshops now – that’s a leap forward because video conferencing is getting better, and community is scarce.
- Since limited resources are on Earth so how to keep innovating?
As computers evolved- in the short run, they consume more power. But in the long run – they keep getting efficient. Example, LED lights or computers organizing supply chains efficient.
Or something like irrigation of plants. There is tough work ahead, but more efficient is waiting for us.
- Having a kid of 10, as a culture thing, we give her smartphone. But is that an equivalent Of giving her pack of cigarettes – what to do?
As a parent, you need to encourage kids not to fit in.
You need to ask yourself what is the goal of your parenting.
Generally, giving your kids smartphones later than at least two years than others help them grow in other areas.
Ultimately you need to decide do you decide to fit in or you let her feel okay not to fit in.