You've finally made it! Your consulting firm is earning 6- or 7-figures! Welcome to the good life, right?
Not so fast!
You see, you can earn 6- or 7-figures and still not have enough cash flow to cover your expenses and grow your firm.
Although it seems as if your firm is thriving, looks can be deceiving.
Therefore today, we will look at the seven rules you MUST follow to ensure that the revenue you're earning also results in more cash flow and profits.
When it comes to maintaining a positive cash flow in business, you want to master managing what you have, no matter how large or small, so that you excel when you begin to earn more.
You see, earning 6- or 7-figures can either be exciting or a nightmare.
And your goal as a consulting firm owner is to have more money and more profits, NOT more money, and more problems.
It's nothing like earning 7-figures but often feeling as if money is few and far between.
Another money goal is for you to earn 7-figures and maintain 6-figure cash flow!
As a virtual CFO, I help my clients understand everything about their numbers and money so that they eliminate all money worries FOREVER!
The money troubles often begin when a consulting firm owner only focuses on earning more revenue. But what you must do instead is master all three money levels, which are revenue, cash flow, and profits.
When you master all three money levels in business, you begin to experience the ultimate financial freedom.
To help you begin to master all three money levels, let's jump into the seven must-follow rules that will enable you to have more cash flow and profits.
Always Know Your Cash Balance
Cash is your business's superpower. Therefore knowing your cash balance at all times is absolutely critical. If you are making decisions based on emotions or inaccurate financials, that is a recipe for failure.
Also, your cash balance, bank balance, and net profit are three different numbers. Your cash balance is the more important one of them all.
Don't Manage Your Business Based On Your Bank Balance.
Your cash balance and your bank balance are often never the same number. If your books are accurate, your cash balance will include outstanding invoices, checks that have yet to be cashed, upcoming payroll liabilities, and more. Your bank balance will only show you what you have as of the date you are viewing it.
Your bank balance is to be reconciled, and your cash balance is something you manage daily.
Keep your business and personal finances separate.
If you are mixing your business and personal finances, not only are you removing your barrier of protection if you are an LLC or S Corporation, but you're also operating under financial uncertainties.
Mixing business and personal significantly decreases the clarity you need regarding your business's performance. You want to properly pay yourself as the CEO and factor this number into your overall cash flow projection.
Your firm should be able to pay you a CEO salary, cover all of its additional expenses and generate a profit.
Build A 4 to 6-month cash reserve
Having an excess of cash will eliminate the fear of the next pandemic or slow season. The ultimate step to financial freedom and peace of mind is to build a cash reserve for your business.
I recommend having at least four to six-month of operating capital saved in a separate bank account.
When you build a cash reserve, you strengthen your business's finances for today and the future.
Spot Money Problems Early
Listen, cash flow problems don't just happen in business. There are several warning signs!
As a consulting firm owner, you or your virtual CFO should be reviewing your cash position, if not daily or weekly, at least monthly.
Don't allow your firm to be counted in the number of businesses that fail because you did not spot the cash flow problem in time.
Always ask yourself – what do I expect my cash balance to be three months from now?
This leads me to must-follow rule number six…
Forecast Your Cash Position
When you forecast your cash position, you eliminate financial surprises. Having a cash flow projection is the key to making wise and informed business growth decisions.
A cash flow forecast will keep you in the know of your firm's cash position tomorrow, 3-months even 6-months from today. An accurate forecast will enable you to spot pitfalls and money leaks before they occur and fix them before they become detrimental to your firm.
Find Someone That Will Own the Financial Part Of Your Firm
You want to find someone that will take the full responsibility of mastering your finances while guiding and holding you accountable.
You must understand that building a million-dollar firm that maintains 6-figure cash flow takes planning, monitoring, and strategic thinking.
In addition, you want to partner with someone who will identify your top five KPIs, industry benchmarks, develop a customized money plan, and help you leverage your numbers to scale your firm.
In closing, the main reason you should implement the seven must-follow rules to have more cash flow and profits is that they will free you of worry, doubt, and fear about the longevity of your firm.
Tracking and improving your cash flow enables you to manage your business and make strategic business growth decisions proactively.
Of course, if you need assistance with implementing these rules and developing a money plan for your business, apply for a discovery session with my firm today by clicking the link in the description.