Cash is King! And I will show you guys why.
But first of all why is this topic important?
So when I went to university, I’m a dropout by the way, I went there with one goal, to understand the value of money. Here is what I have personally and my observation from running a 10+ person business and spending most of my time learning about scaling a business, digital marketing and so on.
Let us being.
My first point, you can have control over cash flow by doing marketing which basically customer acquisition, scaling your business, raising marketing, hiring more people, and you end up with some money coming in your company which is actually your cash flow. You can have control over your cash flow. You can have your customers pay you before you do the job, you can ask them to pay you a portion of that money, that way you can have some control over your cash flow. But can you have full control over it ? Let me ask you that.
In 1971 what happened was pretty remarkable. Nickson took the dollar of the gold standard. Before that each dollar represented some gold. After that the dollars became just printed money, virtual money, actually became just dept. So cash was really king, but after that there was a new king, right. Because of the fact that having cash held a lot opportunities and had very strong wealth building function just having cold heart cash. After the dollar had taken off the gold standard it had terrible crashes, suffered inflation and volatility.
****(2:12)You understand cash flow, we got to understand cash flow.
I really like Robert Kiyosaki’s definition, he is the writer of that famous book “****” it is the easiest explanation of them all. To understand cash flow you got to understand what is liability and what Is an asset. So a liability is when money comes out of your pocket and it’s an asset when money are coming into your pocket.
I will do a little test now. I will ask you and you will answer in the comments.
Is it an asset or a liability. A household that you own that you rent out to tenants. Asset or liability ?
Well you should consider 2 things. First and for most appreciation in a housing market and second of all rental income.
Check this graphic for the US situational home index for the last 40 years. It’s going up despite the crashes. So if you guessed asset you guessed right.
There are some arguments regarding against or for owning your own home being an asset or a liability, when you think about the fact that money is coming out of your pocket every month, and the fact that you will always need a place to live, therefore even if you sell your property, you will still need to buy a place to live. Some real estate investor gurus say you shouldn’t even calculate it in your net worth
So now that you understand what asset and liability is you also understand that liability is opposite of cash flow.
So to understand why cashflow is king we got to reverse engineer this and see where the 1%, the rich guys put their money. Many of the big hedge funds, or any other funds, for example Berkshire Hathaway have a portfolio in insurance companies. Why ? because you get cashflow, you get your premium paid, before an accident happens, therefore you have cash to invest, so first you have money coming in, and then this money comes in way before you need to spend any of it, making it able to be invested while being gross profit, and after that when it’s dividents paid out.
Not to mention that by utilizing cashflow you can actually save on taxes. All business owners know that the number 1 expense you have is actually taxes. Companies use their cashflow to buy assets, real estate, reinvest back etc, to cut down on taxes because taxes are the number 1 expense to all businesses.
What happens if cash is king ? And cash is the worst king possible because in order to have cash you need to have paid taxes for it.
Cash is taxed, if you have money in the bank, paid dividents, sold a property, earning low interest, you have to paid taxes on it and now you are suffering
inflation, good or bad economy
What can you do to create cash flow ?
The first way is real estate. If you buy properties with a mortgage that you get rented out to tenants and you get the appreciation value.
The second way is actually building a business that will create cash flow.
And the third one is buying cash flow positive businesses. And if you want to start with that you might want to start out by buying an online business because those goes from 5 to 10 months of profit, in this time you will get your money back.
And it’s good if you have from 10-200k, you might want to start off by buying an online business, shopify store, Amazon fba, Amazon affiliate site.
You can also buy businesses where as a bigger brand with employees behind it can range from 2 to over 5 years profit.
Remember, this is no financial advice, but I have few tips. When you are buying a business or invest, do it in things that you actually understand, don’t rely on others.
Regarding that I also want to give a very important tip. Cash flow gives you leverage in your business. If you have a business partner and you have no control on the cash flow and he says invest in that invest in this, you have no control and no leverage. The one who controls the cash flow has the whole power to the business.
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