When the 2008 crash hit, I owned several businesses with many employees and a great deal of overhead.
At some point, I started journaling lessons I was learning from the market crash.
My hope was to learn from everything so I wouldn’t make the same business and investing mistakes again.
In other words, I didn’t want to waste my failure.
Well,
I recently dug out these journals and thought I’d share some of the
lessons extracted back then. The reason I’m doing this right now is
because there’s never been a better time to start a new business.
The most important lesson I learned was to set the “right” goals. Your goals dictate your actions.
The right goals lead to the right actions.
The wrong goals (obviously) lead to the wrong actions.
To illustrate this, I’ve included my business goals from 2005 – before the crash:
These goals were on the first page of my day planner. Yes, I used to carry around one of those oversized day planners!
This was the first thing I saw every time I opened it.
Oddly enough, when I sold my brokerage in 2007, these were our numbers. We were averaging 30 home sales each month.
Turns out that we actually do get what we focus on the most!
My focus (goal) was to increase our home sales. Every business decision I made supported this focus (goal).
This
goal led me to invest tens of thousands of dollars into lead-generation
advertisements. To support this large lead flow, I had to hire more
full-time staff. A larger staff led to a larger office. A larger office
led to 40 cubicles, expensive phone systems, copiers, and more.
Without realizing it, my focus on sales volume led to too much risk.
I
had bet the farm on an appreciating real estate market and ended up
losing this massive gamble. It’s hard for me to admit, but I never
prepared for the possibility of a real estate market crash.
Real estate always goes up, right?
The crash taught me to focus exclusively on cashflow. This focus changes how you think and forces you to make better business and investment decisions.
Had my main business goal before the crash been to create $20,000 of monthly cashflow, would I have had to run so many lead-generation advertisements? No.
Would I have to hire so many full-time employees? No.
Would I have had to have a large office space? No.
Would I have to have 40 cubicles? No.
I could have easily achieved my cashflow goal with a lot less risk!
On one of my journal pages, I happened to find an outline of what I referred to as a “positive cashflow” business.
Here’s what I listed…
1. No long-term contracts.
2. Complete flexibility.
3. Limited or no overhead.
4. No debt.
5. No salaried employees.
6. Location independence.
7. Simplicity rules over complexity.
8. Large cash reserves.
9. Offset every business expense with recurring cashflow.
10. The business should be engineered around lifestyle, not sales growth.
These are rules that I still follow today, 12 years later.
Unfortunately, these rules are NOT easy to follow because they force you to pass on the majority of business opportunities.
You
can’t start a bar. You can’t start a restaurant. You can’t start a
retail store. You can’t start a traditional real estate brokerage. You
can’t open up an office. You can’t…(the list is long).
We
follow these rules because they help us make better decisions. We
follow these rules because they protect us from challenging economic
times. We follow these rules because they’re engineered around your time and how you want to live your life.
Most
small business owners are trapped in their businesses. They’re trapped
in their businesses because they’ve unknowingly violated one (or more)
of these positive cashflow business rules.
Maybe
they have a business with set hours, and they must be available during
those set hours. Or they have employees and end up dealing with the
constant pressure of making payroll.
I
can tell you from first-hand experience that small business owners who
violate these 10 rules don’t sleep very well. The only successful way to
escape one of these small businesses is to sell the business, which
becomes impossible during challenging economic times – like the one
we’re facing right now.
Yes,
this is an extremely conservative approach. Yes, you’re forced to pass
on many great opportunities. However, you’ll be very thankful when the
shit hits the fan.
If you
own a business and you’ve violated any of these rules, you MUST build
larger cash reserves. Bill Gates always maintained enough cash at
Microsoft to cover all of the business’s expenses for an entire year
without generating a penny in revenue.
At
the end of 2019, Microsoft had over 130 billion in cash. Bill Gates is
best friends with Warren Buffett. Guess how much cash Berkshire Hathaway
had at the end of 2019? 125 billion.
Most small businesses can only cover around six weeks of expenses because they have limited cash reserves.
This pandemic will end up bankrupting many of these small businesses. 🙁
Please
understand that I was in this situation myself back in 2008. The
overhead on one commercial property where my office was located was
around 8,000 a month. The rental income from this property had dwindled
down to just 2,000 a month, leaving a 6,000 monthly negative cashflow.
I
decided to just pay the price I needed to pay to get out of the
self-imposed prison I had created. I defaulted on longterm contracts and
negotiated short sales. I set all of my full time employees up in their
own businesses and eliminated payroll. I closed several businesses,
upsetting many people. I terminated partnerships and dealt with every
situation the best I possibly could.
It wasn’t easy.
When it was all over, I was free.
The market crash gave me the opportunity to start over with a lot more experience, knowledge and wisdom.
All of which I’ve been sharing in my Cashflownaire Membership!
I also found the following in those older journals:
1. Only start businesses that you can run from home.
This will eliminate 90% of all business overhead. You can probably even
run this business with a free Google Voice phone number, which is what I
do.
2. Only purchase business equipment that will pay for itself within 3 months or less.
This may mean renting equipment on a case by case basis, or buying used
equipment at lower price points. Over the years, I’ve purchased used
computers, phones, and more. Today you can start to build an amazing
business with a laptop computer.
3. Go through your bank statements and study every expense your business incurs. For every expense, create recurring income to offset the expense. In other words, strategically offset each and very expense your business incurs.
You can obviously ignore what I’ve shared with you in this email thinking I have no idea what I’m talking about. That’s your call.
Just remember Mike Tyson’s words of wisdom: “Everyone has a plan until they get punched in the mouth.”
Not very many people plan for the punch and the pain that follows. 🙁
What I’ve shared with you in this email may help you prepare for an unexpected punch!
