On Wednesday, I got to attend a local Entrepreneur Organization Accelerator training day.
Entrepreneur Organization (EO) is a global entrepreneur network that helps small business owners to grow through networking and peer to peer learning.
Participants need to have a minimum revenue requirement to join EO.
My business isn’t there yet. ?
That’s also the reason why I attended the training day, which is offered to small businesses that are growing rapidly but haven’t made it to the official EO requirement.
The topic of the day is “cash”.
How do you generate enough cash to maintain the business?
If you are under the impression that I’m already the accountant, what more training would I need to manage cash? You would be wrong.
Accountants, like lawyers, are all trained more or less the same way in school.
We know about how to prepare a cash flow statement, we also wrote some test on it.
We were never really trained on how to manage cash on our own.
As it turns out, managing cash is not a second nature in most accountants, including myself.
You can only learn better if you get to teach. So after a couple of days digesting the material, here’re a few lessons I learned:
1. Improving cash flow is not as simple as calling people up to ask for the money
In my small accountant’s brain, improving cash flow is simply calling your customers up and asking for payments.
Maybe it also includes dragging your debtors out, not paying them until they ask you for money?
That’s really as much as cash flow training I had from my school years.
It turns out those two are not the only cash flow management options available, they are just two of the many.
You can shorten the amount of time to make a sale and make sure that production is smooth and it is delivered on time.
In the real estate investing world, this can mean that once you get notified by your tenants that they’re moving out, you immediately post an ad to advertise for the vacant unit in 2 months.
You will also arrange the cleaners to go in the day the old tenants move out so that your new tenants can move in the next day.
This may also mean you do preauthorized debit to withdraw money from the tenants’ bank accounts. You may have to pay a small number of bank charges, but your tenants don’t have to remember to send you the money transfer every month.
2. You eat an elephant one bite at a time
In the program, it teaches you the Power of One.
If you want to increase your cash balance, you can do so by increasing the prices by 1%, increase the transaction volume by 1% and reduce your expenses by 1%.
These small improvements may seem insignificant to implement, but they can result in a whopping 19% change increase in your bottom line!
If you have a small business, try reducing your expenses by 1% (most people can lower their expenses by 1%).
If you are a real estate investor, lowering your expenses may mean speaking to your bank to lower your interest rate. This may mean shopping around insurance company to make sure you are paying the least amount while having the same type of coverage.
At the end of the day, everything line item matters.
But only one bite at a time. ?
3. Improving cash flow and value of your business = improving quality of income
As we all know, not all revenue is created equal.
Some revenue is harder to earn, while some aren’t as hard.
Some revenue is better revenue – which typically is represented by long-term contracts, auto-renewal subscription, etc.
In the real estate investing world, this may mean better quality of tenants, and maybe even value add that you can add to your property.
For example, we have one house that we currently use it as Airbnb. It’s a single-detached home located in the mountain.
To operate it as a single-family rental, we will be breaking even in terms of cash flow.
But this property has two separate driveway and it is located on a corner lot.
The second driveway has a standalone garage that we currently rent out. We can also add in a modular home (sometime in the future) to increase the cash flow of the property.
By increasing the usable space, I am increasing the revenue and hence the cash position of my business. ?
These are what we learned from the one-day training.
Since I have embarked on the journey of managing my cash flow, I have also started adopting the envelope system that I learned from the book Profit First.
A discussion about cash flow would not have been completed without talking about the system that I use. You can always refer back to this article to learn about it.
If you have no cash flow problem, good for you. Most entrepreneurs do. If you don’t know where to invest, consider coming to our Nov 9 Wealth Hacker Conference to learn how to make money when you sleep.
If you simply want to earn more cash, you can also learn a thing or two at this conference to help you generate immediate cash flow!
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant