Financial Mistake #9 - Not Maximizing Cash Extraction
This is the 9th Mistake in the "13 Financial Blunders Newly Successful Internet Entrepreneurs Almost ALWAYS Make" series.
9) Not Maximizing Cash Extraction From Your Business
The #1 financial objective of your business should be cash extraction.
Cash extraction means having the ability to move cash out of your business and into your personal life. What you then do with that cash makes up Mistake 10 and 11!
The First Problem:
Your business generates a lot of gross revenue, but there is very little net profit left over.
(Gross revenue is the amount your customers pay you for a product or service, net profit is how much of that money you get to keep after paying for expenses such as advertising, affiliate commissions, overhead, etc.)
The First Solution:
Do an audit for 3 months and see where money is coming in from, and where it is going out to. What are the profit margins? Are you doing things that look good, but result in little or no profitability?
What you find will be shocking, regardless of how well you think you know your business. From products that may actually be losing you money to the amount of money you spend on different things.
In fact excess business spending is a big problem, because it's easier to justify spending when it's "for the business."
Now, moving forward, before making a business purchase, ask yourself, "What is my plan for using this, and will I realistically do that?"
The Second Problem:
The opposite is also true.
Taking out too much cash and crippling the business.
This can get to the point where you are using this month's revenue to pay for last month's expenses.
As a result, there's no cash buffer for emergencies or to allow to to take advantage of opportunities that come your way like buying a website that's a great compliment to your business.
The Second Solution:
Have a certain amount of cash you keep in the business for emergencies. There should at least be enough for 3 to 6 months of expenses. Ideally, there will be enough set aside to cover your average total expenses, but it needs to at least cover your fixed/overhead expenses.
Also do a monthly "budget" where you know how much in expenses you generated in a month (such as commissions to be paid to affiliates, fulfillment costs, etc.) that you have to pay the next month, and set aside that money as the month goes along.
Now that you are successfully extracting cash, find out what NOT to do with it…coming up in Mistake #10!
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