If This Simple Cash Flow Analysis Doesn’t Make Perfect Sense To You You’re Business Is In Serious Trouble!Part Two
As you previously discovered in part one of this series about the misinterpretation of essential cash flow and the typical analysis of a businesses real bottom line.
In far too many cases, both the employees and way too often (even) the managers, are often under the misguided perception that a small business owner and or service provider, is actually doing better than they really are!
Part two of this eye opening series, will (hopefully) shed even more light on this all too common misconception.
Sometimes The Cash Flow Of A Business Is Not Exactly What It Appears To Be!
For ex: take this next eye opening illustration.At least 90% or more non business owners (and sadly), typically at least 50% of the managers of a small business and or service, fail to grasp the following incredibly simple example.
Take a look. Suppose that your local banker pays 3% on it’s three year CD’s (Certificate of Deposits.) And let’s say that someone deposited (for the sake of example), $100,000 dollars in this CD for three years.
Which means, by law they can’t immediately withdraw all of their money, without suffering a penalty and forfeiting part or all of the interest payments they would otherwise be legally entitled to!
And let’s also presume they’ve just made you a short term loan of three years and they’re charging you the exact same three percent interest they’re paying their CD holder.
Your Marketing Funnel Gives You The Ability To Take Advantage Of What’s Not So Obvious To Others!
Hang in there entrepreneur, because this next point is extremely important! This is the entire ball of wax right here. If you ask the typical non business owner and or manager of the small business, what is the overall net effect of these two transactions.
They will assure you that (sadly) the bank only broke even, because of the net of the exact same amount of money (in this) case that would be the $100,000 dollars, and because of them charging and receiving the exact same amount of interest.
Which in this particular case, as you recall was, 3%. However, entrepreneur any savvy small business owner and or service provider or your banker knows.
There is absolutely no way the bank (nor any other lender) in this type of situation broke even! Huh?
Don’t Put Your Semi Cash Strapped Small Business And Or Service At Further Risk Simply Because You Don’t Currently Understand the Basics!
The sad fact is, all the bank (or lender) did was net even on the cost of loaning the money! They still have to account for the employees salaries and or commissions at some point, do they not? Presumably, these people don’t work for free, do they?
Then there’s the little matter of rent or their lease! And what about the marketing/advertising costs? Oh yea and their various taxes and or ongoing fess they constantly have to pay!
So you see entrepreneur, not only can’t (any) lender simply afford to loan money out at the exact same rate they currently pay their depositors!
They have to get several times more interest, or not only will they not break even! They’ll whined up (eventually) going broke! Because guess what else they have to factoring in? A certain percentage of those loans will be defaulted on!
A Basic Understanding Of Various Types Of Cash Flow Analysis Is Simply A Must!
So once again, if this simple cash flow analysis doesn’t make perfect sense to you! Entrepreneur you’re probably headed towards bankruptcy! Don’t you agree?
Please list at least two simple spin off concepts (in the comments section below) that you can apply to your business, product or service in the next 30 days or less!
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