S7E3: Cash Flow Made Simple: How to Find and Grow Your Savings

Disclaimer: The information shared in this episode is for educational and entertainment purposes only and should not be considered financial, legal, or accounting advice. Always consult with a qualified professional regarding your specific financial situation before making decisions.

If you’ve ever felt like your cash flow questions are “too basic” to ask, this episode is here to prove you wrong.

In this installment of the KISS series (Keep It Simple, Stupid), Pam Prior continues answering the real questions that most entrepreneurs struggle with but rarely voice. From understanding whether you truly have a cash flow problem, to navigating those moments when times feel uncertain, Pam gives you straightforward, actionable steps you can implement right away.

You’ll walk away with:

• A clearer picture of how to assess your cash flow situation
• Practical strategies for managing uncertainty
• The reassurance that you’re not alone—many entrepreneurs face the same questions you do

The KISS series is all about removing the confusion and stigma around business finances, and replacing it with clarity, confidence, and control. Listen in and then check out the other episodes in the series for more simple, no-nonsense answers.

Transcript

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Foreign. Hey, welcome back to Cash Flow Podcast. We are in what I thought was going to be episode three of the KISS series, Keeping It Simple Stupid, where I am answering the questions that almost every entrepreneur I know has in very simple, plain, clean English with steps and actions you can take to address those questions. So I've basically put together a list of what the most common questions are that I get, and we're answering them in these episodes in a way that can give you very easily actionable plans, especially when times are a little tough and a little weird and you're not kind of sure what's happening with your cash. So I encourage you to go back, look at episodes one and two. We answered some amazing questions about cash flow there, but more importantly, provided some really actionable steps you can take to address what may or may not be a cash flow problem. Or maybe some question you've always had in your head that you've maybe been embarrassed to ask because you think nobody would have this question if they're an entrepreneur. I can promise you a lot of entrepreneurs have the same questions you do, and that's what we're trying to handle here. So without going on any longer, I'm going to jump into the next question. I love this next one. This one is, is there a magic number for how much cash I should have? Okay. And this comes in a number of forms. You know, comes in, how much cash should I have to start a business? How much cash should I have if I want to grow my business? How much cash should I have if I just want to keep going in my business? And the answer is really the same regardless. And actually this applies, I get this question a lot from college kids if you just when they're getting ready to graduate as well. So if you've got a kid in college, this answer might be good for them. If they're getting ready, not even college, if they're coming out of a trade school, if they're going out into the work world in any way, shape or form, this can be really helpful for them. So bottom line is it's beautiful to say, oh, you should have a six month cash cushion. Great. How do I go about building a six month cash cushion? I have no money right now. I have student debt, I have credit card debt. I have, I'm still building my business, I have to pay my mortgage, I have to pay my rent. And I got a kid going, you know, going on, off to camp for the summer. So that answer kind of irritates me when I hear it. Oh, build A six month cushion. It comes out with, with a sort of arrogance about every entrepreneur does this, Every human does this. Well, I'm here to tell you that is not the case. In fact, I'll look up the statistics. But I can guarantee you that most people don't have that cushion in place. And they don't have it in place not because they're dumb or bad with money or should be judged. They don't have it in place because nobody told them how. How do I build a cushion like that? I'm in so much debt, I don't know how to climb out. So let's address a couple of very simple ways to get. To answer that, what is the magic number? Let's simply say, okay, the magic number is six months of expenses. Now what does that mean? The way I look at that is if for six months you couldn't work, you were disabled, or you the crisis in your family, or for whatever reason, all your clients quit and you had none and you had to rebuild. What six months of expenses means is if you had no income coming in, how much do you need to cover the expenses that don't go away? I call it the keeping the lights on expenses. So it's the bare bones stuff. It's, you know, I have to pay my rent, I have to pay my, or my mortgage, I have to pay my utilities, I have to pay my credit card bills so that I don't go, you know, get bad credit. Whatever that list is for you make that list what expenses don't go away even if I have no money coming in. And once you know what that number is, we want to multiply that by six. And there's that ideal target that everybody out there talks about. But what I'm saying is don't worry about getting there tomorrow. This, this is a goal. This six months of cash in the bank is a goal. And most people don't achieve it for a few years. So I want you to only take this one bite at a time. Know what that number is? Sure. I need, and let's just say that number to do what I need to do. It's$2,000 a month. So for six months worth, I need to build up a savings account of $12,000. But I have no extra cash right now to do anything. What I want you to do is go look at how you're spending your money right now. And I promise you that when you do that, you will find one thing that you can stop spending on or reduce your spend for, whether it's Your personal life or whether it's the business. Okay? That's one approach. The other approach is think about your prices and circle back here to. I think it was episode one where I talked about this, of this three series. I talked about how to increase what you charge your client and why that's okay to do and how and. And will still work for you. A lot of people think I can't raise my price, I won't get a client. But I want you to go back to episode one and you'll learn. Yes, you can. So there's thing number one, but find either a way. And I don't want you to cut expenses like I'm going to cut expenses that are like chipping away at my aorta, like I'm just going to be bleeding if I don't spend that money. I want you to find those, those expenses that I don't guarantee you are there, that you really don't need anymore. You're either not using them at all, you're underutilizing them, or they're really not relevant to your business. Okay? And if you look, you will find something and say you find $50 a month. Take that $50. And before you make any other decisions about your business, I want to hire somebody. I want to buy this new thing, take it, and put it in a savings account. That simple. So you've got $50 in that savings account. Now, guess what? You're starting to get at the beast here. And that's what I want you to do. I don't want you to focus on, my magic number is $1200 or $12,000. And oh my God, I'm never going to get there. I want you to focus on one thing a month or one thing a week that you can do to increase how much money you're putting in that reserve account, let's call it. If you do that, if you do it without, and this is kind of weird, but without even paying attention to how big that balance is growing, just put a little more in it each month from the things that are each week, from the things that you identify that you can either save money on or make more money from. Throw the money in there. Before you know it, that account will be there. Because here's what's happening. You're prioritizing that ahead of the next thing. The next thing being, I want to grow the business. I want to invest in a new toy. I want to hire somebody to help me take care of things. You're making a priority choice. And so when People say to you, how much money should you have? What's the magic number? And you come up with your magic number. You get to decide what priority that is to you, okay? That's why the shoulder needs to come out of this question, okay? It's not how much should I have as a magic number. It's what is my magic number? And how important is that in the line of different things that I'm spending money on? Look at it. It's a thing you're spending money on. You're spending money to build that reserve up. Is it more important than getting your next customer? Is it more important than getting somebody to help you, maybe get your life back because you're drowning in work? It might not be more important than that. So make that judgment for yourself. Don't let anybody else make you make that for you. Don't anybody tell you you should do that first. Above everything else, each one of us has a different risk tolerance. Each one of us has different access to money and funds. Each one of us is in different kinds of debt. So determine what that number is, and then you decide how to prioritize it. That's my advice on that one. Okay, now, I realized I skipped a question that I really kind of like back here. And it is. Let me find it, because I just saw it when I picked this one up. Okay, this question is, I hate numbers. How do I make this easier? That is such a common question for entrepreneurs. There are very few of us accounting geeks out here who love playing with the numbers. Lucky for you, you don't have to be one. Okay? We all have the basic math. We don't have to know calculus. We don't have to know things like forecasting or budgeting or percentages or any of those things that just make our skin crawl. You're probably good at them, fine at doing them, but you don't like doing them totally fine. You don't. Being good at numbers or liking math is very different from being good at and understanding your cash flow and your business money. Okay? How can I say that it's all numbers. It is, but it's the easy stuff. So let's. Let me. Let me give you an example of why I'm saying this. I could come here and say to you, yes, you need to forecast that 25% of your revenue is spent on marketing. If you hate math, you're going to hate that answer. What you can do instead is say, okay, how much money do I make? Easy answer, no math. There. You look at the number you put it on a piece of paper. Second question. How much money do I spend? Easy enough. You go look at a bank statement, you look online at your bank account. That's how much money I spend. What's the difference between those two numbers? That's how much money I keep. Okay? You don't have to be a mathematician, you don't have to love math to figure that out. What you have to have is a different kind of discipline, okay? It's a discipline that says, I really want to know that what I'm doing in this business is making me money, that the time and the effort and the energy that I'm putting in is bringing in more money than I'm sending out. And this is as easy as looking at your bank statement. Sure, you can hire bookkeepers. You can get much more advanced in this. But once you do that, you still don't have to be a mathematician to be able to understand your business. Because my challenge to you, if you have a bookkeeper, if you have an accountant, if you have a finance person, is to say to them, look, your job isn't just to churn out numbers for me. Your job is to make those numbers tell me the story about my business. So what I really want you to know is, what's the story that the numbers that you may or may not feel like understanding because you love or hate math, what's the story those numbers are telling me? And if you've got a bookkeeper, make it their job to tell you the story, not just hand you a sheet of numbers. In fact, I tell my clients often, or my prospects or anybody that I'm talking to, if you literally get a piece of paper handed to you by your bookkeeper every month, and it's an income statement or it's a balance sheet, and they say, hey, I've done your books. There it is. That's useless to you. Scrumple it up, throw it in the trash can, or whatever the equivalent of that is in the electronic world today. Drop it in the trash can on your computer, it's no good to you. The only way that bookkeeping is good to you is if it's telling the story of what your business is doing. And that when you hear that story, it matches with the story you have in your head about what your business is doing. Okay? I don't need you to be a mathematician. I need you to know what your business does. Your business makes money this way, your business spends money this way. Anybody handing you a piece of paper, that's your bookkeeper or your accountant should be able to explain to you in a way that matches exactly what you think is happening in your business or the way it's happening, whether or not it's doing what you think it's doing. Okay, so it's about the story. It's not about the math. It's kind of that simple. We have time for one more. Francis. We're done. Okay, that's a wrap for this week. But guess what? I have now from. Yeah, 16 more questions that we're going to get to. So we're not going to end this series quite yet on this third episode. We're going to extend it. I'm giving palpitations to my producers, but we're going to extend this because I think it's so important for everybody to know these questions are common. They're nothing to be embarrassed about. They're nothing that you should ever not ask because you don't want to know the answer. Because knowing the answer is always better than fearing what the tiger is behind the door. That I can promise you. So stick with us, catch our first two episodes of the Kiss series, and I look forward to bringing you a fourth episode next week.