Starting a Business Without THIS is a Bad Idea

So here’s the truth about business. And it’s one that a lot of the gurus like myself on social media, we don’t talk about nearly enough. It’s that it’s going to take a while for you to find traction and find success in meaningful cash flows and profits from your business. It’s not as though in a lot of cases, especially if you’re new, but even if you’re not. Like, even for myself, when I start a new business, it’s not like I started. And then day one, I’m like rolling in dough. It’s not like that. And for a lot of new entrepreneurs, it’s important that you go in with your eyes wide open and you understand what you need to be able to survive as long as possible.

Because a lot of people, they go into business and they think it’s going to start producing meaningful cash flow from day one. And then when it doesn’t, their cash flow reserves run up and then they have to go back to their w two. So the two things that you really need to focus on in the early days of starting your business is, one, coming into it with ample reserves. I think that’s really important. And when I say ample reserves, I’m talking far more than you probably think off the top of your head. And I say that because I did a video recently on YouTube and somebody commented, and it was the video about this theory of investing changed my life. And I laid out a unique theory of investing that I think a lot of people have never really stopped to consider. And it’s a way of thinking about money that is very foreign for most.

And his comment in there was, he’s like, you’re putting way too much money into savings, into reserves, and you’re leaving too much money on the table, effectively. What I said in that video was that you want to have about twelve months of capital set aside for your expenses in life and for any emergency funds. Twelve months is my minimum. In fact, I have a bit more than twelve months, but that’s neither here nor there. His point was that the common wisdom is that you really only need three months, maybe six at the most. And I disagree with that entirely. Mainly because the common wisdom, most people are poor. Most people aren’t living the life of their financial dreams, and so why would we be doing what everybody else is doing? Sure, the average American has less than three months in savings.

Does that mean that we want to do that too? No. Three months is simply not enough for savings. Period. Full stop for your personal finances, for your business, that’s hard, too. Now I get it. When you’re up and running and you have good working capital systems in place so that you have your money working very at a highly efficient level, that’s awesome. You can do that. But that usually takes time, systems and experience to know how to do that.

In the beginning, when you’re new, you don’t have any of that knowledge yet. And so the thing that you have to use to hedge against your ignorance is just having ample reserves. And so I’m a big fan of not going full in on your business until you have a healthy amount of reserves set aside. That’s, for me, minimum six months, up to a year. And that’s working capital. That’s cost of expenses and everything. And if you don’t have that, that’s fine. But just recognize the reason businesses go out of business is they run out of money.

So the more money that you have set aside before you go into business, the better off you’re going to be, right? Or the lower the capital costs are of running that business, the lower your overhead, then you can make fewer dollars go longer. Right. That my very first business, the window washing, we didn’t have a lot of overhead costs. And so to have a full year of reserves set aside wasn’t super hard, right? As your lifestyle creeps, as your overhead requirements, as your labor starts to creep up, these things become a lot more difficult. So that’s number one is having enough set aside in reserves. And what I recommend for a lot of people is before going full in on your business, if you’re already working a w two, start the business as a side hustle and start stacking cash in the corner and start building this business on the side so that it can start building that all important thing, which is cash flow. When we have good ample cash flow, then that’s the lifeblood of a healthy company and it can reduce the needs, the requirements that we have for reserves. I still like to have a lot of reserves, but when you have a lot of cash flow coming in every month, it lightens the load, mentally and physically, quite a lot.

The problem is when you’re new, it’s not as though you’re going to snap your fingers and have cash flow overnight. In a lot of cases, you’re outlaying a lot of cash to get your product, your service and everything up and running. And you don’t yet have customers because they don’t know you exist. And if you do, maybe you’re not quite yet charging exactly what you want. To be charging for the product. You’re trying to get traction, you’re trying to get reviews and testimonials, trying to get customers in the door. And so it’s not as though you can just snap a finger and have cash flow from day one. It’s something that takes time to build, which, again, is why I’m a big fan of starting these businesses as side hustles.

If you’re working at w two, use that to supplement and help the business get off the ground, because that’s going to be the hardest part. Now, I got a question about this on Instagram from, I can’t remember who it was. It was this lady out in Idaho I met when I was speaking at Julie Holly’s conscious investor summit. She runs an art gallery, if I remember correctly. And she was asking, how long does it take you to get to that cash flowing and profitable point? And that was a really good question. But the answer is, it depends. It depends on your business and your product, your service. Right? So my very first business, the window washing, that was cash flowing pretty much from day one because we only had a couple of supplies.

We were collecting cash right away, and so we didn’t have net 30 terms. We’re just doing residential washing. And so we were cash flowing pretty quickly. Accelerate or fast forward a couple of years when we were building escape climbing. This is a manufacturing environment where we are producing polyurethane rock climbing holds. We are importing hardware from China. So it would take six months before when we placed the order for the hardware for it to get across the ocean and for the shipping container to arrive at our facility. That’s six months of working capital just out the window.

We can’t actually sell that product quite yet. Right. So it’s a very different environment there where we were outlaying a ton of capex and a ton of inventory to be able to build this business. And then once we had that, then we were thriving in cash flow. But that took much, much longer in the same way with real estate. Real estate is a great example where I’ve been in the real estate game for over a decade now. But in each one of those cases, it took a long time for individual buildings to start generating meaningful cash flow. Now, I like to buy buildings that are immediately cash flowing from day one, which means there’s more profit than there is expenses.

But it’s not life changing sums of money initially. It takes a long time to continue building and growing and improving that business model for the profit to become a meaningful mover of your financial situation. So in all different situations, it just kind of matters. If you’re a service based business, if you’re an accounting offering accounting services, you’re a graphic designer offering graphic designing services, then you can start cash flowing pretty much from day one because you have practically no overhead except for your time, right? I love those businesses. I love those. Because you can start making money immediately with very little overhead. You don’t need fancy offices, you don’t need to hire labor, all that stuff. You can get the business going.

You can start building cash flow, start building your systems, start building your repository of customers, and then start layering in these other forms of leverage as you go. So I wanted to share that with you guys because I think a lot of people get into business thinking it’s going to be one way and then it’s not. And then they are caught with their pants down because they just came in woefully under capitalized, unprepared for the realities of how long this game will take. But it is a game worth playing because I said so. That’s going to do it for me, guys, I appreciate you being here. We’ll catch you in the next episode. But until then, stay hyper focused, my friends.