How To Maximize Your Profits In Minimum Time – Dan Lok
How much money has your financial and business mistakes cost you throughout your career?
How much money have you left on the table because you didn’t know how to fix the problem or grow your business?
The number one most critical business and investing skill is the MASTERY of reading, understanding and using financial statements.
At this workshop, Dan will teach you how to use financial statements to make informed, intelligent and strategic business and investment decisions.
Without this skill, you are relying on hope, luck, emotions and instinct, which will never produce consistent financial results.
The numbers tell a story – you can’t make great decisions if you don’t know what they’re saying.
#1 – Think Strategically
- Most entrepreneurs are tactical. You need to be strategic.
- How much time do you spend being tactical instead of strategic?
- This is why you are struggling
- Be strategic as an entrepreneur, delegate the tactics
- You have to understand the topic before you can delegate, so you know if it’s good and can offer suggestions.
- The buck stops with you. Nobody cares about your business more than you.
Strategic Thinking VS Tactical Thinking
- STRATEGY is done above the shoulders
- TACTICS are done below the shoulders
What’s The Difference Between Strategy And Tactics?
- A strategy is a bunch of tactics that work together to help achieve a common goal
- A strategy is a plan that overcomes an obstacle.
- Our job as an entrepreneur is to understand the obstacles.
- Strategy takes time to evaluate
#2 Financial Literacy is the KEY to lifelong financial success.
“Sustainability always comes from knowing what you’re doing and measuring your progress.”
You have to know what you are doing and measure your progress. You can’t improve something you don’t measure.
Lokism: The goal is not to get rich but to stay rich.
- Our problem is not that we don’t have enough opportunities to make money. Our problem is that we have too many opportunities to lose it.
- It’s more difficult to stay successful than it is to become successful.
- You can lose money so much faster than it took to earn it.
- But the skills you learn along the way you get to keep.
- Don’t get too cocky. Before going into a new opportunity. Think about how much money you can afford to lose. Can you live with the downside?
- Always look at the down side risk.
- Risk is an entrepreneur’s greatest asset and Achilles heel.
- Don’t do deals with people you don’t know. Stick to your circle of influence. Ask tough questions.
- Accounting is NOT the Scoreboard. Accounting is the Report Card.
3 Dials to Understand
1. Balance Sheet (Snapshot)
- It’s a snapshot in time, it always has a single specific date.
- A balance sheet shows what a company owns and what it owes.
- How much money is tied up in cash, or receivables or inventory or equipment.
Income Statement (Theory)
- Sales – cost of goods = gross profit – expenses = profit
- Income statements can be very helpful, but they can also be very dangerous.
- The number at the bottom of an income statement is NOT cash and cannot be spent.
- This is NOT how much money you’re making. Don’t make business decisions from an income statement.
- For a business to have $50,000 in profits and have no cash
- For a business to have $50,000 of losses and $100,000 of cash?
Running your business out of a checkbook or Tax Returns or looking only at Net Profit are very poor ways to run a business or determine the financial health of the business.
Cash Flow Statement (Fact)
- Cash is real money. It’s money that hits your bank account.
- Cash is what you use to pay your bills, employees, and rent.
- Cash is what use to repay lenders and provide shareholders (LIKE YOU) with returns.
- Re-negotiate terms on receivables
- Rich people get paid before they do the work
- Poor people get paid after
- Recurring revenue is awesome
- Get 50% deposit and 30 days later pay the rest
- or every month pay a __ %
- You train your clients how to treat you.
How to get your clients to pay you on these terms?
- The way I always work is______
- All my clients do ______
- Ask and you shall receive.
NOT ALL CASH IS CREATED EQUAL!!!
- Operating Cash Flow (OCF)
- Cash generated or used by the operations of the business
- Investing Cash Flow (ICF)
- Cash generated (or used) in buying/selling fixed assets (Property, Plants, & Equipments)
- Financing Cash Flow (FCF)
- Cash generated (or used) from lenders or investors
Calculating Financing Cash Flow
- Investing Cash Flow Needs (ICF) – Operating Cash Flow Generated (OCF) = Financing Cash Flow (FCF)
Calculating FREE Cash Flow
- Operating Cash Flow (OCF) – Investing Cash Flow (ICF) = FREE Cash Flow!!!
Operating Cash Flow Tests
- Is Operating Cash Flow Positive? If not, you have a problem!
- Is Operating Cash Flow Greater than Profits? If not, receivables, inventory or payables might be a problem.
- Is Operating Cash Flow growing faster than profits? If not, you are becoming less and less “productive”.
- “You can operate a long time without a profit, but you cannot survive a week without cash.”
Lokism: Ignorance is NOT a bliss.
- Facts don’t cease to exist just because you ignore them.
- Business go out of business because they run out of cash.
- If you can’t make payroll you are done.
- Review cash flow statement at least every quarter
The #1 KEY to long-term business success is to avoid…
- Bad Assumptions
#3 THINK TIME
- Business is an intellectual sport.
- Write down a question
- Come up with as many answers as you can
- Thinking is the hardest work there is
How often should you think?
- 10 – 20 min a day
- 1x week
- Pick an amount of time and stick to it.
There is a reason why they call it “Think and grow rich”
Do what you love and the money will follow?
- It’s like saying:
- “Eat what you love and be skinny”
- “Sleep with whomever you want and have a great marriage.
- “Just because you believe in something, it doesn’t make it true.”
3 Most Powerful Questions You Can Ask Yourself.
- “What could go wrong?”
- “What don’t I know?”
- “What don’t I see?”
Smart people have good answers. Genius have good questions.
“What assumptions am I making, that I’m not aware I am making, that gives me what I see?”
#4 You must get owner compensation right to know what your true pretax profit is
- Most entrepreneurs misunderstand the relationship between their salary and the return on what they own.
- You get paid a salary for what you do and you get a return on what you own.
- Most entrepreneurs think they are overpaying themselves, but at least 90 percent are underpaying themselves.
- “If you got run by a bus today and your family decided they would keep the business going in your absence, what would they have to pay someone to do your job?”
- A business is like a cow. Until you pay yourself a market-based wage – and make a profit on top of that – you have a sick cow on your hands.
- Don’t focus so hard on not paying taxes. Focus instead on increasing your profits.
#5 Master The Wealth Cycle
- Assets >> Sales >> Profits >> Cash Flow
- There is one primary reason for a business to have assets: to produce and service revenues.
- It means you need to be very effective at acquiring assets that maximize and service revenue, then be very efficient at converting those revenues into profits, and finally be very productive at converting profits into cash flow.
- As entrepreneurs, we want to have as few assets as possible producing the maximum amount of revenue.
#6 Bigger Isn’t Always Better
- Bigger Isn’t Always Better
- The goal is NOT to get big. The goal is to create sustainable success.
- “How much richer would you be if you still had every customer who ever tried you?”
- Revenue is for show, and profit is for dough.
“I would rather own a 2 million a year business making 15% than a 5 million a year business making 5 percent.”
#7 No Overhead Growth
- Think of every dollar you spend as money you’re investing in your business and all investments produce a return.
- “The reason most business owners pimp their office, car, or computer is because they let their emotions and ego dictate their expenditures.”
- Look at expenses really carefully.
- Optimize before you grow.
- Don’t be stupid with your money.
- Look at all the things you spend money on.
- Cut out all unnecessary expenses.
- Ask yourself:
- “Is that $3,000 pimped out Mac Computer going to produce more revenue? Does it help you reduce your costs or drive profits? Is it going to produce a greater ROI than a Dell?”
- Fancy offices, hot cars, lots of staff, and high overhead are NOT the definition of success.
- Spending money to LOOK LIKE a big deal is NOT the same as BEING a big deal.
“How you run your business during the good times is a great indicator of how well you will survive the bad times.”
Business A decides their strategy is increase their revenues from $100 to $125.
Business B has a different strategy. Business B takes a hard look at ALL the expenses of the business.
- Do I need this or
- Do I want this?
- What do I need it for?
The fastest path to profit maximization is reducing the drag of expenses, NOT building a bigger sales engine or pushing the growth expenses.
ALWAYS pick the low-hanging fruit.
Dan’s Primary Maximization Strategies:
- “How do we grow top-line revenues and maintain or reduce our expenses?”
- Optimize BEFORE you Grow.
#8 Meet with an accounting professional and review your financials EVERY MONTH!
If your accountant can’t explain your financial statements to you, you have a problem.
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