About 2 weeks ago, I produced my Monthly Blog Income Report. I mentioned that even if I had a month with over $5,700 in income, I was still cash flow negative in my business. How the hell was I able to throw $6K out the window of a business that doesn’t even have a proper office?
Several readers became less enthusiastic about my income report once they knew that I am spending about 6K per month on it. Therefore, even when I generate $8,000 in a month, they consider that I only clear 2K… which is split in 2 with my silent partner. But the reality is a little bit more complex than this and I think it’s important that I explain why I am not too worried about being cash flow negative with my business.
#1 I’m spending money that I have already earned
I guess this is one of the biggest points: it’s okay to be cash flow negative for a few months if you have already accumulated this money previously during the year. For example, I had months of $10,000 and $12,000 earlier this year. Since the cost of running my online business is pretty steady on a monthly basis, I have accumulated $10,000 in profits with only these 2 months. Last month, I was cash flow negative by about $500. So it’s not a big deal overall.
When you run any kind of business and even when you look at your personal balance sheet; it’s not the end of the world to be cash flow negative if you have already earned this money in another month. For example, if you review the month where you are going on a 2 week cruise; you will definitely be cash flow negative. But as long as you know why and that you have budgeted your vacation, there is nothing to worry about!
#2 I’m spending to grow
I have discussed this in the past but I think it is very important that I bring it back to the table this morning: we could be putting more money in our pockets but have decided to invest in several projects instead:
and bigger websites that will be discussed later on.
If you look at my company as you would look at a stock, you should look at it as a fast growing company that is cash flow negative because it prefers to invest in its growth instead of reaping the benefits already. I’m glad I can make 6K-7K or even 10K on good months but I want to make more. Once we reach over 10K as an average, we will probably start to pay out and reward ourselves for non-stop efforts since 2008.
#3 know what you are doing
The problem is not with being cash flow negative when you are down during a period of time. The problem is when you don’t know why or that you become stuck in a high cost structure. If you have a fixed and non-flexible cost structure, being cash flow negative is a real issue. However, if you are spending most of your extra money on specific projects that you can put on hold at anytime you want, you shouldn’t be worried.
I don’t see my current company spending as pure expenses but more like intangible investments. I know it will take time before I recover my investment and start making some money but I know it’s worth it. Once a website explodes and start making money, it can only grow!
For example, I could probably sell What is a Dividend for near $2,000 considering its traffic and monthly income (which is near $100/month). If I only sell this site, it would pay for all the costs involved in the niche website creation so far. However, if I keep it and let it grow, I’m sure I’ll be averaging $500/month with this site within the next 2 years. If I can have similar successes with 2-3 other projects, I will have succeeded in creating important sources of passive income.
Are you willing to go cash flow negative for a project?
Going cash flow negative is just a prudent way to use leverage. Instead of borrowing a lot of money in one shot and start building assets with more capital, you slowly use your earned money or borrow at a slow rate to bring your monthly balance sheet back to even. With this method, it allows you to shoulder less stress and easily manage your projects as they don’t grow too big in a single month.
I’m wondering how you grow your business or personal balance sheets? Are you using only the money in your bank account? Are you leveraging? Are you going to accept a cash flow negative statement once in a while for the sake of growth?
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