Minnesota Real Estate Investors

Compound Effect and Cash Flow

When it comes to business, cash isn’t everything, cash flow or income streams are very important.

For example you can start selling on ebay, and invest $10,000 into buying products and inventory and then list your 500 items that you purchased, and then find out you sell between $10 and $20 of products a day, and now you are going to be stuck with inventory for a very long time and your cash investment is now tied up in slow moving products.

You could try to sell them at cost later on, but they may still take awhile to sell.

This is why you want cash flow.  This is why you want to take on less risk, own less inventory, and have more things drop shipped or fulfillment done through maybe a amazon.

You want to reduce the risk and leverage your time, and your money, but not at a big risk or have your hands tied.

Here is another example: You get paid every 2 weeks from Amazon, and you are bidding on traffic and you run out of money after 7 days and don’t have money for bidding the last 7 days.

In that case you should bid much less to run your money down slower because now you didn’t get any opportunity for traffic for 7 of the 14 days and the first 7 days you ended up bidding far more than you had to eating into your profit margins.

Another example is invoices you receive months later , 30, 60, or 90 days out are just that much longer to reinvest into your company to get a quick cash on cash return.

Minnesota Real Estate Investors

Compound Effect Cash on Cash Return

When everything is growing, scaling and compounding nicely with your business, you will have a quick turn around time with your money and reinvest it quickly and this will allow your company to grow very fast.

You never want to have too much money tied up in inventory and advertising costs on credit cards for example and waiting on payment from a vendor.

For example you can have your credit card balance high with advertising fees, be owed thousands of dollars from Ebay or Amazon, and then also be sitting on $5000 in unsold inventory.

On the one hand you could have $10,000 in receivables, but no money in your pocket, and the business just stops at that moment until more money comes in, and if you have to wait 2 weeks from Amazon to get more money, then you may be able to get more on a credit card with a higher limit, but it’s up to you how much you want to put at risk in receivables.

You must keep your products moving, and keep multiplying your money to have a compounding effect.

Minnesota Real Estate Investors

Compound Effect Scaling Company

When you want to scale your company vs. just growing it, you will want the income to go as close to straight up as possible while the expenses barely go up.

Many businesses, especially those with employees, offices and a lot of inventory have their expenses go up almost in direct proportion to their income, so they are taking liability and risk with them.

To really compound you want to keep your assets compounding whether that’s leads, CRM, following up with relationships, or closing sales, you want to make sure the leads, conversions, and recurring income and retention keep improving every single day.  Have efficient systems and this will increase your probability of cash flow.

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