Most of the successful entrepreneurs I coach run their cash flow like this:
- Fixed costs first – Building, utilities, maintenance and upkeep.
- Staffing second – Competitive pay, usually benefits, sometimes bonus plans, rarely deep engagement. Some with more effort here than others.
- Marketing third – Client acquisition is mandatory. The methods, means, effort and metrics vary widely and the results show.
- Profit last – Whatever’s left, Lord I hope there’s something left, comes home. Usually this is pretty good, but there are plenty of shaky times too.
Recently I studied with one of the fastest growing, most elite financial advisory firms in the country. And they flipped that model on its head.
Their cash flow model (very simplified) looked like this:
- Profit first – They were determined to take home 40% of gross cash flow. It’s why they built this business and top priority. If that was going to happen without fail, this was essential to be the first step.
- Marketing second. In their world, this number is 20%. Client acquisition was a massive priority and needed to be treated as such. That means multiple marketing funnels running efficiently and simultaneously. It also ensured a healthy enough marketing budget to scale alongside them and facilitate growth.
- Staffing third. This was another approximate 20%. Looking at this element, you clearly saw how they planned to deeply engage with current clients, carry out their marketing vision and build an incredible culture – filled with competitive pay, benefits, intentional engagement and culture building activities.
- Fixed costs last. This represented the last 20% and rightfully so. A few variables change year to year, but not much. There’s a reason this area is called fixed costs. While you should never make people uncomfortable or give them an undesirable work environment (that sabotages the other parts of this pyramid), if a copy machine can wait to be upgraded, your staff can find a better deal on WiFi or the cleaning crew comes by once a week instead of twice, that should happen – as to not sacrifice the other priorities in the pyramid.
Pay yourself, find clients, take care of staff, lock in fixed costs. In that order.
Sounds simple, but will you adopt it?