I want to share with you five things. If you get these five things right, then your business will pay dividends to you every single time. The second is keeping your fixed costs as low as possible.
Here is the second thing you must do to have a cash-flow positive business.
2. Keep your fixed costs as low as possible.
I started a training company in Tokyo. We made money on every single program that we did if we sold three seats. Is that good? If three people showed up, then we made money.
This is how we did it. Our office was in my old apartment. So our entire rental payment was $2,000 a month.
I told people that they could use it any way they wanted as long as they continued to fit in the same office. I said, “You are not going to get a bigger office; this is your office.” You have $2,000 a month for rent and that’s a fixed cost.
Everybody in the company was involved in what activity? Selling! They were all paid on full commission; so if they didn’t sell anything, they didn’t get paid.
So what is the most money I could lose in a month? $2,000. Is this comforting? It was very comforting.
We wouldn’t let them buy a copy machine. Then we would have been paying the lease on the copy machine, and we would have a fixed cost instead of a variable cost. Whenever they needed to make a copy, they had to go to 7-Eleven to use the copy machine there and put in the ten yen coins. It was great because they realized if they had to go to 7-Eleven then the copy wasn’t that important; we made fewer copies, so we had less total cost as well.
We wouldn’t let them buy a business phone because then we would have another lease we would have to pay. They had to use their own cell phones and charge us for the amount of cell phone time they actually used; that is not a fixed cost but a variable cost.
Since our fixed cost was $2,000 and our seminar seats were $1,000 a seat, if we sold three seats, we made money.
Be fanatical. Be absolutely fanatical about holding the fixed cost down. It is so easy to create an obligation that is going to be recurring to you every month. Be fanatical. Think two, three, or four times before getting the cell phone or the copy machine for the office or the employee.
You want to have as few employees as you can. All the employees are fixed costs. You have fixed costs that have a tendency to go up. Healthcare goes up, and insurance goes up; even security goes up. Everything goes up.
What we do at our company is outsource everything we can. Today you can outsource almost anything.
For example: We are writing books right now. At the end of every session that we are teaching here, the file is sent to the other side of the world to an outsource supplier who transcribes it. It is then sent to an outsource supplier who proofreads it, then sent to another outsource supplier who edits it, then sent to an outsource supplier who designs the cover, then sent to another outsource supplier who does the layout; and we have a book!
We have how many employees doing all that? NONE.
We are not employers.
You are looking at three people going after a billion-dollar goal who have no employees!
We think that everybody should outsource to everybody. Everybody should be in business. It is a brand-new concept that we have engendered, and we know it is going to work.
Four Questions You Should Ask About Private Equity – Question 2
There are four key questions we should ask when a friend asks us to invest in their new business. The second question is – Have you ever done it before?
Four Questions You Should Ask About Private Equity – Question 1
There are four key questions we should ask when a friend asks us to invest in their new business. The first question is – When do I get my money back?
A Cash-Flow Positive Business of Your Own – Must Do #3
I want to share with you five things. If you get these five things right, then your business will pay dividends to you every single time. The third is keeping your ratio of direct costs to indirect costs very high.
