By Jason dela rosa, CEO Insights Asia
One of the major reasons why our businesses fail is because we do not intentionally segregate the sources of cash we generate. We have the tendency to build multiple sources of cash flows but end up draining our energy, money or worse, our time, because we prioritize opportunities based on how big the profit will be or how exciting they are, instead of strategically pacing and timing our revenue generating activities. The practical thing to do is to separate your income into three categories: Cows, Fruits and Mountains.
Cows as your cash flow animal. This is where you get your “milk” to keep your business running. Focus first on these revenues that bring in a healthy cash flow whether it is active (requires direct effort or money) such as a secure job and freelance work or passive (does not require direct effort) such as one time projects/deals, subscription revenues, dividend-paying investment, royalty income, and rental income. This will ensure the life of your business and should be your first focus in terms of building your revenues. If you have limited resources, you have to pour it into your cash cow activities. At this stage, you have to, at your own pace, strategically bring your cows from the active ones to the passive ones in order for you to unlock your time (which is your most expensive resource), to work on your fruits.
Fruits are low hanging and mid-term wins that can eventually turn into passive cows or used to gain more capital. These are projects or ideas that are near completion, but would still require you to put in additional resources, or push for you to accomplish it. Fruits, once completed, may turn into a bigger cash cow – such as a new house which you can rent out, or a book that you write once and sell multiple times through a website. Fruits are your 2nd priority if you don’t have a cash cow. You focus on this if your immediate cash flow is healthy.
Mountains are long term wins used to gain capital. They are in sight but will take much more resources to climb. Usually these are projects or activities which have not been started, or you still can’t afford to make it happen. These can be one time projects or deals that bring in windfall profit, giving additional capital or cash profit for your business. If you focus too much on your mountains without your cows or your fruits, you might end up spending your time, exhausted, without building a good cash flow, or worse, borrow money to cover expenses just so you can accomplish it. Mountains bring in the big win for you and the company but only focus on these if you have your cows generating cash passively, and your fruits giving you quicker gains.
This is a simplistic way of looking at your revenue, but the mental picture allows you to decide your pace in creating multiple sources of income especially with your limited time. Do you currently have cows to sustain you? Are you too excited about your fruits that you are forgetting to set up your passive cows? Are you aimlessly running after a mountain but no cash is coming in to sustain you while you work on it? Take a good look at your current revenue sources, and make sure they are in proper order or priority so that you will be able to endure any challenges and stress that may come, and have enough time for recreation and your life. Remember that a business is only as stable as its cash flow.