You’ve likely heard it in recent chatter. Perhaps you even heard it today. I am talking about the word collapse.
Amidst the buzz of a changing market is heard a variety of similar words. Any way you look at it, what we’re really discussing is changing market conditions.
When people become concerned about changing market conditions, one of the things they are most concerned about is the security of their cash flow; or their cash runway.
I typically like to ask a few questions of anyone who’s concerned about changing market conditions.
If you had $10 Billion (with a b) in the bank, would you be worried about what’s happening in the market? Would you be worried about the current state of your business?
And of course, the answer to the question would be no.
If you had $1 Million (with a m) in the bank, would you be more worried or less worried about the market as you would be if you had $10 Billion in the bank? Would you be more or less worried about the state of your business?
The obvious answer is more on both accounts.
Excluding investments and other accounts, if you just looked at your pure cash in the bank right now, would you really be all that worried about the market?
If the answer is still no, great!
If the answer is yes, the rest of this article may be of interest to you.
How To Avoid Running Out of Runway
Many business owners have their eyes fixed on the rearview. They operate, even at high levels, with their heads down only to look up suddenly and find their businesses off pace, and not hitting the numbers they saw in the previous year. Most will have little idea exactly how it happened.
On the flip side, if you run your business looking ahead at the next 6, 12, even 18 months of projected revenue, you’re more likely to have a pretty good idea of how much runway you actually have. You probably even know how much additional revenue you need to generate in order to keep your business going for more than 12 months.
Forecasting your revenue and tracking your business expenses, both fixed and variable, will allow you to gain clarity on future business decisions. It will also allow you to reflect on how you’d like to see your business grow.
Middleton Elite Coaching real estate and business coach Sean Goerss recently said that if you don’t know these key numbers, you either feel really good about what’s going on, or you feel really bad. We couldn’t agree more.
We recommend actively tracking your sources of predictable cash flow. For investors, this could be the net-positive cash flow of your rental properties. For the real estate sales business, another source of (mostly) predictable cash flow is pending transactions.
In the sales business scenario, your cash runway would be the cash you have in the bank plus any projected income from pending transactions. If you track these sources for the next month and subtract your monthly business expenses, you can project into the future enough to see the point at which you will run out of cash. You will know just how long you have to secure more business and close all of your pending transactions. To be even more accurate in your projections, you might even account for the fall-out of some of your pending business. For example, if 10% of your pending transactions fell off last month, you can project with some degree of accuracy that you are currently closing 90% of your pending business. With the ability to see how many months you have out in front of you, you can create a solid plan for the future of your business.
This may not be a revolutionary concept, however, we invite you to use it in order to gain some perspective. Do you have a goal? Do you have an actual number for how much revenue you need to generate in order to lay some more ground for your cash runway? How much runway do you need in order to not feel stressed? How much runway do you need to make the next big investment in your business, like hiring a key person or taking on a big new project?
Cash Flow Accountability
Accountability is something we work diligently on with our coaching clients. The team leaders we coach work through tracking their cash runway with us and typically know their numbers; having the cash flow goals for their team set.
At Middleton Elite Coaching, we use a very powerful business tracking tool to help our clients take a closer look at leading and lagging indicators.
Leading indicators are all of the pre-signed business in your pipeline and the business that will be in your pipeline.
Lagging indicators are the business you have closed and any business you will close by a certain point in time. These are indicators measuring your business after the fact, such as active buyers, active listings, pending transactions, and closed transactions.
For the independent agent:
How do you, as an independent agent, hold yourself accountable to your goals?
For the team leader:
How do you, as a team leader, hold your team members accountable to your goals? Are their lead follow-up efforts resulting in an increase in leading indicators? Is there enough emotional attachment to the goal you have set for your team?
Middleton Elite Coaching co-founder and head coach Debbie Lariviere says that if a team member is not on track to hit their units goal for the year but is doing okay financially, they will likely lack emotional attachment to their goal and could even be accepting of their failure to reach that goal.
Working with your team to show them how cash flow and cash runway are projected for the team will allow you to add some accountability for your team members.
Regardless of changing market conditions, your view on cash flow should always be to project, collect, and protect. Determine what you need to earn, how you will do it, and what you will continue to do to ensure the cash keeps flowing in.
As for that word collapse…
Balanced. Normalizing. Equalizing. These are the levels that home prices are returning to. The housing market is correcting. The housing market is balancing. That is not a collapse.
Bill, Debbie, & The MEC Team