15th April, 2013
Here is rule 5 for mastering wealth. Just as you cannot survive without blood flowing in your system all the time, cash is an essential force of life that must not be out of your system. Without money in your personal system, you cannot fulfill your destiny fully.
When more money flows into your system than it goes out ( positive cashflow), you are empowered to take advantage of many investment opportunities that come your way. That is the theme of the message this week from my mentor . Read his rule 5 thoughtfully and you be blessed. Guaranteed!
Cashflow Is King
I was at my billionaire mentor’s house by 6.30 p.m. He had just returned from a thanksgiving service in his church for an OFR just given to him by the Federal Government of Nigeria. Quite a number of friends were also around to savour the occasion with him. It was obvious he could not be pinned down to any extended chat. We mutually agreed that it would be okay if we could meet in his office the following Monday. I was in his office located on the last floor of a 14 story building he acquired about four years ago. From enquiries, I understand he has acquired almost all the surrounding buildings in the areas which he intends to convert fully serviced apartments with about 3,000 rooms.
I still could not pin him down to talk in his office but I had a very nice view of the goings on in his office. Between 9.00a.m and 10.a.m on Monday morning he calls in a clergy to conduct a morning devotion involving all his staff except people of different faiths who are permitted to stay away if they so wish.
From 10.00a.m in he addresses all his managers in the main office and this lasts for about one hour or more depending on the intensity of the issues to be discussed. He came out at intervals just to say hi to waiting guests. I was out of the building to conduct some official business transactions I had programmed for the same area but I was back much later in the day just on time to catch him on his way to board a boat home. We chatted on quite a number of issues but I was fascinated by his discourse on cashflow.
My mentor said: “The foundation of my business model is a robust cashflow. Without a cashflow you are really not in charge. With our cash flow we are almost indispensable to the banks. They cannot push us away. I just paid N1 billion to a bank to settle an outstanding debt. The bank was surprised. Many people make the mistake of thinking that accumulating asset alone make them wealthy. You must have a healthy cashflow in place. Without a cashflow you cannot take risks. Without a robust cashflow, you cannot take advantage of business opportunities. Without a good cashflow in place, you cannot push your business aggressively in the direction you desire. Our fuel stations play a major role in our cashflow system. With what flows from the stations to the banks daily, the banks cannot but take us seriously. When we ask for loans they grant the requests without much talk. Every business that really wants to be on top must decide on a cash flow strategy for that business”.
My mentor eventually got into a waiting boat and sped off to his house with six of his staff but I kept reflecting still on the discourse on the cashflow and reminded me of what my other millionaire friend told me not too long ago.
I had gone to pay a surprise visit to him with my wife. Our objective was just to show appreciation to him for making it to the launch of my new book, The Millionaires’ Capsules around that time, especially his decision to give a personal testimony publicly (a possibility we had earlier ruled out) about my mentoring relationship with him.
He met us in his expansive home office. By the way, my friend retired not too long ago from the company where he had worked his way to the millionaire status after about three decades of service.
He has launched into a new and exciting phase in his life. He is now going to be travelling around the world talking about his passion -Art Collection. He is in hot demands from major Western and European countries. Isn’t that a fascinating way to retire? It has also confirmed that you really don’t have to become your own boss to be wealthy: you only need to understand your temperament and follow fitting investment strategies. My friend started to invest in the Stock market right from his secondary school days, and began to collect arts over two decades ago.
Just to kick off our discussion, I asked him to estimate his worth and especially his art work. His reply was a surprise (shock, really) to me. My mentor said: “My dear Ayo, I am sure you would be surprised if I tell you that I am not even a millionaire. That means I am not a billionaire contrary to your perception.”
When I asked him to explain what he meant, he said: “A lot of people including you (myself) make a grave mistake in the way they calculate their worth or net worth. Let me assure you that if you aggregate all my artworks, gold and buildings, they are in billions of Naira. But that doesn’t make me a billionaire. My real billionaire status is determined by the cash available to me now that I can spend when commitments crop up.
“It could also be in what I can quickly convert to cash. My artworks are worth billions of Naira, but I can’t sell them now or immediately. A lot of people deceive themselves calling themselves millionaires and billionaires when they don’t have cash to spend when real needs come up. So, my friend what I am about to do in my retirement period is to work hard to become a real millionaire and billionaire if it works out well. You are still young. You would save yourself a lot of embarrassment if you can focus on building a robust cash flow while you still accumulate tangible asset.”
I thanked my mentor after discussing other things and I left. But what he said refused to fade away. It was a subject of reflection throughout the week that followed. My first encounter with the subject of cash flow was when I was the Managing Director of a national business newspaper still fresh from the field as professional reporter.
In the second year of our operations, the audited report indicated that we had made a profit of N15million. I was so excited that I organised an informal “Thank you” party (suya and pepper soup only!) for my key managers who made the “feat” happened.
The celebration was, however, cut short with what happened with my chairman then. When I reported that we made a profit of N15million, she also congratulated me but however, asked a simple question: “Can we issue a cheque in the tune of N5 million naira to pay dividend to shareholders? When I called the bank to know our balance, I was shocked to find out that there was no cash in our account. In fact, I was told that we were operating only on the overdraft facility extended to us by the bank. It did not occur to me that part (85 per cent) of the assumed N15 million profit were debts owed to us by big advertising agencies some of which could actually go bad (we might not be able to collect them). The rest belonged to newspaper agents who collected copies of our newspaper but refused to pay promptly.
That experience has forced me to focus less on paper profit and focus on cash that comes into the business and the one that flows out of business.
When you issue cheques to suppliers, pay staff salaries, pay tax to government and for equipment maintenance, cash flows out of your business. When you receive cash or cheque for products sold and services rendered to third parties, cash flows into your system. When more cash flows out than it flows in, you are said to have negative cash flow and when more money flows into your system than it goes out, you are said to have a positive cash flow.
The number one job of a Chief Executive Officer is to monitor the cash flow. If there is no money to run your business, your business may soon face bankruptcy even if your auditors say you profit is N100 million. The same thing is applicable to personal cash flow. What my mentor is saying is that while you put your mind on asset acquisition, make it a priority to build a robust cash flow that can make you to run your life and personal business. Who says cashflow is not king!
Catch you next week
Prosperously yours.
NUGGETS
• Sit down with your spouse to calculate how much money you would need, daily, weekly, monthly and yearly to take care of all your expenses.
• First project how you can build sustainable streams of income to support your life style.
• After that, put a plan in place to also build your asset base.
•But remember, cashflow is king.