Business Basics: Why Cashflow Is Crucial, And How To Manage It Properly In Troubling Times

Brian: This is the six figure home studio podcast, episode 140.

[00:00:19] Welcome back to another episode of the six figure home studio podcast. I am your host Brian Hood, and I'm here with my bald. Beautiful, amazing purple shirted. Cohost Christopher, Jay Graham, Chris, how are you doing today? My friend.

[00:00:32] Chris: I'm doing great, buddy. How are you doing?

[00:00:34] Brian: Doing good man. Mainly because as of two days ago, file pass has finally moved to a no credit card required free trial.

[00:00:43] Chris: Uh, that's cool.

[00:00:45] Brian: Yeah, so we can finally like people that would normally bail when you get to a free trial and they're like, enter your credit card to start your free trial. Those people that bail can now go back to file pass and sign up for an actual free trial. So this is my short pitch. I'm going to get moved and this is why I'm in a good mood, but short pitch go to  dot com right now, sign up for free trial, by the way, even if you don't plan to use file pass right now, and you just want to play around with it.

[00:01:06] Use like a side email address or a fake email address or whatever, just create an account, start playing around with it. You know, what to expect once you're ready to start using file pass. I do that all the time. Like when I was trying out pipe drive CRM or using it to show examples, I would just sign up for fake accounts on there and play around with it and decide if I liked it or not for when I was ready to actually use it.

[00:01:25] So that's my call to action. Go to file. Pass doc. I'm back to a hundred percent, by the way, with COVID I talked about on last week's episode. Or the podcasts, but I'm like finally back to a hundred percent and have been released by the health department. So this is old news for people who listen to last week's episode.

[00:01:38] But since you weren't here last week, I'll share it with you. So now, you know,

[00:01:42] Chris: Congratulations on getting over the plague.

[00:01:45] Brian: the play, can I get like an I survived? COVID Naga was the stupid t-shirt

[00:01:49] Chris: That's actually a pretty good idea. Oh man. I don't know too many people that have it. You're one of the only people.

[00:01:55] Brian: Several of my friends have gotten it at this point. And several people have thought they've gotten it tested negative more and more people around me are getting it. Nashville's starting to kind of increase. We're not as bad as like Atlanta and Miami Houston, some of the hotspot cities, but we're closing in on 10,000 cases here.

[00:02:11] We're getting close. I think I may be wrong. There were seven or 8,000 cases here in Nashville.

[00:02:15] Chris: Huh intense. Well, I have had an interesting week. My dude, Kyle Whitaker, the works with me, prescreen, mastering

[00:02:22] Brian: I just calm K Kiewit.

[00:02:24] Chris: Kiewit Kiewit, and I have a released version 2.0.

[00:02:29] Brian: What's that entail? Cause you texted it to me. And I was like, cool, dude, whatever. I don't really care. So like pitch me so that our listeners aren't responding like cool, dude, I don't really freaking care.

[00:02:38] Chris: All right. So you want to bounce a bunch of files, bounce Butler, 2.0 is intelligent enough to retry a bounce. If pro tools fails it did it, but now it does multiple times. And it's way, way more consistent. As you know, as a pro tools user, there are many different ways that pro tools can bite the dust.

[00:02:57] Brian: Yeah, and that can vary by version as well.

[00:03:00] Chris: absolutely.

[00:03:01] So it's way better that you can drag and drop files into bounce Butler. And it's got like a list window now, and let's say you're like, I'm gonna bounce a bunch of these files. And I'm really nervous that they're not finishing. And I need to go to dinner in a I'll just text, bounce Butler and say, Hey, bounce Butler progress, report, and bounce about there'll be like, I have just bounced session.

[00:03:18] 17 of 42.

[00:03:20] Brian: So for those people that are control freaks and have to know every single thing, I'm the kind of guy I'm like, I don't want to know. Just like texting me. You're done you idiot. And that's the way I talked to automated intelligence things. Oh, can that. AI stands for automated intelligence. I like that.

[00:03:34] Chris: It could mean several things. If you switched around, it could also mean augmented intelligence. It doesn't, but I wish it did because that's the type of intelligence I'm into. This is, so this is a worst banter we've ever had. We've only promoted our stuff so far.

[00:03:46] Brian: Well, let's get into today's topic.

[00:03:48] Chris: Yeah, let's do it.

[00:03:48] Brian: That was probably our worst pre show conversation we've ever had on the podcast.

[00:03:53] Chris: I would agree. This is the absolute bottom of the barrel.

[00:03:55] Brian: And you know what, maybe I'll record it myself and I'll just pitch my product and not yours at all. Cause I do the final edits and you never listened. So I could get away with that if I wanted to.

[00:04:03] Chris: This is true. We'll strive for a better banter in the future folks.

[00:04:06] Brian: Yeah. Today's episode is going to be about a topic that we've somehow again, skipped for 140 episodes. I feel like there's always a topic that we've avoided for way too long. And this topic is cashflow. So. Before we get into this. What is cashflow Chris? Just so people understand what cashflow is. It's something that people have heard that term, but they may not understand it.

[00:04:26] I hesitate ask you cause you take like 30 minutes to answer or something that I could take one sentence to do, but I'm going to let you attempt it. Go for it.

[00:04:32] Chris: So when you're running a business, let me back up. Let me back up

[00:04:36] Brian: You didn't, you had one sense. What is there to back up

[00:04:39] Chris: I did it on purpose. I didn't. Okay. So if your business is going to go under the number one reason your business will go under is cashflow problems. And what that basically means is that your income and your expenses were not sinked up properly.

[00:04:54] It meant that you had too much expenses too quickly and not enough income quickly enough. There are so many ways that this can get messed up.

[00:05:03] Brian: Or I'm going to stop you right there. Cash flow is the number leftover at the end of the month. When you take your income and you subtract your expenses, that money that's left over is cashflow. Now you can say the other things you were saying.

[00:05:17] Chris: That's a better example. So I had a friend of mine that ran a very, very successful printing company and he had a cashflow issue because he had a huge, huge printing job. And we'll get more into the nitty gritty of the businessy terms that happened here, but he hadn't been paid yet and he's waiting in it spend like a hundred days and he's counting on this check.

[00:05:36] And I think they had bought some more equipment. They had had some expenses and the check just wasn't shown up, but they had to have that check or else they weren't going to make rent. And there was a cashflow issue. They had an invoice style business or was like, I will do work. And then you will pay me for that work after the end of that work.

[00:05:55] And if that gets messed up and I become too dependent on one project or one client or delivery by a certain date, things can get really, really messy. One of the most difficult expenses that you can have is next week here in the United States. It's your taxes.

[00:06:11] Brian: Tax day. Yay. Actually, by the time this episode comes out, I think it will have been tax day. Is that true? No tomorrow's tax day when this episode airs.

[00:06:22] Chris: Yes. So go do that. If you're in the U S

[00:06:24] Brian: Yep. I'll have a significant amount of money removed from my account tomorrow.

[00:06:28] Chris: yeah. While you're listening to this, I will be working on my last minute stuff.

[00:06:32] Brian: Yeah. So let me back up and say why this is so important. And there's a few things that you said in there of why that's so important. Cashflow is this interesting thing, because you can be wealthy and you can have a very, like a wildly successful business and be cash poor. If you've ever heard the term cash poor.

[00:06:47] That's just somebody who's having cashflow issues. I might have a lot of wealth. I mean, they have real estate or they have, is this assets they've invested into infrastructure. They have a team staff, all these things and things that we don't really know, you have to ever worry about as a recording studio, because typically we have at most an assistant or somebody like one other person working in the studio, maybe a few of our listeners has like larger operations, but generally we don't have a lot of these things, but you can have all these things and stuff.

[00:07:11] They'll be broke month to month because your overhead is higher than your income. So let's talk about why this is so important. Well, part of it is because of it being taxis. And right now this is a topic that's more universal than just tax season, because tax is only relevant to us citizens here because tax season's different from everywhere.

[00:07:29] But the other thing is because of COVID hitting right now, this has destroyed a lot of people's cashflow canceled projects, people putting off projects to later. So this has really hurt a lot of our listeners cashflow. So I think this is an important topic because there's two ways. To set yourself up for stability as a business or a business owner.

[00:07:47] One of those ways is by having an emergency fund, we talk about this all the time in the podcast. This is something I live by. I have plenty of money in the bank for times that get tough because I want to be set up that when an unexpected, unprecedented in, happens in my business or in the world at large something, I have no control over.

[00:08:05] I still have money to live off of no matter what. Most people didn't do that. And we can't just say, Oh, I have an emergency fund now, now that you need it, it's not something that's gonna materialize out of thin air. So think you should have done six months, 12 months ago. But what you can do is influence your business, change things up in so that your cashflow is more stable now.

[00:08:22] And that's the second way you can have a happy, healthy business is by maintaining efficient, proper cash, positive business. And we're going to talk about that today. Some ways to. Maybe increase or stabilize your income and then some ways to reduce, or at least defer some expenses. So that month to month you're cashflow positive.

[00:08:42] And if you're cashflow positive, you're likely not going to go out of business. It's when you have a string of negative cashflow months is when you hit bankruptcy. And that's why so many businesses right now are going out of business. They have zero cash flow. They have no money coming in. They have.

[00:08:57] Billions of dollars in debt. And so they're having to file bankruptcy. Some of them will make it through bankruptcy, bankruptcy, by the way, does not mean you're at business for good is a misconception, but some businesses will make it to the other side. They will restructure their debts. They'll find some new plan, they'll get an investor or whatever, and some businesses.

[00:09:12] That will be the last you see of them, whatever's left over, will be purchased by some bigger company who actually has better cashflow and a better business model. So that is my long preamble to this episode is really making sure people understand why cashflow is important and how it affects your business.

[00:09:26] And some of this will be very basic, but it's still really good reminders. Like even me doing this episode myself just reminds me that there's a lot of things that we're going to go over today that I'm not necessarily doing right now. And so I'm hoping this episode is still valuable to anyone, whether or not you have good cashflow in your business.

[00:09:41] Chris: Hmm, love it. Yeah. So this is a kind of a scary topic, you know, you have. People that they start a business, it's their passion. They're doing their thing. They just want to do this thing that they love for living. They just want to take care of their employees and they don't anticipate global pandemic or, you know, fill in the blank.

[00:10:00] Like there's a lot of things that can get really messy there.

[00:10:04] Brian: So let's talk about the first part of cashflow here in that is increasing our stabilizing income. And before we get into this, I want to say, this is the part that most people right now in the studio audio world are probably struggling with us, especially cause the COVID. And this is the part you have the least control over.

[00:10:19] Right now. So take what we're going to say here with a grain of salt, but it's still something we have to cover. If you're gonna have an episode about cashflow, we need to talk about increasing or stabilizing your income. So, Chris, anything, before we get into this that you want to mention about the stabilizing, your increasing income.

[00:10:32] Chris: Yeah. So as a mastering engineer, this is a very challenging bit of my business of one of my businesses. And the reason for that is sales cycle. And you got to understand for somebody that's hiring me to master a record. In order to do that, they have to have written a song hired, probably a producer or produce themselves recorded it.

[00:10:53] Liked it that's the hard one, had it mixed and then not have done something silly where they like booked a release date. You know, there was way too quick. And then at that point they can hire a mastering engineer. The problem with that is that the sales window for someone to hire mastering engineers, very narrow.

[00:11:12] There are people like this that are like, Hey, I want you to master it. As long as it takes. That's fine. You know, we'll work with your schedule. I get a lot of those guys, but a lot of them are, Hey, this is coming out next week. Can you finish it? And that's a problem because from a cashflow standpoint, if you want to increase your sales this month, you can't run a sale and be like, Hey, everybody got any projects that need mastered?

[00:11:35] No, one's going to say, Oh yeah, I do. It's this kind of really weird thing where mastering is the type of work. That's not very Rampal. You have to be consistently top of mind for a long period of time to build up a huge stable of clients. It's very difficult to quickly grow a mastering company because of all of the hurdles that people have to jump over.

[00:11:56] Brian: Yeah. So you used the term ramp mobile, which I don't love, but I think an easier way to understand this is you have a very small window that you can get a client in the grand scheme of all the things that they have to do to hire you. You're a very small window of opportunity there to capture them as a customer.

[00:12:12] So you can't just say 25% off sale this week. Send me all your masters. That's not really going to push sales much. So you can't just, if you have a slow week or slow month, you can't just run a sale. You can't just hit somebody up. It's not an impulse buy. That's kind of the thing here. You don't have a very wide window in which to capture people.

[00:12:29] So you have. A very challenging situation when it comes to stabilizing your income to ramp things up in those bad months. So you had an analogy here on this part of the outline, the window washer versus the snow removal. And I love this kind of analogy.

[00:12:45] Chris: So, if we want to simplify this to make this business concept really easy to understand, let's talk about two really simple businesses. One is snow removal. The other is window washing. If you are in the snow removal business, you are at the mercy of snow. You have to wait for the snow to show up for there to be demand.

[00:13:05] Brian: It's a boom or bust income cycle and it's seasonal as well.

[00:13:09] Chris: Exactly. Yeah. It's boomer bus and it's seasonal. So if there's 50 feet of snow where you live each winter, that's great. You're going to do pretty well. If you don't have much snow that winter, your business will suffer. And the problem with that is that when demand spikes like that, when it's like, Oh my gosh, there's a bunch of snow.

[00:13:25] I need to shovel everybody's driveway. You don't have the bandwidth. Yeah. It's an issue of supply and demand.

[00:13:33] Brian: And you can't necessarily say, Hey, you need snow removal 50% off this week. When it's June in Ohio,

[00:13:40] Chris: Yup. And it's really difficult to be like, Hey, you should pay me in June to remove your snow in December.

[00:13:45] Brian: people don't want to do that.

[00:13:46] Chris: They don't want to do that. That's really, really hard. The flip side of this coin is a window washer. And in a lot of ways, it's sort of the opposite. You're going to want to do this in warm weather, more than you're going to do this in hot weather, but you can walk up and down main street and say, Oh, that shops windows are dirty.

[00:14:01] I'm going to walk in and pitch window washing. You can actually sell on the spot with window washing. You know, it's Saturday, you're a 12 year old kid. You get your squeegee and your bucket and you walk up to somebody and say, Hey, I'll wash your windows right now for. This amount of money. That's a much more interesting business from a cashflow perspective, because with the snow removal business, you remove the snow and then you save the money just in case that you need it in the future.

[00:14:28] If you want more money, your only option is to wait.

[00:14:32] Brian: I think the way that really ties into our careers and audio is if you struggle with cashflow specifically on the income side, you have an unstable income where it's boom or bust months where you have high months and you have low, low, low months. It might be a situation where you need to reassess the type of client you are targeting.

[00:14:48] You can offer the same service. Sometimes it may not be mastering engineer. I don't know many situations where a mastering engineer is going to be able to widen the window. Actually there is as a master engineer, instead of going to the customer of the artist who has a tiny window, you change type of customer.

[00:15:03] You're going after you go after the audio engineers who are tracking and recording and mixing, and they're the ones who have clients year round to send you. So that's one example of shifting to a different type of customer that is going to offer a more stable year round income, because they are the one that have access to infinite, snow essentially, or finite snow.

[00:15:23] But you get what I'm saying.

[00:15:26] Chris: You have to look at it more creatively. When my business first started out, one of the types of customers. That was a blast to have. That was pretty normal. It was like, Hey, it's next year they finished another record. So I mastered it. Hey, it's another year later they finished another record. So I mastered it.

[00:15:42] I didn't have any control over when they finished. I didn't have any control over when they wanted to release. I just knew, you know, if he had enough customers, they're gonna come back to you year after year after year business starts to get pretty good. This obviously changes when we've talked about this before.

[00:15:55] If it's somebody who releases a single every month, your cashflow will look a lot different. One of the problems that I had early on in my business is I would find that the second half of December would be very slow. First half of January be very slow. February would be okay. March would be dope. April would be dope.

[00:16:13] Mae would be dope. June would be slow. July would pick up August would be slow. September would be slow. And it was this weird thing where, you know, if there were a lot of holidays in a given month, what would end up happening is people would be like, Oh, well, you know, um, Christmas and new year's and stuff like that.

[00:16:28] I'll wait. And then there'd be this big rush at the end of January where people were catching up. And so there's all these sort of weird seasonal aspects to this where you don't have any control when you can't run a sale. If I am selling popsicles on a hot day or ice cream, an ice cream Trek is the perfect example.

[00:16:45] Oh my gosh. I can't believe, I didn't think of this earlier. An ice cream truck creates demand. Oh, it's a hot day. I'm going to drive through this neighborhood. That's full of kids.

[00:16:53] Brian: And no one out there is thinking I want ice cream at this moment.

[00:16:56] Chris: Nobody.

[00:16:57] Brian: The second it drives up, all of a sudden there's demand.

[00:16:59] Chris: Yeah. You hear that song? What is it?

[00:17:01] Brian: Doesn't matter.

[00:17:06] Chris: can you throw them over your ? You guys are welcome. That was a special

[00:17:11] Brian: I hate

[00:17:11] Chris: kidding.

[00:17:13] Brian: Can you get to the point? What is your point here?

[00:17:14] Chris: The point is crazy old dude, with a giant mustache and the nasty van with a giant ice cream cone on the top starts driving around and all the kids are like, they're taking my money. I'll pay you five times with that's worth.

[00:17:26] Even though my mom's got the exact same thing in the freezer, they generate demand. They know, Hey, if I just show up, I'm going to be able to sell stuff on the spot. So an ice cream man, especially one in Florida.

[00:17:36] Brian: We'll bring this back to audio. What's the point in audio that you're making?

[00:17:39] Chris: Great encouragement. Bring it back to audio. My point in audio is that if your business does not allow you to create demand on the spot, cashflow is hard.

[00:17:49] Brian: So my question is what audio thing creates demand on the spot.

[00:17:54] Chris: Great question. Well, obviously I think mastering is probably the worst as that goes. I would guess that song writing services would be up there. Production services.

[00:18:05] Brian: Actually, if you go back to episode one 36, We talked about how you can make marketing 10 times easier by using the moat down model. I think that's probably the best example of creating a service that creates demand. People have a passion for something they don't know that there's a capability. If someone taking their passion and, and raw talent and shaping that into a fully produced track.

[00:18:25] That's probably a better idea, idea of creating demand from scratch. And that's also the closest thing we have to this sort of like ramble client. Like you just show up to someone that has dirty windows and you clean their windows. It's that kind of business

[00:18:38] Chris: Well, we talked about Rebecca Black and the song Friday. Should I sing that one too Friday?

[00:18:44] Brian: that ruined that poor girl's life, you know, old. She is now

[00:18:48] Chris: She's probably pretty old.

[00:18:49] Brian: 23.

[00:18:50] Chris: Weird

[00:18:51] Brian: She was like 13 or 14 when that single came out. Can you imagine having that sort of like,

[00:18:56] Chris: follow you around.

[00:18:57] Brian: yeah. Virality at 13 or 14 years? I'm so glad nothing on the internet exists of me at 13 or 14. I can't even imagine.

[00:19:05] Chris: Oh man. That would be so rough.

[00:19:06] Brian: Anyways, let's get back on topic here.

[00:19:08] Did you have a good point? You want to make.

[00:19:09] Chris: Yeah. So the Friday thing is interesting because I don't think the Rebecca Black like sat in her room night after night after night penning, the Opus that is Friday. She met a production company as far as I understand it. And they were like, you're, we're gonna help you make this. And they did everything.

[00:19:24] They're good at it. They're fast at it. So it was basically, the pitch was probably I'm guessing. Be really interesting to have them on the show someday.

[00:19:30] Brian: Yeah, I would love to know who did that. If anybody knows the people that produce that song and video, if it's the same company or just the song itself, I would love to know the story behind that.

[00:19:39] Chris: Yeah. So I would imagine that the pitch was something like, you know, Hey Rebecca, we could do a whole song for you. Really I'll talk to my dad. Dad, can I get a whole song recorded at the studio?

[00:19:48] Brian: Are am banning a, you're not doing that voice anymore today. First of all. And second of all, we're not talking about this anymore. If you want more on this sort of model, just go listen to episode one 36, the Motown model we're done.

[00:19:57] Chris: The point was, do you want this? Yes, let's do it today. A model that supports that is ramble. So if you're in a situation you're like, Oh man, I got to close some sales to pay my taxes. Those types of models work really, really well.

[00:20:09] Brian: Yep. Again, it's just about cashflow. If your sales cycle and a sales cycle, by the way, is how long from first interest $2 in the bank, does it take to close a deal? And for mastering, that can be months. You might actually have it down to the number of exact days. It usually takes on average, but I don't know if you track that metric anymore.

[00:20:25] Chris: The place. It totally depends on where you're at in the market.

[00:20:28] Brian: No, it doesn't depend an average is an average, Chris.

[00:20:30] Chris: Yes, for me, I could calculate that.

[00:20:32] Brian: Yeah. I'm saying you could calculate that. It's going to differ. Obviously there's gonna be a wide variety of that, but I'd say a mastering engineer's average is going to be much higher than a tracking engineer or a songwriter or the Motown model in general.

[00:20:46] So if you're in a business where you have a long sale cycle, it's a very tough business to be in because. The income you're getting this month is the work you put in three to four to five months ago. And you can't fix that. If you start to have a string of bad months, you're screwed essentially on the income side of things, you can still work on the expenses side of things, and we're gonna get to that because that's arguably the more important part of this conversation today.

[00:21:07] But you cannot change the income side if you have a long, long sale cycle. So it's a consideration, especially in times like these with COVID and no end in sight right now, and things are actually getting worse in the U S right now, it might be a situation where it's time to pivot to a new type of service or offer that you're doing in the audio world so that you have a shorter sales cycle.

[00:21:25] Chris: One good example of that is rap. You know, you look at let's compare rap to metal metal takes a while to write.

[00:21:32] Brian: Dude metal songs. I mean, I've written a good number of those in my life and they take forever to write and demo out and revise and all that stuff. Yeah.

[00:21:40] Chris: Rap on the other hand, it's like, Hey, bring your notebook to the studio.

[00:21:43] Brian: Yeah. It's more lyrics. And then you generally in rap, and I don't know if this is the case for most rap artists, but you generally, you buy the beats. You find somebody that they specialize in making beats.

[00:21:51] Chris: You hope that they buy the beads.

[00:21:53] Brian: Yeah, you, you buy it there, you get the beats and then you do the, you write the lyrics with them or they write the lyrics and you record the vocals over it.

[00:21:59] Chris: Yeah, three hour sessions, a pretty long session in rap. And that's something where if you want to fill up a session this afternoon, that's suddenly opened. There's a possibility of that in metal. No, it's not. It's that's rough.

[00:22:11] Brian: There's a 0% chance of that. Yeah. Way longer sales cycle. It takes people months to prepare for getting into the studio in the metal world.

[00:22:19] Chris: Yeah. Fascinating stuff.

[00:22:21] Brian: Let's move on here on stabilizing and increasing income here next on the list. And we're not gonna talk as much about the rest of these as we just talked about that one, but the next one is repeat clients.

[00:22:30] We've talked about this on the past, on the podcast. If you go back to the episode with Mark Eckert. We talk about this in great detail, episode 68, using Instagram marketing to build a recurring income business or whatever with Mark Eckert. Anyways, this is like a no brainer. If you have guaranteed income, it's from the title of the book, the automatic customer, that's exactly what this is automatically.

[00:22:50] Every single month you have a customer or a string of customers that are guaranteed to come back to you every month. I can't think of a more stable income than recurring income.

[00:22:58] Chris: I wonder if that had anything to do with why both of us have built subscription software businesses.

[00:23:03] Brian: Yeah, that's part of it is it's not the same sort of thing, like with the studio or with six figure home studio. Like I have to go out and find clients every single month on both of those businesses. If I want to make money with file pass, like we could stop doing everything in the world right now. And we would still have customers every single month that are paying a subscription in the audio world.

[00:23:21] This is a little more difficult, but I think Mark does a really good job of talking through that, of how that. That works and how that looks. And I have a few other coaching students that do this as well. One of them is doing side gigs stuff with our clients on a recurring basis. And this one, just for example, is vocal coaching.

[00:23:37] She is a producer and does a lot of vocal centric music, but on the side, she's doing recurring work as a vocal coach for these people.

[00:23:44] Chris: That is super clever.

[00:23:45] Brian: Yup. So if you have a skill that you Excel at vocals, drums, guitar, you can give lessons to your clients. So you're usually basically using your client base as a lead magnet or a source of customers for your recurring revenue side business.

[00:23:58] Chris: Yeah, and you can call it pre production and you can be in a lesson and say, Oh, that was awesome, dude. We should totally record that song.

[00:24:05] Brian: So next on this list of stabilizing or increasing your income is getting paid at advance. This is a little known trick with cashflow management. And this actually is the opposite of what your friend in the merchant business you talked about at the beginning of the episode, did he got a lot of work from somebody, a huge client, and I've seen this time and time again in the merchant business, this is a traditionally a cashflow nightmare, the merchant world, where you have to spend a bunch of money on labor on equipment and buying the actual shirts to print stuff on.

[00:24:34] And then 60, 90 days later, like net 30 net, 60 net, 90 payment terms, 90 days later, then they get paid. So for that full 90 days, they're on the whole tens or hundreds of thousands of dollars that check doesn't come at the end of the 90 days, who's on the line. It's the merge company. Who's in the debt right now.

[00:24:51] Yeah. It's a terrible business to be in. If you're in a situation where you're all always doing the work upfront and then in getting paid for it just by switching, when you get paid that will instantly fix some major cashflow problems for your, you. Now, the negative of that is if music stops you stop getting clients.

[00:25:09] All of a sudden you stopped getting income, but you still have a lot of work lined up that you have to do. So now you're not getting paid, but you're doing work. So that's the negative, the dark side of getting paid in advance, but almost always it's better to get paid in advance just from a sheer accounting cashflow principles perspective.

[00:25:26] So always try to get paid in advance for any work you do.

[00:25:29] Chris: I've coached a lot of mix engineers. I have that problem. They build up a huge stockpile of songs. The, or, you know, whatever it happens to be that they have to finish in order to get paid. And if you don't do that quick enough and you don't organize that well, it can create cash flow.

[00:25:43] Brian: Yep. So again, if you're paid on the first of the month, every month, You can pay for that month's bills with stuff you haven't even worked on yet. And then when it gets to the end of the month, you're getting paid for the next month. So you're always a month ahead on things instead of always a month behind on things.

[00:25:56] That's the difference on getting paid in advance also on the income side of things that you think we should cover here, Chris? I mean, there's always more to be said about like increasing or stabilizing income, but like, we cannot give justice to all these topics fully, but it's just worth mentioning, especially the parts that stabilize your income from month to month.

[00:26:14] This is crucial when it comes to having stable cashflow, because without stable incomes, you want to have stable cashflow.

[00:26:20] Chris: This is one of the biggest business issues that I see in our industry is that people are not in control of their cash flow. And a lot of that has to do with the types of services they offer. Or the ways that they bill for them and to build a business that's bomb proof, you have to be in control of your cashflow.

[00:26:37] Brian: Agreed. Agreed. So next on the list is reducing or deferring expenses. Like I said before, cashflow is in a nutshell, in any given time period, income minus expenses, what is leftover is cashflow. And one of those big parts of cashflow is reducing expenses, especially in times where coronavirus has decimated a lot of recording studios.

[00:26:58] And so we're going to go through some areas that we think people should look to when it comes to reducing or just deferring. And when I say deferring, this means putting off expenses until your cashflow situation improves, because I still wholeheartedly believe that the demand for audio has not been eliminated.

[00:27:12] I just think it's been deferred. Meaning people are still writing music, they still have songs to record. They still want to do this. They just can't physically do it in certain areas of the world. Right now, especially the U S. So they're putting it off or they're in a financial hardship right now, so they're just putting it off.

[00:27:26] So when people come back around where the cases go away, or there's a vaccine or something changes where they're ready to come back in the studio and their finances are in a place where they can afford this, all this work you've been missing out on for these past months, I think is going to come back to a lot of people, if not all of it in a good chunk of it.

[00:27:43] So I believe that if you have to defer your own expenses, It's better than some of the alternatives that are out there, which is shutting down or getting rid of crucial parts of your business that you have to have. So let's talk about reducing and deferring expenses now. And the first part that I have here is, so by looking at your subscriptions, that you're paying, which we live on a subscription world.

[00:28:03] Now, like the subscription economy, I've looked at, like both my businesses, six figure and studio and file pass. We have over two grand a month in each of those businesses. In recurring expenses for software alone so it can get very expensive. So one thing I tell people to look at is you obviously want to cancel any of those that are not crucial to your business.

[00:28:22] If you're in a time of struggle right now, you're having cashflow issues, cancel those subscriptions that you're no longer making use of. All those nice to have things or like aspirational things you signed up for that you were waiting for to use one day, get rid of them. They're not helping your cashflow.

[00:28:36] But second of all, most of those have an annual or monthly option. There's pros and cons for each of those two. And one is not necessarily better than the other. It depends on where you are. In a cashflow perspective. Monthly is almost always more expensive to pay for a software product than the annual plans for a year of file pass.

[00:28:54] It's like $468 on our pro plan, which is about $39 a month. But for a month of file pass, it's $49. If you don't pay an annual plan. So there's a pretty big difference there on your expenses. So you can save basically get two free months of file pass. If you sign on the yearly, but if you're struggling on a month to month, month basis, you're actually better off just paying the month to month because you can't afford that 400 and something dollars this month.

[00:29:19] So if you're on it, yearlong cashflow outlook where you're saying, dang, okay, I have money in the bank. Things are stable. I need to reduce my overall cash burden for the entire year. Move to annual plans for everything that you can cause you'll save more money in the long run. But if you're struggling on a month to month basis, you can't afford that $500.

[00:29:36] That $300, that's $600, a yearly annual plan that hits this month and the two that hit next month. And it really hurts you on a month to month basis. Cause you forget when those subscriptions come up.

[00:29:46] Chris: It also gets tricky if you're paying for that yearly subscription on debt. Isn't it. Additional interest payment that you're gonna have to make, depending on how long it takes you to pay off your interest.

[00:29:55] Brian: Yeah. So you actually might be paying more on the annual plan than the monthly pan, because it's taking longer to pay that off on the card. So there's a lot of things to consider here. So I'm not going to say one is better than the other, but if you are struggling on a month to month thing, or you're just trying to level out your monthly expenses so that every single month you don't have a spike in expenses.

[00:30:12] Then the month to month plan is going to be the better plan for use on all your subscriptions. So make those decisions. And I encourage everyone take a spreadsheet, whether it's a numbers sheet and Mac, or an Excel spreadsheet on windows or a Google doc, and literally list out every single subscription you're paying for as well as how much you're paying for it.

[00:30:30] So you keep track of not only what you're paying for, but how much you're paying so that, you know, when it's, it's time to cancel something or pause something or whatever. So this is a huge thing is just looking at all those monthly expenses. Cause I think once people actually take that exercise and put it into a spreadsheet, they're going to understand how much they're actually spending on software or subscriptions.

[00:30:46] Right now it's probably two to three times higher than you think it is in the back of your head. Next is removing all unnecessary expenses. And the reason I put this here, because this is not just talking about subscriptions. The reason I'm talking about this is because there's several people that I've talked to in group coaching calls that are going through some struggles right now in their studios.

[00:31:04] Some people are losing their facilities. Some people are having to move out because of something happened to the landlord that they were renting from. They lost the property so crazy stuff's happening. And I'm under the impression that right now for the foreseeable future, you do not need a commercial recording space period.

[00:31:20] You do not need a commercial recording space.

[00:31:22] Chris: 98% of us. Yeah.

[00:31:25] Brian: 99% of us.

[00:31:27] Chris: Okay. Agreed.

[00:31:27] Brian: And here's my thing. Even if you are doing a fair amount of stuff that requires a full recording space, like a live room, almost always, it's going to be cheaper to just consolidate your expenses into a home studio. Even if you have to move, it's almost always cheaper to get a larger home with a place for you to record and mix.

[00:31:44] And do smaller like overdubs and stuff. And then if you need it, hire out the larger studio, the mothership model is what I call it, where you do everything at home and you hire out a larger studio and you pay the day right there for the larger facilities. There will always be in every major city. There will always be a handful of recording studios that you can hire out at any given time to do your larger projects.

[00:32:04] And I've yet to meet someone who it made more sense to own or rent a massive space like that. Compared to just having a much leaner home studio and renting those out occasionally when they cause what you can do now, when you don't have those expenses looming over you, you can now give clients the option.

[00:32:20] Do you want to do program jobs or do you want to spend $400 a day on this commercial studio? You can give options for things and that way it's on their terms. And if they can't afford it, you don't lose the gig. You have the option to. And so if you can save the client money by not forcing them to pay for your giant facility, that's better off for the client, which means it's better off for you.

[00:32:39] And second of all, that leads me to another thing. Liz Shaw, our friend, he's been leading that fight against tone studios in Nashville being illegal as of two days ago. It is now finally legal to have a home studio in Nashville, Tennessee. It's just crazy to me that that was not legal before, or I'm sure COVID helped the situation because now everyone has to record at home or work at home, you know, by law.

[00:33:01] But I'm glad to see that finally pass it's congratulations to ledge on that fight.

[00:33:05] Chris: Yeah, that was ridiculous. That was absolutely banana cakes.

[00:33:09] Brian: Yeah. I mean, it's a big case here because that's not just home studios that affects any home based business. So barbers were helping push that fight through anyone that was doing like small business solo entrepreneur, nails, hair, whatever. And I'm just kind of stuck in that world in my head right now, because I can't think of other situations, but anyone where a client would come into your home that was illegal in Nashville and recording studios got hit hardest and that's terrible because we are the music city.

[00:33:32] So. Anyways, I think now that should be the norm. You should be recording at home, except if you need a larger space, let the client pay to turn that out. So I think we're eliminating unnecessary expenses. Commercial leases are one of those toppings. Anything else to add to that, Chris?

[00:33:44] Chris: Well, I think the big idea here is flexibility. You want to be able to flex with whatever the future throws at you. And, you know, we lived in a world a couple months ago when it was like, wow, we basically know what the future looks like. It's not going to be that different than it is now.

[00:33:58] Brian: Yeah, I don't think anyone ever say that again. No one knows what's going to happen nowadays.

[00:34:03] Chris: So, yeah, this is flexibility for the future, not just in your expenses, but also in your income that you can ramp it up quickly. If you want to.

[00:34:11] Brian: Yeah. Cause some people I'm telling them, it's a blessing in disguise that the landlord had to break the lease because they lost the building. They're going through bankruptcy or whatever. And now the studio is kind of out on their ass, trying to figure things out. Like that's a blessing in disguise because you don't know when this is going to come back.

[00:34:24] You don't know when you're gonna be able to have clients in the studio. Again, you don't know when they're gonna be able to even afford to hire you for your commercial space. So lean your studio up, reduce those expenses and move on. And I think you're going to be better off for it. So let's kind of shift gears here from expenses to those that are in the position where you have those good and bad months, and you're having a terrible month right now.

[00:34:41] What can we do to bridge the gap on these bad months?

[00:34:44] Chris: Yeah, well, this is the back against the wall scenario. You didn't have money in the bank. Your expenses were too high. Maybe you had a bunch of health issues.

[00:34:56] Brian: Hey.

[00:34:57] Chris: Yeah. And you're trying to figure out what to do. You know, I think there's a lot of options here. There's a lot of ways for this to go wrong. So let's talk about some of your options there. Some ways that you can deal with crisis.

[00:35:08] Brian: Yeah, so we don't advocate this, but like we're also in times where like this is unprecedented. So this is a time to start looking at what I consider good debt, where debt might be the only solution for getting you through these tough times. And I say, it's, this is an option because of the fact that a lot of demand has been deferred.

[00:35:25] Meaning that, although you may have to go into debt right now, you can use those clients that have been saving all the music they've been writing and all the work they've been putting off. When they finally do come around to paying you, you can pay these debts off first and foremost, but a good debt to me is not a credit card.

[00:35:40] It is not some high interest payday loan bullshit. Where you're paying so much in interest, you'll never pay it off. Good debt is something like an SBA. So small, this, this association loan or a zero interest loan of some sorts that is definitely under 10%, but preferably five to 6% range on interest rate.

[00:35:57] Would you agree, Chris? Good debt is something to look to here to bridge that gap. This is not something to use to buy gear that you've always wanted. That's irresponsible. But if we're saying to pay rent, to pay bills, to not have to go into bankruptcy, to not lose my home, this is where good debt could be.

[00:36:16] The solution or a line of credit or something that can keep your business afloat for now until things change. Next is selling gear. Yeah, there's the Sacha bone, but also the right move. If you're sitting on tens or hundreds of thousands dollars a year, but you're not using right now because your studio is not getting clients and you can't make payroll.

[00:36:37] If you have a payroll or you can't make rent, if you have rent or you can't pay your mortgage, if you have a mortgage and you're sitting on that much money in gear. Get fucking rid of it. No, get rid of it. You should never hold onto gear. If it means losing something that's actually important to you. If it's adding unnecessary stress to your family, to your marriage, because you refuse to sell the gear to make ends meet.

[00:36:59] If you have to go into debt, even good debt instead of selling unutilized, especially for gear, that can be repurchased after all the shit passes for the same price or less.

[00:37:10] Chris: Totally. I think what makes this challenging for many people, myself included is that when you sell a piece of gear, it feels like you're losing a piece of your identity. It feels like you're losing validation for who you are professionally.

[00:37:23] Brian: Yep. And while I hate can acknowledge that feeling, you got to get the fuck over it.

[00:37:27] Chris: Yeah, you do.

[00:37:28] Brian: That's my like super Enneagram eight. Tell it how it is advice, but you've just got to get over it because the alternative is going into debt when you shouldn't. Because again, the debt thing is the last resort. The alternative is putting your family through financial stress that you should have to put them through because you're unwilling to quote, give a piece of yourself up that you can get back.

[00:37:49] I'm not talking about selling one of a kind gear here. I'm not necessarily, if that's the only thing you can do then maybe so, but I'm saying if you are the person that you. You have 1176 is, and you have, um, you know, I could get down to the gear list. You have a UAT seven, you I'm just getting gear slots and gear, sled alerts.

[00:38:05] You have expensive interfaces and digital audio converted things that for recording studio irrelevant. But if you're just doing mixing now because everything's remote or you're just doing remote sessions and none of this gear matters anymore, get rid of it. So that's all I have to say about that. Chris, you have anything else you want to add there?

[00:38:20] Or are you sad? Because I was mean to you.

[00:38:22] Chris: No, I'm empathetic for the people who are struggling with their, I am my game. You're not, you're not your gear.

[00:38:30] Brian: I hope you're not your gear.

[00:38:31] Chris: Yeah. You know, I think that's a challenging thing because you, you look at that gear and say, yeah, yeah, I'm an audio engineer. Look, I got this thing. Oh yeah. Yeah. I'm a mixing. Sure. Look, I got this thing.

[00:38:40] The problem we have in our industry is that our skillset and what makes us valuable is very subjective. And as a result, the gear, which is totally objective makes sense, easy to be like, Sue, I've got this thing. So you've got the proof physical proof and man, does that get complicated? So this is stuff, you know, if you're having cashflow problems, even if you're not having cashflow problems to have loose hands with your gear and to really focus on yourself and your skillset, I think is a much healthier longterm plan.

[00:39:10] Brian: Yep. I agree. So we have one more area here in as far as. Bridging the income gap on bad months, and that is investing your spare time instead of wasting it. I know a lot of people, things get tough. They curl up into a ball. They numb themselves too. So by streaming Netflix all day or playing video games all day or doing something that's nonproductive. Yes. So if you have a lot of spare time, meaning you don't have a lot of studio stuff going on, and this is your full time gig as a studio owner or a mixing engineer or whatever, swallow your pride and invest your time into something else instead of squandering it. If you have spare time right now, Get a day job.

[00:39:52] First, one of those sharing economy, jobs like grocery delivery or food delivery, start that side income business that you've had in the back of your mind since listen to this podcast, Chris and I are very entrepreneurial. We are serial entrepreneurs where we can't stop launching new businesses and monetizing new things to take time, to take it takes time to do that.

[00:40:09] But if you have spare time, invest it into one of those other ventures, something that excites you and energizes you instead of sitting around and feeling sorry for yourself.

[00:40:16] Chris: Or invest it into self-education you are your own bed. So finally buying that book, finally, doing something that allows you to become more valuable. I think this is at the best time ever for that.

[00:40:28] Brian: Just to kind of wrap this episode up, it's kind of one of those pick your poison or advice buffets, because everyone's going to be different position here. And every one of these strategies is going to look different for people. But at the end of the day, we are hoping that everyone can set things up to where they are always having more money left over at end of the month than they have.

[00:40:45] Expensive. Whereas my family used to say, well, there was more month than money. I just want to say, this is only going to be a temporary thing that we're going through. I don't know how long it's going to be, but I do think that having a clear head and looking objectively at your monthly incomes, your monthly expenses, where you're spending your time, where you have money tied up in things that you shouldn't have a tied up in.

[00:41:07] Where you have debts that shouldn't be where you can maybe get money to get through this. I full heartedly believe that people can make it through this sort of thing. As long as they're thinking from a clear perspective on how to manage their cashflow on a month to month and a year to year basis. And that's honestly the only key to making it through this as managing your cashflow in these crazily uncertain times.

[00:41:28] And yeah. Anything else out of this, Chris? So that is it for this episode of the six figure home studio podcast. Hopefully there's some tidbits for you to take away here and help improve the cashflow situation of your business for these very tough months that some people are going through right now, or for any of you, that things are going great right now, business is booming for you right now.

[00:41:49] You'll at least have some strategies and things to implement in the future. If you ever had a cashflow crunch, And even if you have a good business, by the way, you can still hit cashflow crunches, or you can still be cash poor in the future. So this episode will likely have, I think that you can take away and implement in your business at some point in the future.

[00:42:02] When that time comes for anyone whose business is booming right now, things are busy. You got a lot of projects going on. I know it can be a little bit tedious to try to keep on top of multiple projects. If you're juggling a lot at the same time, this goes for busy mixing engineers, busy mastering engineers.

[00:42:17] Um, anyone that's doing a lot of projects at the same time. If you need help organizing your projects, staying on top of revision requests, staying on top of who owes you, what, how much they owe making sure you're collecting payments and protecting your files from someone running off with them, then you might be ready for a file pass trial.

[00:42:34] If for one of our file passwords, we mentioned at the beginning of the year. So file pass is just a file sharing platform built for the audio industry. We have a free 14 day trial right now for anyone who needs help organizing their projects, collecting files from clients, getting revision requests with timestamp comments.

[00:42:48] And if you want lossless streaming, many of your clients are streaming the full quality way file. Just go to file, pass.com, sign up for free trial. And now you don't have to enter a credit card for your free trial. So that's great for anyone who's just been on the fence about this right now. Also, it's been a while since we've mentioned this, but if you have any feedback for the podcast, any guests, you want us to interview any ideas for topics that you want to hear us talk about.

[00:43:08] Just email us podcast@thesixfigurehomestudio.com that hits both Chris and I's inboxes on our phones. We read all those emails and it's great to get feedback from our listeners because again, podcasting is a weird medium where we talk to thousands of people every single week. And you rarely hear from them.

[00:43:22] It's unlike any other medium out there. If I email thousands of people, I get replies back from that. If I post. To our Facebook community. I get replies back from that podcasting is this weird one way, communication, medium. And so it can be a little weird to be speaking to thousands of people every single week and not have continuous feedback on how we can improve or, or things you want us to talk about.

[00:43:42] So always, always, always reach out to us. If you have ideas or feedback or input podcast@thesixfigurehomestudio.com. That is it for this week. We'll be back at you in next week, Brighton early at 6:00 AM for another episode until next time. Thank you so much for listening and happy hustling.