Cash Flow Engineering and The Solvable Problem TM Calculator
Cash Flow Engineering and The Solvable Problem TM Calculator
Your financial situation is unique to you because your preferences, priorities, and disposition are unique to you. However, Nic and Dan just finished up a Cash Flow Engineering Workshop which provides some general guidelines.
This is based on the real-world data of thousands of small businesses over the years. It is a “broad stroke” overview that may help orient you on your next steps.
The first step of the Cash Flow Engineering Workshop is what we call “Recapture and Reallocate” which stands for:
Recapture the resources that are available to you currently but are being wasted and
Reallocate those resources toward what you’re trying to accomplish.
While there are many resources, such as Time, Energy, Identity, Money, Reputation, Attention, etc we start with money because it’s the easiest to qualify and generally thing most people want more of.
Our workshop attendees averaged $6,120.78 per year in profit recaptured. With an average profit margin of around 25%, that’s the equivalent of an additional $30,603.90 in new sales. It takes 45-60 minutes of time to do a basic recapture. You can learn about how to do that here.
Attendees that submitted their results were invited to a follow-up session to help them with strategic reallocation based on where they are now. Below is the general recommendation.**
**Remember, each situation is unique. This is just a general direction based on group-indexed data. It will likely not be optimal for you, individually.
Step 1: Get Clear on Your Solvable Problem TM
First, enter your Target Balance and Target Date. We recommend being conservative here, we can always “collapse time” later. The first step is to get a reasonable target locked in.
Above assumes that your goals require 10 million dollars by Jan 2023. You have $350,000 to invest or allocate and $50,000 a month additional to invest. In this scenario, you need to get 16% a year to lock in your goals (before taxes amount). Obviously, these are just example numbers, yours will be different and custom to you.
This gives us an idea of how much risk to take and where to look to find the most efficient path to locking in what matters to you. For example, if we can get your tax rate down to 20% it looks like this:
Now, we need 12% before taxes to reach our goal, which will require less additional effort and less total risk to accomplish.
Step 2: Figure Out What Your Time Is Really Worth
This one is simple. We’re going to work on getting your time and/or money back. Take your [total profits + owner compensation] / Hours Worked.
Once you have that number if it is:
Below $250 an hour:
eliminate investments with an ROI less than the S&P 500.
Between $250 and $500 an hour:
Eliminate investments that are less than your solvable problem number. The example is 12% so we would eliminate investments that are yielding less than 12%.
Recover additional hours through leverage.
Over $500 an hour:
Optimize taxes through:
Deductions and credits you qualify for but don’t know exist
Small adjustments to qualify for additional deductions and credits
Implement “Home Run” strategies
Again, this is non-prescriptive because it’s not individual to you and your unique situation. However, it’s a good guideline to help you discern where to look and to think through allocating the resources you have.
Dan’s book, Rigging The Game, is a manual on identifying and engineering leverage.
Nic’s book, Bumpers, is a manual for getting your time back strategically.
We also have a ton of free tools you can implement right here on Certainty Tools and the Rigging The Game Podcast
If your income is over $300,000 a year, it might make sense for you to apply for the CCA program. We only open a couple of cohorts a year and take a small number of students. It’s a deep dive into the Certainty Operating System working directly with Nic, Dan, and Randy Massengale.
First, do the basic recapture exercise for yourself and let us know how it goes.
The Solvable Problem TM Calculator
Step 1: Create a free account here.
Step 2: From the menu, click on Solvable Problem
Step 3: Play around with your Solvable Problem TM number.
There are advanced features in the app before going down those rabbit holes use the calculator above to get an idea of the best next steps for you and your situation.
If you want a higher level of support, check out Certainty U.
More coming soon…
Certainty Tools
PS. If you fall into the “over $500 an hour” category, the quality of your tax advice is one of the most important aspects of achieving financial certainty. The first thing to look for is whether or not your CPA is an Archaeologist or an Architect. This Forbes article explains the difference well.