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GOLD! HOW TO: Understand Fastlane Business Mathematics

Bruh

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Q1: Why divide gross living cost by 60%? In other words what taxes is he talking about and where did 60% come from?

Q2: Why divide net living cost by 5%? How was 5% determined as the minimum yield of the money system?

Q3: Why multiply the gross living cost by 5? Why not multiply the net living cost?
1. Your taxes are likely 40% or less (on your income). So after taxes, you have 60% of your income left. That is where the .60 comes from.

You start off with your gross living cost (the cash) that you need after taxes. You divide by .60 (60%) to get the the net living cost (the income) that you would need before taxes. That is how much cash you need to make so that you still have enough for your gross living cost after taxes. Division (of .60 on your gross living cost) serves to reverse the multiplication (of .40 on your net living cost).

2. 5% is your minimum expected interest rate on your money system per year. Interest rates depend on the economy and where you put your money.

Your money system gives you interest. You need enough interest to cover your yearly net living cost. Your yearly net living cost is the amount of interest you want from your money system. So when you divide by .05, you are getting your money system target. If you had your money system target, you could multiply it by .05 to arrive at your yearly net living cost (the interest).

Division (of .05 on your yearly net living cost) serves to reverse the multiplication (of .05 on your money system target). Division and multiplication are opposites.

3. You multiply gross living cost by 5 so that you can split your business system target between your lifestyle (20%), your money system (40%), and taxes (40%). The ratio is 1:2:2. You multiply by 5 so that you can divide your business system target nicely.

Regarding the second part of your question, net living cost includes taxes. Gross living cost does not. You multiply the gross (instead of the net) because your business system target is the income that will be taxed (not your net living cost).


It really is a beautiful thing. :)

Math is satisfying when it all works and makes sense.

If anyone sees I made a mistake, feel free to make the correction.
 

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Bruh

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@Eskil Thanks for the spreadsheet!

The part I'm stuck on is determining monthly cost. If anyone can help me out, that'd be awesome.

Do you find the total cost of the thing you want, and then divide by x number of months? How do you know what number of months to divide by?

Why do I want the monthly cost? If I wanted to pay cash, then I would still have to save my money each month until I have enough for that thing. Otherwise, are we talking about financing?
 
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Nik Krohn

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Can you turn this into an open google doc? I dont have Microsoft office on my mac :/
 

NicoleMarie

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This is great, thanks! The one thing I realized though is that outsourcing/employee wages and stuff aren't included (probably because your business isn't a service). There goes my initial excitement, lol.
 

Leo Hendrix

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Thanks! @Eskil downloaded and I will fill in my data ASAP, I'm not to keen on numbers except for certains things like ratios and percentages and patterns, so this helps a great deal.
I will post any feedback once I've filled it out.
 
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Eskil

Eskil

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www.stayblcam.com

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MKHB

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Hey everyone,
One of my favorite chapters of the TMF book, is Chapter 37, titled “Give Your Road a Destination”.
It really made me think about the amazing possibilities that can be accomplished once you have a rock-solid business (following the CENTS commandments of course). But one thing I see some people struggle with - is the mathematics of business viability. This is often obvious when you look at people pitching their product on tv shows like Shark Tank. They may have a great product - but they suck at their own business math!

I’ve always been a fan of doing numbers, and this really inspired me to try to visualize what MJ is talking about into a spreadsheet. MJ’s brilliant “two-flanked” attack strategy is a genius way to reach your lifestyle goal in only a matter of a few years.

While you are working away hard on growing out your business, this strategy simultaneously funds your Money System – while you are gradually getting closer to the lifestyle you want. Then when you can finally liquidate your Business System, you can “cash out” and enjoy your well-deserved retirement.

I have created a spreadsheet for you all to download, where you can enter in variables that suits you, your lifestyle goals, and business variables. Your destination and time frame is affected to varying degrees by the following most important factors:



  • How soon you get started. Remember: the best time to start is…NOW
  • The monthly growth you are able to achieve. (through marketing, product expansion, upsells, continuity, etc)
  • Your lifestyle goals. Naturally, the more lavish you want to live – the harder you’re gonna have to work for that to happen. But that’s ok.
  • Money System yield. It’s probably better to assume a lower-yield of around 5-6% to be safe but play around with higher numbers if you’re a risk-taker.

Below is a screenshot of what my spreadsheet looks like. It attempts to give you a rough idea of how long it will take you to reach your desired lifestyle, and what you must strive to create in order to get there. All the white boxes are fields where you can change the variables for the calculation.

You can download this spreadsheet by clicking here.



I also wanted to share a simple formula that will calculate your estimated profits at a given point in time after starting your business. This can be useful if you want to get an idea of how much money a business idea might make you after a certain amount of time – based on how much you make in your first month, and fast it is growing.
This is an ESTIMATE – and takes into account the following variables:

  • 1stMonthProfit
  • MonthlyGrowth (a percentage, but for calculation should be specified as 1.05 if the growth is 5%)
  • MonthsInBusiness

Your estimated profits after a given number of months, is expressed by the formula:

So for instance, let’s say that you are considering going into a certain niche. After doing some research, you find that the business should be viable with some moderate effort.
You figure you should definitely be able to sell 6 units per day to begin with - and that the market is willing to pay a price that gives you $50 profit per unit sold.
Your 1st month in business should bring in approximately 30 days x $50 x 6 = $9000 in profits from units sold.
Now let’s assume you figure that your monthly expenses that take away from this are roughly $3000 (overhead, advertising, rent, whatever, etc.)

So your gross 1stMonthProfit = $6000

You also talked to a friend who is running a similar business, and find out that with the moderate marketing he is doing – you should also be able to grow at roughly the same rate he is doing (or better). It estimated that you too can increase the business with about 10% each month.

MonthlyGrowth = 1.10 (the same as 10%)

So - what kinds of profits will this business be making 6 months, 12 months, or even 24 months going into it?
Let's see...



I hope my explanations and everything here makes sense. But if you have any feedback or comments to this - or have suggestions to things I could add to the spreadsheet, I would love to hear them! :)

Eskil
Oh man Eskil, you shouldn't have posted this.

Your going to be harassed by everyone with their excel questions, now your like the rich uncle of spreadsheets.

Solid work-thanks.

MK
 
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MJ DeMarco

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Marked GOLD, a great older thread that was buried out of sight!
 

InformationH

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When should you start investing in your money system?

When your business system first starts out isn't the extra money better used investing back into the business system to make more? Let's say you have an extra $1000 from your business systems first month. Is this too small of amount to start putting away? If I remember right in chpt 37 it says you can start funding you money system with as little as 1000$.
 

MJ DeMarco

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When your business system first starts out isn't the extra money better used investing back into the business system to make more?
Yes, assuming that scaling your business continues to scale profit.

At some point, your business might be in a cash accumulation phase (whereas reinvesting the extra $$ just isn't feasible, nor possible.)

This is where you could start investing for the money system.
 

JordanK

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'You can cash out on the 21st of July 2016'... damn this thread has been going for four years!
 

Brett Johnson

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1000 Thank you Eskil, downloaded and the spreadsheet paints a perfect picture of what numbers are needed for the end target
 

Chimp

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Yes, assuming that scaling your business continues to scale profit.

At some point, your business might be in a cash accumulation phase (whereas reinvesting the extra $$ just isn't feasible, nor possible.)

This is where you could start investing for the money system.
I have a good feeling that you covered this in your book but I don't remember sadly. What's the difference between your business and your money system?

Thanks!
 

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MJ DeMarco

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I have a good feeling that you covered this in your book but I don't remember sadly. What's the difference between your business and your money system?

Thanks!
Your business is your business.
A money system is a business that rents money.
 

GMSI7D

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Then when you can finally liquidate your Business System, you can “cash out” and enjoy your well-deserved retirement.
thank you

this is what brian Sher calls " making money out of thin air ".

he goes further into his book about what types of businesses are appropriate to do that . not all businesses are equal on this subject

a very interesting read.

https://www.amazon.com/dp/067004069X/?tag=tff-amazonparser-20
 

Dsilvar89

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Thanks dude
 

sage_smooth

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Does anyone have a link to the spreadsheet? I know it's been a while but I still figured I would ask…


Sent from my iPhone using Tapatalk
 

Dsilvar89

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