Profit Baron

The Difference Between Being Cash-Flow Postive And Being Profitable

January 1st, 2010

There are many people out there that believe that if you are Cash-Flow Positive you are Profitable, or even worse, there are others out there that think Cash-Flow Positive and Profit are the same.

Those people are wrong, and if you are one of those people then I’d like to point out that you’re not the only one who believes this and I’m glad you’re reading this post.

Cash-Flow is basically what the name says it is, it is the flow (movement) of cash (money) coming into (incomes) and going out of (expenses) of the business. Businesses are required to create a “Cash Flow Forecast” as part of their financial statement, and the forecast states the movement of cash through investing, financing (long-term financing and dividends) and operations (current assets and liabilities).

As a result this means that Cash-Flow is essential to the liquidity or solvency of the business. In other words, businesses need to keep a close eye on their Cash-Flow to ensure they can afford to make the payments to their creditors. If businesses correctly forecast they can anticipate periods where they won’t have enough cash in the business to pay their creditors which allows them to make decisions on purchases, as well as, provide the business with the ability to get an extended overdraft or loan to cover the period of negative cash flow.

Cash Flow Positive is where the businesses long-term cash inflows are exceeding its long-term cash outflows. Note: It is vitally important that you realise that just because a business is bringing in more cash it does not mean that is it profitable (and vice versa).

In order to help you understand this, I am going to use Twitter since this was part of the reason that led me to writing the post. This is because there have been reports all over the internet that Twitter is profitable. The likes of Bloomberg, Mashable, BusinessWeek, GigaOm etc all reported that Twitter was profitable, and yet all of them were wrong. Why are they wrong? Twitter isn’t actually profitable, they are cash-flow positive. Twitter have raised $155M in Venture Capital and yet because, Twitter is reportedly pulling in $25M/year from the content deals with Microsoft and Google respectively they’ve decided to claim Twitter is profitable.

Twitter will only become profitable when they have ‘repaid’ the $155M investment back to the venture capitalists and have excess money after the ‘repayment’ has been made. This is because, Profit is essentially Total Revenue minus Total Costs and if the businesses Total Revenue exceeds the Total Costs they are profitable and for Twitter they are essentially in debt of around $155 Million and when that amount is ‘repaid’ they will become profitable. Until then they are cash-flow positive.

However, it is likely that Twitter’s investment is not debt financing. Therefore, another example of this would be a manufacturing company who purchase equipment to produce goods. However, the firm is experiencing financial difficulty and cannot take out any further loans from banks (or other financial institutions) so as a result, they decide to sell half of their manufacturing equipment. As a result of this sale, the firm will be cash-flow positive due to the fact they have sold manufacturing equipment however, they will not make a profit on this as the items have been used and they will have sold them for liquidation prices.

I hope this helps you understand the difference between Profitability and being Cash-Flow Positive, and from an investment perspective it is important to note, as highlighted by the example above, that a business can be cash-flow positive yet not be profitable, which is why when investing you should analyze income statements and cash-flow statements and not one or the other.

Posted in Business | 7 Comments »

It’s Not What You Publish. It’s What You Don’t

November 12th, 2009

The reason I’ve not been posting lately is because, I’ve been spending my time on Twitter and I felt that I didn’t have anything of value to provide you with at the time. You may call this censorship but I don’t as, I believe that it is pointless to write about something when you are not providing a new perspective on it.

This leads me to my point that what is excluded from your site is what defines it – as this will make your site different to the competition and provide it with an identity at the same time.

When relaunching Profit Baron, I decided that it was going to have a sense of direction and that it was going to be a Personal Entrepreneurial Blog. In other words it will provide you with details of my life, my business ventures as well as, provide you with posts relating to the internet and entrepreneurship. This would be the opposite of pumping out posts on the latest widget or ad network or even pumping posts loaded with affiliate links as I do not believe that this provides you with value – and if there is a time where it does provide you with value then they will be obviously discussed on Profit Baron.

Now, I’m not saying you have to be unique as it is virtually impossible to do that – every blogger will repeat themselves (and contradict themselves) however, what I am saying is by controlling what you are deciding to publish on your website you are influencing the perception of your website and thus defining your website.

So if you are an online publisher ask yourself, what are you publishing and what does that say about your website? What are you covering/not covering? How does this relate to your competition? This will allow you to decide how you want to build your site as it will help you to stop posting content on particular topics whilst providing more content on other topics and this is will help you create an identity in your niche and define your website.

Posted in Blogging | 1 Comment »

How To Find Long Tail Keywords

September 17th, 2009

This is part 2 of how to get more search engine traffic which tells you helps you find find long tail keywords to get more traffic from search engines. You can read part 1 here.

There are four methods which I have tried to find long tail keywords each having their advantages and disadvantages and I will explain each of these methods along with some advantages and disadvantages so you can decide which one is the best method for you.

Method 1. Keyword Analytic and Tracking Programs

I order to use a keyword analytic/tracking programme you will need to place a few lines of code into your site, so they can recommended long-tail keywords specifically related to your website.

Having tried a few keyword analytic/tracking programmes for myself, I found several problems with the ones I used. Firstly, if the website is new they are useless as they won’t be able to provide any long tail keyword suggestions due to you not getting any traffic from the search engines. Moreover, if you are getting some search engine traffic and the site is new then you will also receive the suggestions slowly which is annoying as you can’t plan to develop content in advance which match these keywords. Secondly, on the other side of the spectrum if you have a website which receives a considerable amount of search traffic, they give you too many suggestions and on several occasions provided far too many to implement. Moreover, if you decide you would like to filter and select specific keywords off the lists provided be prepared to spend a considerable amount of time with these programmes as the user interface is poor which makes it really hard to group, sort and tag keywords according to your priorities. Finally, they don’t provide a search volume measure for the long tail keywords they suggest which again means you will have to spend time using a search volume analyzer to find out which long tail keywords you should prioritize.

Method 2. Monitor Internal Searches

I haven’t tracked them on Profit Baron yet to create content maybe I should although, I have used this method on other websites I own/have owned and by monitoring what keyword phrases users are searching for on your website this allows you to create create content directly related to what they are searching for.

Method 3. Analyse Your Competition

This is an awesome method because, the competitor has already done the hard part for you – finding the long tail keywords and all you need to do is discover what those are. I believe that there are only two ways they’re the only ones I know to find what your competitors keywords are which is by visiting their website and analysing it by viewing their page source to find their title, meta tags and back links. However, this approach can take a significant amount of time but the benefit is that the research is detailed and you will understand your competition in much greater detail. The other method is a faster approach and this is by using a keyword parsing tool.

Note: This method depends on your websites rank in search engines, its link profile, on-site optimisation etc to ensure that you have a better chance of ranking better than your competition in the search engines.

Method 4. Develop Natural Long Tail Keywords

This is the easiest and simplest way to develop long tail keywords as it requires little to no research at all. This is because, all you have to do is update your website with new content regularly or more frequently by adding new pages and core keyword-friendly content. The key is frequency because, being more frequent allows you to increase your visibility in the search engines and in turn will help to increase search engine traffic.

Posted in SEO | 3 Comments »

So, You Want More Search Engine Traffic?

September 16th, 2009

I believe that the best cheapest way to receive high quality targeted traffic is via a search engine, and by having the amount of traffic coming from the search engine increased is great for any business. This is because, due to the increase in search engine traffic you will receive a bigger audience which could result in profits rising in the long term via sales, referrals, advertising etc.

In order to discover how to bring more search engine traffic to your website you need to understand the Long Tail theory and how to apply this theory. If you’re not interested too lazy to read the Wikipedia link then basically long tail keywords are multi-phrase search queries which are far more targeted than a main keyword topic as they specifically are targeted to information a user is looking for. In order words, by targeting low-volume search queries rather then dominating the major ones you will receive more traffic to your website!

For instance let’s say that the main keyword is “Business” then you would have the following long tail keywords:

How to start a business
How to write a business plan
The benefits of getting a business mentor

The examples listed above are what real users are searching for and by optimising your website to target these long tail keywords by creating content for them then you are likely to get far more traffic then if you ranked for “Business”.

Firstly by adopting this method, you will receive higher conversions as visitors are already likely to purchase or convert on affiliate programs or recommendations as their search was more specific to the offer you are offering.

Secondly, the monetization potential is increased because, these visitors are highly targeted which means they are more likely to click an ads or subscribe to your site etc which means your audience size has increased and allows additional product sales in the long run.

Moreover, long tail keywords are easier to rank as you are likely to face ‘weaker’ competition as the larger sites are keener on targeting the main keywords.

Finally you are going to receive more website visitors as you will have more pages indexed by the search engines and this results in increased visibility which equals search engine traffic.

In the next post I will explain how to find long tail keywords.

Update: The second part can be read here – How To Find Long Tail Keywords

Posted in SEO | 4 Comments »

Why I Unfollowed 4,145 Twitter Users!

September 13th, 2009

Just over a month ago, there was a trend of unfollowing on Twitter which although occurs regularly was different to the norm. This type of unfollowing was where a user unfollows everyone that they follow and then only follow a few users.

Since then it has received considerable attention and I have read numerous arguments for jumping on the unfollowing trend and against jumping on the unfollowing trend.

I’m not going into too much detail regarding as to why I decided to unfollow everyone as the advantages and disadvantages are well documented, although I will discuss the two main factors of my decision.

I recently blogged about how I was starting to like Twitter by actually realising what the service means to me and this helped to make the decision to unfollow the 4,145 users that I was following. A decision which has significantly improved my experience.

This is because, you can’t realistically follow 4,145 people unless you want to use a significant amount of your time to read all those tweets of the users that you were following.

Furthermore, if you follow only a limited amount of users the level of spam decreases to zero unless you want to follow spammers especially in terms of DM’s which whilst I still have a DM bug, I am yet to receive a spam direct message since adopting this new policy.

The disadvantage of adopting this policy is that you’re going to lose followers. My follower count has fallen by 506 already to 3884 followers. The drop of 506 may not seem significant but considering the amount of followers I had 4390 when I decided to do the mass unfollowing then I have already lost over 10% of my followers and I’m expecting to lose more. The fact that I have lost over 10% of my follwers doesn’t concern me because, if people are only following me because, I am following them – I don’t want them to follow me. I only want people to follow me who want to see what I have to say and not because I am prepared to follow them back.

Posted in Internet | 5 Comments »