It’s an ideal time to post this one today soon after the Esports weekly aired that discussed ‘Money in Esports: How it’s earned and spent’. I made a few tweaks to what I’d previously written because some of the guests echoed a little of what I thought.
But I think a question that wasn’t answered was ‘How to better evaluate your teams income stream and have cash left over (for finance geeks ‘liquidity’) to spend on things you least expect.
Looking back at teams of yesteryear, the crippling nail in the coffin has most often been lack of access to cash. Interestingly enough, I’ve seen liquidity to be the main reason why some of the most successful start-ups fail outside esports as well. Of course, just a personal insight not a generalization but it is noteworthy.
So how are teams dealing with their cash flow better now?
It’s gotta start with a more structured sales process. One of the things few sales folks do in the space now is to ‘grade/score’ their sales leads and then utilize the scoring beyond partner onboarding. Just because someone is paying you $50,000 today doesn’t at all suggest that someone else paying you the same amount can be considered the same.
There are a host of factors that influence how you need to deal with one clients money in comparison to another
This might be super boring for a bulk of people to follow but I assure you it’s something worth putting time into in order to better manage cash flow.
Create your own scoring system and saving processes.
At one point Billionaire investor Warren Buffet was the richest man in the world (or quite close) and was famously known to say:
“Do not save what is left after spending instead spend what is left after saving”
So what do I mean by scoring? In short, you need to list out factors that determine the quality of your lead. Some examples of attributes you can use are ‘Length of time company has been established, Historical data available, Quality of legal team, Average payment terms’ and grade each lead between 1-10. 1 being the least reliable and 10 being the best. Decide on all of your attributes and score each client this way. Now depending on the sore each client gets, create ranges that signify what determines a low risk client to a high risk client. So for example, a score of 5-10 is a very high risk client while a score of 80-100 would be a low risk, stable client.
Once you’ve determined the risk rating of the client you’ll now need to figure out what % of the income you receive from them each month should be saved and what should be spent.
Naturally, the higher the risk rating of the client the more you will need to save from each month of the income they bring you. If you onboard an extremely high risk client, look to save upto 50% of what they pay you and only factor in the 50% that remains in what you can spend.
Why does this work?
Because managing your cash flow today will help you to be better off tomorrow. Talk to your players and let them know what you plan to do. This way, you’ll have a cash surplus available that if required you can reward the team with at the end of a big tournament or season. You also don’t end up relying on income each month that might disappear. And if it does, you’re prepared for it because the amount you have to make up is far less than what it would have been if you were spending nearly every penny that came in.
Obviously developing your lead scoring system will take a bit of planning but I swear to you, it might be the difference between your team being a cash healthy business and one that barely breathes month to month and most likely headed for bankruptcy. Which is bad. Stating the obvious but yeah, very bad. Owing players and others money because you didn’t manage the cash you had coming in is probably the worst way to go for an org because it also kills the reputation of the person running the org for close to what I like to think of as.. eternity.