What should you do? I frequently get asked what's the best path to become profitable. Sometimes, what's really meant is the fastest way to profitability. There's no such thing as one-size-fits-all financial advice; but what the heck, I'll share mine anyway. Here's my "quick fix" list to rapid profit improvement: Situation + runway Find the crown jewel Review pricing strategy Analyze my cost structure Double down on sales & marketing Remember, our goal is to safely and quickly get to...
13 days ago • 3 min read
What's your financial cadence? Business owners have a typical financial review process that goes something like this: Bookkeeper or CPA sends financial statements Owner stashes financials in a drawer/folder Those financials are never touched Financial statement analysis is the primary tool when it comes to evaluating business performance (I've said this before). There's a "what" component and a "when" component to that analysis; here's a simple routine that should work for most businesses....
20 days ago • 2 min read
What is capex and why does it matter? How well do you understand the concept of depreciation and capital expenditures (capex)? Can you relate it to your own business or another business owner? It's a tough one even for seasoned finance pros. This is the best explanation of capex I've ever come across (book revealed later): Capex explained in Small Giants by Bo Burlingham What is capex? Capex is money you spend on big-ticket purchases with an intended use for more than a year. Most companies...
about 1 month ago • 4 min read
What can you learn from Netflix Q4 results? As an SMB owner (and avid student of good investments), the public markets offer an excellent source of lessons and benchmarks for us small-time pikers. Let's take a look at Netflix Q4 results to find some nuggets of wisdom: Netflix Q4 shareholder letter Netflix yearend financials (excel) Beyond Netflix’s impressive quarter (massive subscriber growth, outstanding cash flows, etc.), their quarterly letter offered 3 valuable takeaways for the average...
2 months ago • 2 min read
Models To run a successful business, you need 3 essential models: Business model — what you do Profit model — how you make money Revenue model — how you charge for it Sounds simple and you probably have a sense for these in your head. If you're managing a large team, trying to grow, or climbing toward profitability; then keeping your models in your head won't scale. You know... that concept of rowing in the same direction? Here's a breakdown of each model 1) Business model Think of your...
5 months ago • 2 min read
Scorecarding “Great vision without great people is irrelevant. Great people without a great scorecard are ineffective.” — Jim Collins If I were to "drop in" on your business today, could you tell me how things are going this week? Most business owners don't have a formal tool or process for monitoring early warning signs (both good warnings and bad warnings). These "tools" go by many names: KPIs, scorecard, dashboard, balanced scorecard, report card. Queue the Peter Drucker quotes — What gets...
5 months ago • 3 min read
Seeking help Ever feel like running a business is a lonely endeavor? When starting or running a business, going it alone certainly allows for more control but comes at the expense of added stress. I've heard some experts say that every business owner should have a coach, or mentor, or some other support. But what does that mean? First, what are the different types of "help" out there? Boards — A group of experienced people (can be paid or unpaid) who provide guidance, strategy, connections,...
5 months ago • 2 min read
Good books You need a good set of books. Period. When working with a new client, I typically start with 2 questions: Are you consistently getting financials reports on a timely basis? Do you believe the numbers you're looking at (i.e. are they reliable)? Don't worry if you answered "no" to either question, we have a helpful set of tactics coming up. For everyone else, you may find ways to make improvements. Why this matters No amount of financial analysis, guidance, consulting, etc. will help...
6 months ago • 2 min read
Return on capital We're wrapping up a 3-part series (here's part I and part II) on capital allocation – the effective use of profits and cash flow – with a concept called Return on Invested Capital (ROIC). [Sometimes just called return on capital or ROC.] First, a quick reminder of our balance sheet – we buy or build assets for the purpose of driving increased revenue and we fund those assets in 2 ways: Using debt from loans and/or suppliers (trade credit); and Using equity through retained...
6 months ago • 3 min read