Diagnose your business in 15 minutes

PROFIT MASTERY PRESENTS
The Profit Move
The fiscal physical most owners skip
{{current_date_full}} · Part 2 of 3
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▍ IN THIS EDITION

Hi {{first_name|there}}, this is Part 2 of 3 in our planning series. Three quick things this week:

THE NUMBER

47%

Barely half of U.S. small employer firms are operating at a profit. The rest are breaking even or losing money. Most owners assume "profitable" is the default. For about half of businesses, it is not.

Source: Federal Reserve Small Business Credit Survey (Main Street Metrics)

▍ THIS WEEK'S MOVE

What: Sit down for 15 minutes and answer 10 plain questions about your business. Five about the numbers, five about the foundation underneath them.

Why: You would not want a doctor to prescribe treatment before running any tests. Your business is the same. Most owners jump straight to a fix, "cut costs" or "chase sales," without knowing which problem actually matters. The checkup tells you where to start.

How: Take the interactive checklist below. Answer honestly, best estimates are fine, no statements required. Then do one thing this week: act on your single weakest answer. Not all ten. The one that scored worst. That is the move.

▍ WORTH KNOWING

Optimism is cooling. Owners' expectations for revenue growth in the year ahead fell to their lowest level since 2020, per the Federal Reserve's latest Small Business Credit Survey. Translation: more owners expect a tighter road. Knowing your runway matters more when the outlook softens. (More on the outlook next week.)

A funding gap is common, not rare. About one in three firms that applied for financing last year didn't get the full amount they asked for (Fed Small Business Credit Survey). The lesson operators keep learning the hard way: line up your runway before you need it, not the week you run short.

The commingling trap. The fastest way to make your own numbers untrustworthy is to run business and personal spending through the same account. One business account, one business card. It makes every other number you look at honest.

▍ UPCOMING

FEATURED THIS FRIDAY
Never Get Caught Short. A 3-hour working session with Colin on turning cash flow into a system and building your 13-week forecast, live. Friday, July 17, 10am to 1pm ET. Free for PM Pro members, $149 otherwise.

Master Your Numbers Bootcamp (virtual flagship). Our full system, six sessions, 12 hours, August 11-27. This is the Cadillac. $895, free for PM Pro members. Register here.

In person: Turn Profit Into Cash Flow. Indianapolis, Thursday, July 23, 12:30pm ET, $175. Register here.

THE CFO'S TAKE   Part 2 of 3 · Planning
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Colin King, CPA, CFA

Here's how most business owners self-diagnose their financial problems:

From there, your options are to dig in and figure out what's broken and how to fix it on your own. Or hire someone to tell you what's broken, then go fix it on your own.

In most cases, both scenarios will require having at least some basic financial data as the basis for "digging in."

What if there was a faster (and easier) path to finding the solution to: "go fix this first!"

What does it mean to define your "financial situation?"

Using a simple checklist, you're defining the current financial state of your company. When you go to the doctor, they like to run some tests before suggesting a treatment. We can do the same for your business and we don't need to do any deep analysis to answer these questions. "Do you have debt? Yes! I have a big bank loan with a big monthly payment!"

Here's how it works…

Using the basic F/S checklist, you'll answer 5 questions about the numbers (financial component) and 5 questions about the underlying foundation of the business (foundation component).

This checklist shouldn't take more than 15 minutes to complete and will require very minimal "lookup" effort.

1) Financial Component

For the majority of companies, these 5 simple questions will quickly determine how things are going financially.

Notice that most of these questions are "survival oriented."

The golden rule of business is "live to fight another day."

We need to make sure we have plenty of runway to properly execute the system. Runway is the business equivalent of time. Plenty of cash in the bank to cover the next few months of expenses? That's runway. A big line of credit you can draw on? That's runway.

So if you've marked each of these as a "positive," that means you have plenty of runway to implement this system from start to finish. That's what we're solving for here.

2) Foundation Component

Think of these questions as the behind-the-walls "plumbing" fueling your financials. If these aren't in a good place, they can offset some of the positive responses from the financial section.

Example: if you answer that your business is making money and you know your margins; but then respond that the books are 3 months behind and personal expenses are commingled, then I'll question the accuracy of the profitable/margin answers.

It is very difficult to run a profitable business long term without good financial information (data).

Three additional facts help narrow the optimal starting point — business age, total revenue, and total headcount:

So if your business is new/young with no or few employees and a small revenue base, then you'll want to focus on: (1) growing sales; and (2) managing the cost structure (costs, unit economics, breakeven).

▍ QUICK GUT CHECK

Answer fast, no looking:

Three yes: you're on solid footing. Any no: that's your starting point. The full checklist scores all ten and tells you what to do first.

Here's what becomes the Full Edition

Starting next week (Part 3), the second half of the article moves to the paid Full Edition. Everything above this line stays free. This week, the whole thing is yours, free.

Your options going forward:

It acts as a guide to help you determine where to start when implementing your financial operating system.

Again, in an ideal world, you have plenty of time and runway to execute the system from start to finish, slowly and methodically. Not every company has that luxury…

Based on checklist responses, here are some common scenarios:

Unprofitable + Short Runway

In this scenario you're not making money (yet) with virtually no cash runway (i.e. you think you'll run out of cash in just a few weeks).

In this case, taking the time to learn the full system from point A to point B won't matter if you don't survive to use it. This company should start with cash flow and get cash management under control. Once you're consistently predicting and producing cash flow, then you can start to implement other parts of the system.

Declining Sales + Unprofitable

In another scenario, you might have a business with declining sales and no profitability.

Where do you start with this one? You could make a case to focus on improving profit first, but I would argue it depends on the cash runway. With plenty of execution runway, you have some flexibility to figure out which fix is more impactful.

Growing + Unprofitable

Let's say you have a growing business that's not yet making money.

In this case, it doesn't matter whether you are a young or mature company, growth is a good thing so long as it's consistent and gross margin positive. If that's the case, then time is on your side. Under this scenario, we'll want to focus on the cost structure and funding to know when we'll hit profitability and to make sure we have enough capital to get there.

Profitable + High Debt

What about a company that's profitable but loans are eating into most or all of the profits?

This is a fixable problem by focusing on the balance sheet (refinancing debt, raising equity, improving working capital, etc.). Funding becomes a top priority so you can keep more of those profits after making your monthly loan payment.

The Profit Mastery system requires an investment of time and effort to complete from start to finish. It's not something you can build and be done with in a single week.

And we can't point you to a specific section as a starting point without having some basic background information. Consider this a "fiscal physical" of sorts. You can't get the right treatment for the patient (your company) until you've run some tests.

Sometimes the treatment isn't a single solution either. It's some combination of remedies. Your financial problems will work the same way (i.e. improve your cost structure while simultaneously growing sales; or clean up the balance sheet while fixing margins).

It may feel like you're working on 3 problems at the same time, but this checklist will help you identify which one deserves the most attention.

Take the interactive checklist

Ten questions. About 15 minutes. You get a personalized scorecard and your action plan, delivered to your inbox, showing exactly where to start.

▍ READER QUESTION

Q: My books say I made a profit last year, but my bank account never seems to have any money in it. How is that possible, and which problem do I actually fix first?

This is one of the most common (and most frustrating) situations owners bring me. Profit and cash are not the same thing, and your business is proof.

Profit is an accounting result. Cash is what is actually in the bank. The gap between them usually lives in three places. First, money tied up in accounts receivable, work you've done but haven't been paid for yet. Second, money sunk into inventory or equipment that hit your bank balance but not your profit line. Third, loan principal and owner draws, which pull cash out but never show up as an expense on your P&L.

So where do you start? Not with sales. You start by finding the leak. Pull your last three months and answer two questions: how long does it take to collect what you're owed, and how much cash is sitting in inventory. That's usually where your "missing" profit went.

The fix is almost never "sell more." Selling more when your cash is trapped in receivables just traps more cash. First you free up the cash you've already earned. Then you grow. That order matters.

If you want the fast version, the checklist will tell you whether cash, profitability, or the balance sheet is your real starting point.

▍ PM PRO

PM Pro members got both of this month's workshops for free. That's the idea. PM Pro is the membership that turns this newsletter into a system: the tools, the templates, and monthly Office Hours with Colin.

Missed Part 1? Reply "overview" and I'll send last week's Business Overview checklist and template.

Want a second set of eyes? Book a Numbers Review: a 45-minute working call, $100, credits toward PM Pro. Reply "review."

You don't need a perfect business. You need to know where you stand. Run the checkup, fix the weakest thing, and come back next week for the Outlook.

Talk soon,
Colin

P.S. Barely half of businesses are profitable. If you're in that half, the checklist tells you how to protect it. If you're not, it tells you exactly where to start. Fifteen minutes, either way.

Know your numbers. Command your cash. Scale with confidence.

The Profit Move is education, not personalized financial or investment advice.