by Adam Litster | Dec 19, 2024 | Profit First, VPS, Entrepreneurship Newsletter
Navigating Your Numbers: A Practical Guide to Financial Clarity
In this issue:
- Understand Key Metrics: Discover which numbers—beyond just revenue—truly reflect business health.
- Spot Trends & Risks: Learn how comparing statements over time can uncover opportunities and highlight warning signs.
- Practical Action Steps: Use insights to fine-tune pricing, reduce expenses, and make informed decisions that support a cash-first, profit-focused approach.
If you’ve ever opened your financial statements and wondered, “What exactly should I be looking at?” you’re not alone. Even seasoned business owners can find the numbers overwhelming. Understanding the right metrics and signals in your financial reports can help you not only gauge what’s going well but also spot areas for improvement and guide your decision-making with confidence.
1. Revenue and Profitability: More Than Just the Bottom Line
It’s easy to fixate on top-line revenue, but true financial health is revealed when you look deeper. By prioritizing profit and managing cash intentionally, you gain a clearer picture of where your business stands. We get what we focus on, and our goal is to help every business owner earn a healthy CASH profit every single month. Systems like Profit First help you move beyond traditional accounting methods—so even if you find financial statements confusing, you can still maintain healthy margins and consistent cash flow.
Key Indicators to Consider
- Gross & Net Profit Margins: Check how efficiently you’re operating and where costs need to be trimmed. Your net profit shows what’s left after all expenses, but remember that net profit doesn’t always translate directly into cash.
- Current & Leverage Ratios: Evaluate your ability to cover short-term obligations and understand how debt impacts your risk and long-term growth.
- Cash Flow Metrics: Reviewing a Statement of Cash Flows can show where your money really goes, but if that’s too complex, Profit First provides a simpler way. By allocating funds into dedicated accounts for profit, taxes, and expenses, you can track, control, and forecast cash without being an accounting expert.
If you don’t currently know how your business is performing with respect to these metrics, I’d recommend sending an email to your bookkeeper or accountant today and asking them for these. We unfortunately don’t have room in this newsletter to really go deep into the best key performance indicators and how they work, but we’d be happy to guide you through this if you are interested in applying them to your business. You can just reply to this email with any questions, and we’d be happy to help! There are also dozens of great online tools/software providers that can give you a report on your business KPI’s automatically each month/week.
2. Why Profit First?
Profit and cash flow aren’t the same thing. You might be profitable on paper while still struggling to pay bills on time. One of the most common questions we hear from entrepreneurs is, “I see a profit on my P&L, but where’s the cash?” This is a key distinction that is essential to understand. Your Profit and Loss statement shows the income and expenses relating to the operations of your business, but doesn’t necessarily show where your cash is going in the end (i.e. loans, equipment purchases, owner’s distributions).
Profit First ensures that you manage your cash more effectively and get visibility into all the places your cash is going. You are the most important employee of your business! Profit First helps you to pay yourself first and always set aside profit before anything else. Rather than hoping money is left after expenses, you reframe your business finances to guarantee profit every month. With this system in place, you can make informed adjustments—like raising prices, negotiating better terms, or streamlining offerings—confident that you’re growing sustainably, without a degree in accounting! If you haven’t read the book yet, step #1 – get the book and read it this month!
3. Turning Insights Into Action
As you refine your understanding of key metrics, use them to make strategic moves:
- Adjust Pricing and Sales Strategies: If your gross margin is slipping, consider raising prices, seeking cheaper suppliers, or streamlining the service offering.
- Optimize Cash Flow: If cash is tight, aggressively review and reduce your cash expenses (especially debt!), focus on faster collections, negotiate better payment terms with suppliers.
- Direct Investment: Identify which products, services, or segments are most profitable and direct resources towards their growth. If something consistently underperforms, consider whether it’s time for a pivot.
4. The Bottom Line
Your financial statements are rich sources of actionable insights. By focusing on margins, trends, and cash flow (through Profit First, you can transform what might seem like a stack of complex numbers into a roadmap for informed, strategic decision-making. With a clear understanding of where you stand, you’ll feel more confident charting the course forward and seizing new opportunities to grow your business.
We have really enjoyed writing this newsletter this year! We will be taking a break next week as our team celebrates the holidays. We wish all of you happy holidays and a great new year!
Share this newseltter on Facebook!
Share to X
Share to LinkedIn
Adam Litster
Certified Profit First Professional and Pumpkin Plan Strategist
(816) 500-5779
adam@betterbizinfo.com
Visit our website
by Adam Litster | Dec 13, 2024 | Profit First, VPS, Entrepreneurship Newsletter
Stop Surviving and Start Thriving:
5 Steps to Break Free From Misaligned Business Strategies
In This Issue:
- Identify the Survival Trap: Understand how reacting to crises can pull you away from your ultimate business vision.
- Spot & Correct Misaligned Actions: Learn how to evaluate crisis responses and redirect your efforts toward profitable growth and long-term goals.
- Stay Focused on Your Vision: Discover tools to prune unnecessary distractions and say “no” to opportunities that don’t align with your business mission.
Escaping the Survival Trap: Stay True to Your Vision
As an entrepreneur, it’s natural to do whatever it takes to keep your business going when crisis hits—be it a sudden cash shortage, the loss of a key employee, or a major client walking away. I’ve found that crisis can sometimes even be more subtle or persistent (i.e. struggling to bring in enough business to cover your business and personal expenses). While quick fixes or drastic action often feel necessary in the moment, they can sometimes carry you further from your ultimate vision rather than closer to it. This phenomenon is known as the “Survival Trap”.
What is the Survival Trap?
The Survival Trap occurs when you repeatedly respond to urgent problems by taking actions that solve your immediate issues but misalign you with your longer-term strategic goals. These crisis-induced tactics might secure temporary relief, but they can gradually push your business off-course. Instead of moving toward your envisioned brand identity and market position, you get stuck juggling short-term “fixes” that fail to build sustainable momentum. This cycle of crisis and desperate action often results in a persistent feeling of anxiety and self-doubt.
An Example in Practice
Imagine the owner of a landscaping company aiming to become a high-end, cutting-edge provider in the community. Faced with an unexpected cash crunch caused by the loss of a major recurring customer, the owner scrambles to fill the gap and keep the business going through deep discounting. While these strategies bring in cash and keep employees busy, they also dilute the brand’s high-value image and steer the business away from its ultimate goal, not to mention threatening the business’s financial health and profitability. This entrepreneur is surviving, but not thriving—and certainly not moving closer to the desired vision.
Breaking Free from the Survival Trap
If you are feeling trapped in this cycle and have no idea how to get out, I want to first let you know that you are not alone. Everyone goes through this process of struggle and growth as they take on the challenge of entrepreneurship. I find myself in the survival trap far more often than I would like. The great news is that there is a way to overcome it! To escape the Survival Trap, you’ll first need a clear picture of your ultimate vision. Without a strong understanding of where you want to end up, it will be difficult to take any kind of decisive or effective action to get there. You’ll also need a structured way to assess how your decisions affect your long-term direction. Now let’s take you through the process of realigning your actions. I’ve also included a free fillable worksheet in this email to help you as you work through overcoming your personal survival trap.
1. Define Your Ultimate Vision:
Start with your “why”. Why does your business exist? Just saying, “We exist to make money” is not enough of a “why” to inspire others. People want to feel a sense of significance, a sense of a greater purpose, and will buy from and associate with companies that make them feel that.
You should include answers to other questions that describe your ideal vision such as: What do you want your brand to stand for? What type of clients do you want to serve? What do you want to be known for in your market? What does your ideal company culture look like? What is your ideal financial position? Your own role in the company. What are you doing day to day? What lifestyle are you living as a result? Describe your ideal workday.
Don’t rush this process. Having a solid vision is just as important as setting a sure foundation for a building. Take the time to really get to what you want most in your life and write it down.
2. Identify the Crisis and Your Typical Responses:
Now that we are defining our vision, let’s talk about how we can adjust our crisis response behavior. Consider a common crisis you face—say, for example, you run a seasonal lawn care business and we’re getting into the winter months. Sales and cash are starting to dry up as they usually do this time of year. List the actions you usually take to relieve the pressure. Are these actions consistently moving you toward or away from your defined vision?
3. Map Out Your Actions:
Using a tool like the Survival Trap diagram attached to this email, place your ultimate vision on one side and your immediate crisis on the other. Plot your usual responses around the crisis and note their direction. The goal is to visualize which moves push you closer to your vision and which pushes you further away.
Continuing with our example of the lawn care business, let’s say your usual response during winter months is to take out a loan to shore up your cash reserves and get you through to the spring. If part of your vision is to build a business that achieves 15% profit each year and is debt free, you would likely put the response “taking out a bridge loan” on the left side of the diagram (further away from your ultimate vision). You are in effect doing something that would sabotage your ability to improve your profitability and be debt free, since you are signing up for months or even years of costly debt payments and interest.
4. Select Better Solutions:
Next time a crisis arises, remember your vision. Ask yourself: Can you solve this problem in a way that supports your long-term goal? In the example of a manufacturer, instead of discounting high-end products at a bargain outlet, could you strategically partner with a boutique that respects your brand’s integrity, or adjust your product mix to prevent overproduction?
5. Say “No” to Misaligned Opportunities:
Entrepreneurs are often bombarded by new ideas. Not every idea is a good one; some are mere “shiny objects” that distract from your Sweet Spot—the intersection of your best clients, your unique offering, and the most profitable, systematized parts of your business. “Shiny objects” can come in the form of clients, products, investments, subscriptions, or anything else that can distract or even prevent you from achieving your vision. By rigorously filtering opportunities against your vision and mission, you learn to say no more often than yes.
Pruning Away What Doesn’t Serve You
This process isn’t just about responding to crises differently—it’s also about pruning away clients, products, or services that don’t fit your Sweet Spot. By eliminating those low-value, off-vision elements, you free up resources to focus on the most profitable, high-potential areas that align with your goals. We understand this seems counterintuitive and can be a daunting and scary thing to do. Can firing your troublesome clients or eliminating some offerings really help my business? The answer is YES! Over time, pruning ensures you nurture only the parts of your business that will help you flourish. We have seen it in dozens of clients that we’ve helped in the past, and they all can attest that pruning was one of the most influential decisions they’ve made.
Reclaiming Your Direction
Escaping the Survival Trap isn’t about ignoring the real challenges your business faces. It’s about addressing them in ways that move you closer to your ultimate destination rather than sidetracking you. By consistently choosing solutions that fit your vision, you transform crises from distractions into catalysts for meaningful progress.
In short, it’s time to break free. Stop merely surviving and start intentionally steering your business toward its envisioned future, one decision at a time.
We’d love your feedback as you do this analysis for your business! What insights did you gain? What would you like help with in the future? We’re here to help you, so don’t hesitate to reach out!
Share this newseltter on Facebook!
Share to X
Share to LinkedIn
Adam Litster
Certified Profit First Professional and Pumpkin Plan Strategist
(816) 500-5779
adam@betterbizinfo.com
Visit our website
by Adam Litster | Dec 6, 2024 | Profit First, VPS, Entrepreneurship Newsletter
Welcome to our weekly entrepreneur newsletter! Is there anything in your business that is keeping you up at night? Let us know! We’d love to help and provide our advice/experience in future newsletters.
What Makes a Good Bookkeeper—and How to Choose the Right One for Your Business
In today’s newsletter:
• Key Qualities of a Top-Notch Bookkeeper: Experience, accuracy, and strong communication.
• Must-Have Credentials & Skills: Relevant certifications, industry familiarity, and tech-savvy know-how.
• How They Help You Succeed: Providing clear financial insights that inform confident decisions and drive growth.
• Tips for Finding the Right Fit: Ask for referrals, interview thoroughly, and start small to test compatibility.
When it comes to running a successful business, having the right financial support team isn’t just a nice-to-have—it’s essential. Among these key players, a qualified and trustworthy bookkeeper can make all the difference between feeling confident in your decisions or feeling constantly anxious about how your business is doing and what to do next.
Why a Good Bookkeeper Matters
Think of a bookkeeper as your financial navigator. They help guide you through the numbers so you can clearly see where you’ve been, where you’re headed, and how best to reach your destination. With accurate, timely bookkeeping, you’re not left guessing if you can afford that new hire, upgrade your equipment, or invest in a new marketing campaign. Instead, you have solid data that informs your choices, helping you move forward with clarity and confidence.
Beyond just accuracy and timeliness, having a solid bookkeeper in your camp gives you access to a mentor that can guide you through understanding your business financials and mentor you in how to use that information to better your business and your life.
Key Qualifications to Look For
- Relevant Certifications & Experience:
A strong bookkeeper typically holds certifications—such as from the National Association of Certified Public Bookkeepers (NACPB)—or equivalent credentials in your region. They also should have a background in accounting and business, usually in the form of a college degree. These credentials indicate a foundational knowledge of accounting principles and best practices. Just as importantly, look for experience working in your specific industry. Industry familiarity can significantly reduce onboarding time and increase the usefulness of their insights.
Unfortunately, it is extremely easy for someone to take a class or two and call yourself a bookkeeper. There are a vast number of bookkeepers in the market, and in our experience, most don’t have a solid accounting foundation or background to be able to give you accurate financial data or guide you in understanding your financial statements. As a result, it is all too common for business owners to be burned by a bad bookkeeper, resulting in costly cleanup, stress, and uncertainty.
2. Attention to Detail & Accuracy:
Errors in your financial records can lead to misinformed decisions and even legal complications. A good bookkeeper is meticulous, double-checking entries, ensuring data is recorded consistently, and maintaining up-to-date reconciliations. That level of precision helps protect you from costly mistakes down the line.
A mistake many bookkeepers and business owners commonly make is focusing primarily on tax deadlines when scheduling bookkeeping. The challenge with waiting until tax time to get your books in order is that you lack insight into the health and profitability of your business until long after decisions need to be made. If you don’t know whether your business has enough cash to purchase a key piece of equipment, or don’t know if one of your products is making a profit, you will end up making poor business decisions and will often end up in a cash crisis sooner than later.
It is essential that you find a bookkeeper that is able and willing to update your financials at least monthly; weekly is even better!
3. Technological Proficiency:
Today’s financial world is driven by cloud-based accounting software and integrated platforms. A bookkeeper who’s skilled with tools like QuickBooks, Xero, or other industry-specific solutions is more efficient, accurate, and responsive. This technological edge also means you’ll have real-time access to up-to-date financial information—no more relying on outdated spreadsheets.
4. Effective Communication & Collaboration:
You should feel comfortable asking your bookkeeper questions, discussing reports, and seeking their guidance. The right professional takes the time to explain financial data in plain English (not jargon), making it easier for you to understand your numbers. They should also actively listen to your goals, challenges, and concerns, then tailor their support accordingly.
Many bookkeepers who don’t have a strong background in business and accounting will often avoid discussing your financials with you in favor of just sending monthly reports through email. We have seen some even restrict the business owner from accessing their own QuickBooks account! We believe it is crucial to have a bookkeeper who can help you understand your own business and be a guide to you as you make decisions.
5. Forward-Thinking Mindset:
A top-tier bookkeeper goes beyond the numbers. Rather than just reconciling your transactions each month, they provide insights that help you make proactive business decisions. Whether it’s pointing out trends in your spending, identifying cash flow bottlenecks, or highlighting high-margin products, their input can shape your strategy and steer you toward growth.
How to Find the Right Fit
Start by asking for recommendations from peers, networking groups, or professional associations. Hearing firsthand how a bookkeeper has helped another business thrive can give you confidence in your choice.
- Interview & Ask Tough Questions:
Don’t hesitate to conduct thorough interviews. Ask about their approach to deadlines and their experience in your industry. Look for someone who shows genuine interest in your business’s unique situation and cares about you and your personal and professional goals.
If possible, start with a smaller project or trial period before fully committing. This approach lets you see how quickly they respond, how accurately they handle your books, and whether their communication style matches what you need.
Pricing is generally a big issue when it comes to engaging a bookkeeper. We have all seen the signs offering bookkeeping for $20/hour or even per month. You will find a wide range of pricing as you search the market for a good bookkeeper. Our guidance to you would be to consider the value of what you are getting in addition to just the cost. We pay for what we get, and paying for a $20/hour bookkeeper will most often result in poor quality and costly cleanup. Find a bookkeeper that is fairly priced but provides the value that you want and need. Excellence in quality does generally come with a premium, but you will save in the long run, both financially (i.e. reduced CPA bills), and in peace of mind.
We recommend that business owners with less than around $100K in annual revenue and who have the capacity should look into doing their own bookkeeping first. It may be a daunting task, especially for those with no background in accounting, but we’ve seen tremendous benefits when business owners do the work to learn how to understand the fundamentals of bookkeeping and accounting, navigate QuickBooks, and take charge of their business finances from the beginning. Those who do this will rarely struggle to make good business and finance decisions and will have the tools and foundation to grow a thriving and profitable business.
Setting the Foundation for Growth
Your bookkeeper plays a key role in building a stable financial foundation. With the right professional by your side, you’ll have greater peace of mind, more time to focus on growth, and the knowledge that your decisions are rooted in solid financial intelligence. In short, choosing the right bookkeeper isn’t just another administrative task—it’s an investment in the future of your business.
Whether you keep your current bookkeeper, engage our firm to do your bookkeeping, or find someone else, our hope is that you have the best support and foundation you need to succeed in reaching your professional and personal goals. Let us know if you have any questions or would like help navigating the search for a good bookkeeper for your firm!
Share this newseltter on Facebook!
Share to X
Share to LinkedIn
Adam Litster
Certified Profit First Professional and Pumpkin Plan Strategist
(816) 500-5779
adam@betterbizinfo.com
Visit our website
