Business cash flow becomes painfully important when your P&L says you made money but your bank account has requested a second opinion.
Both can be right.
Profit is a report. Cash keeps the lights on, payroll paid, and you from checking the banking app at 3:17 AM like it owes you an apology.
Your biggest client may also be your least profitable.
The 70-hour week you call entrepreneurship may simply be an expensive job with overhead, employees, and truck payments.
Your P&L may be smiling while your bank account is crying.
In Episode 26 of From Burnt Out to Bought Out, Jon and Ryan answer the questions business owners hate asking out loud.
Why is there no money in the bank? Is the biggest client actually profitable? Do you need a bookkeeper, controller, CFO, or coach? And why does the business still need you after another 70-hour week?
They have answers. They even agree occasionally.
Business Cash Flow Is Not the Same as Profit
A company can report a profit and still run out of cash.
Profit measures revenue and expenses during a specific period. It does not always show when customers will pay, how much debt principal leaves the bank, how much inventory has already been purchased, or how much the owner has withdrawn.
If accounts receivable are growing, that money is not sitting in your bank account. It is sitting in your customer’s account while you provide an interest-free loan.
If you purchase more inventory than you can quickly sell, you have converted cash into what Ryan calls “wealth on the shelf.” The value may still exist, but it cannot cover payroll until the inventory is sold and the customer pays.
Debt creates another gap. Interest appears as an expense on the profit and loss statement, but principal payments appear on the balance sheet. The complete payment still leaves your bank account.
| Cash Flow Item | What the Report Shows | What Happens to Cash |
|---|---|---|
| Accounts Receivable | Revenue may already be recorded | The customer still has the money |
| Inventory | The inventory remains an asset | Cash has already left the bank |
| Debt Principal | It does not appear as a P&L expense | The complete payment reduces cash |
| Owner Distributions | They may not reduce reported profit | They reduce available cash immediately |
Find Where the Money Went
Ryan offers a simple way to investigate the gap between profit and cash.
Start with the net income shown on your profit and loss statement. Then subtract debt principal payments, taxes, owner distributions, increases in accounts receivable, and cash spent building inventory.
For example, imagine your P&L reports $100,000 in net income.
- Subtract $30,000 in debt principal payments
- Subtract $20,000 paid in taxes
- Subtract a $75,000 increase in accounts receivable
The company reported $100,000 in income, but the rough cash impact is now negative $25,000.
The calculation is not a complete cash flow statement, but it quickly reveals why a profitable month did not produce more money in the bank.
Profit tells you whether the work made money. Cash tells you whether the company can open tomorrow.
Build a Real Collections Process
Business owners often treat collections as an uncomfortable conversation instead of an operating process.
The company completed the work. The customer accepted the product or service. Payment is the other half of the agreement.
If an invoice becomes one day overdue, contact the customer. Do not wait until the balance is 30, 60, or 90 days late and the company needs a line of credit to cover payroll.
A useful collections process should include:
- Sending invoices quickly and accurately
- Making payment as easy as possible
- Following up immediately when an invoice becomes overdue
- Assigning one person to own the collection process
- Reviewing receivables every week
Revenue does not pay your bills until the money arrives.
Start Your Profit Account With One Percent
When owners hear about setting money aside for profit, they often assume the business cannot afford it.
Ryan’s recommendation is simple: start with 1 percent of every cash receipt.
If one dollar enters the business, move one cent into a separate profit account. The company then has 99 cents available for operating expenses.
The first goal is not accumulating a life-changing amount of money. The goal is building the habit and forcing the company to operate within a defined budget.
As the company improves, gradually increase the allocation. If your long-term goal is a 15 percent net income margin, the profit allocation can eventually move toward 15 percent.
The system creates discipline before the next expense has a chance to consume every available dollar.
Your Biggest Client May Be Your Worst Margin
The largest client is often the logo an owner is proudest to show.
That does not mean the relationship is profitable.
Large clients frequently expect discounted pricing, faster delivery, additional meetings, more support, and white-glove service. As the account grows, the revenue becomes more impressive while the margin quietly deteriorates.
If the account produces only a 4 percent gross profit, very little remains to pay fixed expenses such as rent, office costs, equipment repairs, insurance, and administrative salaries.
Run the numbers before deciding that a large customer is a good customer.
- Track the labor. Calculate every hour the team spends serving the account.
- Track the materials. Include everything consumed to deliver the work.
- Track the exceptions. Count rush requests, extra meetings, rework, discounts, and unpaid support.
- Calculate the margin. Determine what remains after the direct cost of serving the client.
- Review the agreement. Decide whether pricing and expectations need to change.
Revenue is not margin. The biggest number on your customer list may not be the most valuable relationship.
Customer Concentration Creates Risk
If losing one customer would blow a hole in your revenue, the problem is not merely the possibility of losing them.
The problem is that the concentration already exists.
A change in leadership, one bad email, a pricing dispute, or a competitor offering a lower price can put the entire company at risk. A relationship the founder spent years building may not transfer when the client’s leadership changes.
Customer concentration also affects exit value. A buyer will discount a company if one account represents an excessive share of its revenue because losing that customer could change the value of the business overnight.
Do not create unnecessary conflict with a customer the company still needs. Measure the account first, have an honest conversation about pricing and expectations, and gradually diversify the customer base.
The goal is to reduce concentration over time by adding profitable customers and decreasing the leverage any single account holds over the business.
Working 70 Hours Is Not a Business Model
Owners often wear a 70-hour workweek like a badge of honor.
They describe themselves as indispensable, committed, or willing to do what nobody else will do. The business may be growing, but the owner remains its operating system.
If every question, approval, customer issue, and financial decision comes back to you, you have not created a company that operates without you.
You have created a job with overhead.
Start by writing down every interruption. Each interruption identifies a missing process, unclear responsibility, training problem, or decision that has not been transferred.
Then decide which responsibilities genuinely require your involvement and which could be completed by another person at 80 or 90 percent of your current level without consuming your time.
Show the team how the work should be completed. Document the process. Have the employee demonstrate it back to you. Let them execute while you provide feedback, then remove yourself from the workflow.
Being Needed Can Reduce the Value of Your Business
Feeling needed can be rewarding. It can also become a hero complex.
The owner steps in, fixes the problem, and proves once again that nobody can run the company as well as they can. The immediate problem disappears, but the company becomes more dependent on the owner.
A buyer will not pay a premium for a company that requires the founder to work 70 hours every week.
A buyer is more likely to pay for a business with a capable management team, documented systems, transferable relationships, reliable financial information, and employees who can make decisions without waiting for the owner.
Being indispensable may feel like value. To a buyer, it looks like risk.
Bookkeeper, Controller, CFO, or Coach?
These four roles are not interchangeable. Each solves a different problem.
| Role | Primary Responsibility | When You Need Them |
|---|---|---|
| Bookkeeper | Records the past | Transactions are missing, late, or disorganized |
| Controller | Makes the past accurate | The books need reliable reporting and financial controls |
| CFO | Looks forward | You need forecasts, planning, and strategic financial guidance |
| Coach | Works on the owner | Your habits, leadership, or decision-making limit progress |
If the books have not been reconciled for three months, the company does not need a CFO to analyze unreliable information. It needs a bookkeeper or controller to make the records accurate first.
If the numbers are accurate but you do not know whether a $50,000 decision fits the strategic plan, CFO guidance becomes valuable.
The sequence matters. Poor information produces poor advice, regardless of the person’s title.
You Can Rent Executive Expertise
A company around $4 million in revenue may need CFO-level thinking without needing a full-time executive salary.
Fractional leadership gives businesses access to experienced finance, marketing, sales, operations, and executive professionals without immediately adding permanent C-suite positions.
The company can hire the expertise it needs for a defined amount of time, a particular project, or a specific stage of growth.
The advisors should not operate in separate silos. Your accountant, CFO, marketing team, sales leadership, and operations leaders need to hear the same goals and communicate with each other.
A successful marketing campaign can break the company if operations cannot deliver the additional work. A financial plan can fail if nobody understands the sales pipeline. The experts must connect the dots together.
Respond to New Leads Within 15 Minutes
Jon’s marketing recommendation is speed to lead.
The business that responds first often wins the job, even when it is not the lowest-priced option. Conversion begins falling quickly after the first 15 minutes and continues declining as the lead waits.
If you paid to generate the lead and then allowed it to sit unanswered for several days, you paid for an opportunity and then helped it go cold.
Set up an immediate automatic response for every inbound channel. During business hours, require a real person to follow up within 15 minutes.
The system costs very little and can help you outperform competitors with much larger marketing budgets.
The Numbers Worth Watching
If Jon and Ryan had to narrow the conversation to a few measurements, these would be a strong place to start:
- Your 13-week cash position
- Gross profit by customer
- Customer acquisition cost by marketing channel
- Return on additional marketing investment
- The percentage of decisions that still require the owner
Revenue is a vanity number when it does not produce profit, cash, or a company that can operate without you.
The business needs to be profitable, durable, and capable of running without its founder.
This Episode’s Sponsor
Episode 26 is sponsored by Salmon Falls Nursery and Landscaping in Berwick, Maine.
Many of the trees and shrubs used in their projects come from their own 200-acre nursery. The plants are grown in the same Maine soil and winters where they will eventually live, helping create landscapes designed to last beyond a single season.
Salmon Falls provides residential and commercial landscape design, installation, hardscaping, irrigation, maintenance, and seasonal services across Seacoast Maine and New Hampshire.
For more practical guidance on building a profitable and scalable company, explore the Synergy Solutions business resources.
The Bottom Line
Your cash gap, unprofitable client, 70-hour workweek, and empty leadership seat may look like separate problems.
They point to the same lesson.
Build accurate financial records. Watch your cash. Measure profitability by customer. Transfer decisions to capable people. Hire expertise when the company needs it, and make sure those experts work toward the same plan.
Choose one number you have been avoiding, one process that lives only in your head, or one conversation you have delayed for six months.
Handle that one thing this week.
Eventually, you may stop waking up at 3:17 AM.
Profitable on paper. Broke in the bank.
Listen to Episode 26 for honest answers to the financial and operational questions that keep business owners awake at 3:17 AM.
Listen to Episode 26(0:00 – 0:14)
More than 20 episodes this year and every single week the same questions land in our inbox. I’m working 70 hours and the business still can’t run without me. I’m profitable on paper but broke in the bank.
(0:15 – 0:26)
My biggest client is my proudest logo. Do I really have to look at the numbers? There’s a reason the book is called 317 AM. That’s the hour this stuff wakes you up.
(0:26 – 0:39)
Not the wins, the questions. So today, no guests, no frameworks, just the questions that keep you up at 317 AM and the honest answers. His side and mine and we don’t always agree.
(0:40 – 0:46)
Let’s actually answer them. Or maybe not. Who knows? Stay tuned.
(0:48 – 1:05)
Welcome to From Burnout to Bought Out. The podcast for business owners who are tired of being the hardest working, lowest paid employee in their own company. I’m John, joined as always by Ryan and together we’ve spent years inside owner-led businesses helping founders go from running on fumes to running a business that actually runs without them.
(1:05 – 1:17)
Every episode we break down the real problems nobody talks about. The burnout, the bottlenecks, the blind spots. And show you what it looks like to build a business that’s profitable, sellable, and doesn’t need you in the building every day to survive.
(1:18 – 1:29)
Whether you’re grinding through a plateau, thinking about an exit, or just trying to take a vacation without your phone blowing up, you’re in the right place. Let’s get into it. All right, Ryan, we’re at it.
(1:30 – 1:43)
We are, John. I think listeners have sent us some questions and I think it’s time that they get some real answers instead of this gibberish that we spout every single week. Really, what we’re going to do is just repeat the gibberish.
(1:44 – 1:49)
Well, maybe. Maybe you will. I’ve got a few tricks up my sleeve.
(1:50 – 1:53)
Oh, well, they’re short sleeves. I’ve seen them. That’s true.
(1:54 – 2:05)
Not a lot of tricks. But it is in the fact that we’ve had 25 episodes, so it is a 26th special episode to answer these questions. Yeah, good stuff, John.
(2:06 – 2:17)
I can’t believe it. We’ve made it 25 episodes so far, but since we don’t have any sponsors and we pay for it ourselves, I guess I can’t believe it. KK, you’re off the air.
(2:18 – 2:24)
Nobody sponsors you. That’s right. It’s taken a great deal of patience on my part, I must say.
(2:24 – 2:29)
It was worth it. Appreciate you working with me for that long. Yeah, I try.
(2:30 – 2:36)
All righty, let’s get to it. First question. I work 70 hours a week and the business still needs me for everything.
(2:36 – 2:51)
I’m exhausted. Where do I even start? Signed, John. You know, John, people wear that as an honor, as a badge, right? That they work 70 hours a week.
(2:51 – 3:05)
That they’re indispensable, that they work hard and those kind of things. And there’s a lot of things that, yes, you should take pride in your work. Yes, you’re building a company, but you don’t have to work that hard.
(3:06 – 3:16)
And, you know, things can be done without you. I 100% agree. I think I would even go so far as to say, and I think we said it before, you don’t have a company if you’re working that hard.
(3:17 – 3:42)
Your company is you, right? It’s a job with overhead or a logo or, you know, with truck payments. Yeah, and you’re slowly burning out, right? If you have to work that hard to keep everything going, then you’re in the hamster wheel. And at some point, it’s going to break, right? So, and we’ve talked about this as the treadmill and you got to get off it.
(3:42 – 4:10)
Like, there has to be a firm, solid plan to get the heck off it. And I think, you know, you’ve got the master plan there, Ryan, but it all starts with delegation, right? Yeah, I think you’ve got to delegate. But first you diagnose, right? What are the things that are actually needed by me that only I can do? And then those things that really someone else can do, maybe it’s 80%, 90% of what it would be for me with 0% of my time.
(4:11 – 4:45)
That’s what we should delegate, right? And then you’ve got to feel confident in the folks that you’re delegating to. And you just can’t say, the days of saying, hey, just go figure it out, have gone. You really have to go and demonstrate to them what you need them to actually do, start building up processes and systems, have them demonstrate it back that they can do it, right? And then they execute in front of you without you having to tell them, you tweak this in here a little bit, and pretty soon it’s off your plate, right? And you can do those things.
(4:46 – 5:25)
And I think another thing that people don’t think of is, it’s a great book by, I think it’s Dan Sullivan, it’s Who Not How, right? It’s essentially entrepreneurs and treadmill operators, we got to do marketing. So now I want to figure out how to do it, right? That’s the how part of that, right? And it’d take me a couple hundred hours to figure out to do it halfway of what an expert can do. So the cheapest and best thing to do is actually to hire people on who know how to do it.
(5:25 – 5:40)
So that’s the who and the who not how. So it would be, I could do marketing, John, would it be nearly as good as you? No. Would it take me forever to figure out, try to do it as half as you? It would take me hundreds of hours to do that.
(5:40 – 6:02)
Whereas I could just pay you to do what you do best, to get better results of mine. And it’ll be cheaper in the long run. But people think, well, if I take my time and do it, I don’t have to pay anybody, right? But how much time is your time worth? Away from your kids, working 70 hours instead of working 40 and paying somebody to get better results for you.
(6:02 – 6:07)
While you go grow the business, right? Exactly. Do the things that you do well. Yeah, 100%.
(6:07 – 6:12)
So yeah, I mean, this all ties back. We’ve got a bunch of questions. So I don’t know how deep we go on each one.
(6:12 – 6:20)
But this all ties back to episode number one, right? The treadmill. And there, kind of spell out, also make a list. Write everything down that you’re getting interrupted on.
(6:20 – 6:34)
And those are the things, the problems that you have to solve in your business. That book sounds great. So to be clear, it wasn’t Korten is a who? It was… With a three-year-old, you can get that confused, I’m sure.
(6:34 – 6:39)
But it’s who, not how. Dan Sullivan. Essentially, here’s the premise of the book.
(6:39 – 6:51)
Get somebody whose that’s their job, that they do well at that job. It’s going to cost you a lot less, so you can do what you do well and grow your business. Yeah, it’s your time better spent.
(6:53 – 7:11)
Now, just before we move on to the next one, this can repeat, right? Your business is going to go through points when it needs some more time, right? These are inflection points when different things change within it. So you can be off the treadmill and suddenly you got to get back on it for different reasons. You may expand out, have a whole lot more business.
(7:12 – 7:24)
You may be trying to grow different departments, et cetera. So this is not a consistent thing where once you’re off the treadmill, you’re off it forever. You’ve got to consistently be trying to plan your time to stay off it.
(7:24 – 7:41)
Yes, and it is okay to get back on the treadmill when you’re doing things, right? But you don’t want to stay on the treadmill, right? That’s where the process is, systems in place, hiring people to do it. Okay, I’m going to do this temporarily. I’m going to do this for three months and that is it.
(7:42 – 8:14)
It’s not three years and three months later that I’m still on the treadmill, right? Because as we’re growing our business as small businesses, we might not have the people in place then that can do what we can do for what we need to grow our business, to scale it, to open up another location, to open up another product line, offer another service, whatever that might be. So jump back on the treadmill with a plan. Develop the processes, develop the systems, hand it off, you’re off the treadmill again.
(8:14 – 8:27)
And then when you start getting to 50, 60, 70, 80 employees, you shouldn’t be jumping back on the treadmill anymore. It’s a good way to stay fit and healthy as well. It is, it is.
(8:27 – 8:40)
Get stressed out, lose some weight, weight and then pop off, relax for a bit, repeat, add it. Rinse, repeat, yeah. Until you get, you know, $20 million in the bank and then give it up.
(8:41 – 8:52)
Great, we’ve got one. So yeah, I have organized and I’m still recovering from a cough and cold. So I’m going to cough and splutter through this.
(8:52 – 9:10)
I will try not to cough in everybody’s ears. I’ve got off the treadmill, but I feel like I’m not needed anymore in my own business. Isn’t feeling needed a good thing? Doesn’t it make me valuable? I think we can dispense with this one relatively quickly because we kind of covered it, but yeah.
(9:13 – 9:34)
Well, that’s the hero complex. And I think we’re going to do a segment on that as, you know, why we need to be a hero, why we need to be indispensable, why those things. And then at the end is your job should be that everyone’s replaceable and that a buyer will pay for that.
(9:34 – 9:46)
A buyer won’t pay you to work 70 hours a week, right? That’s the job. That’s going to be a huge discount. But when everybody’s replaceable, you have a management team that runs without you.
(9:47 – 9:58)
That’s what a buyer is going to pay a huge premium for. So yeah, it feels good that you’re indispensable, but it’s going to cost you in the end. Yep.
Sounds good. Okay, let’s move on. Next question.
(9:58 – 10:15)
I am profitable on paper, but always no money in the bank. What the heck is going on? So profit doesn’t mean cash, right? Those are two different things. I’ve seen a lot of profitable companies that are cash poor.
(10:15 – 10:24)
And the reason is, is timing. Cash timing. If our receivables are growing, it’s not cash in the bank.
(10:24 – 10:37)
It’s cash in our customer’s bank. And we’re giving them interest-free loans. If we’re building up a ton of inventory and haven’t built the product or service yet, that’s wealth on the shelf, right? We’ve already spent that money.
(10:37 – 10:48)
It’s out of our bank account. We haven’t built it to get the money coming in. Also, what’s not considered in the profit and loss statements is the actual principal payments on your debt.
(10:50 – 10:56)
Only interest is reflected on that. But I might have $30,000 of principal payments. It only shows up in the balance sheet.
(10:56 – 11:08)
It doesn’t show up anywhere else on the profit and loss statement, right? So that’s actually real money out. And there’s owner’s draws, there’s taxes, there’s all kinds of things out there. So you can have a very profitable business.
(11:08 – 11:42)
But if you’re not collecting the money in a reasonable amount of time, you can go out of business very quickly. We’re gonna talk about profit and cash management in a second. But what are the first couple of things that you can do to make sure that you’re tracking everything that you just mentioned? So one thing that we, what I like to do is I’ll take the profit and loss statement and then I will start subtracting out the debt payment that’s on the balance sheet, okay? So I made $100,000 this month.
(11:43 – 11:59)
My debt payment’s $30,000, okay? So I’m using the net income as what cash should be in, right? I billed people, I paid my bills, I paid my payroll. The net effect is $100,000. This is a rough back of the napkin thing.
(12:00 – 12:09)
I should have $100,000 more in the bank, net income. And now timing comes into play. But we subtract out debt payments, okay? That’s $30,000.
(12:09 – 12:19)
So my 100,000 minus my 30,000 is $70,000, okay? I should have $70,000 in the bank roughly. Oh, I paid $20,000 in taxes. Now I’m at $50,000.
(12:19 – 12:32)
Oops, I forgot that my receivables grew $75,000 from last month to this month. Now I’ve got negative $25,000. What happened to my bank account? Oh, it stayed flat or it went down or whatever.
(12:32 – 12:40)
It’s not a perfect thing, but you can actually see that. So what you can do is have a very good collections process. Develop that.
(12:40 – 13:00)
One day overdue, I’m contacting somebody for my money, right? A lot of people think, well, you know, I just opened up the mail and hope for a surprise, right? But if we don’t pay our vendors on time, they knock on our door. So why aren’t we doing that for our customers? Oh, well, I feel bad or whatever. You made an agreement with these folks.
(13:00 – 13:05)
You provided the goods, the services. They liked it. Now they should pay for it.
(13:07 – 13:29)
And so having a good collections process is key. Watching your inventory cycle. So making sure that you’re not buying three years of worth of inventory because it was on sale and you’re not going to use it, right? You want to make sure that your turn is fast so that you’re buying the stuff, producing the stuff, getting paid for the stuff.
(13:30 – 13:33)
It’s called working capital base. Got it. Okay, so there are a few things there.
(13:33 – 13:44)
One, track your receivables. Put a number on it, right? Because you can’t track what you don’t measure. And that way you’re seeing it every day, week, whatever you look at it.
(13:45 – 13:58)
You mentioned put a rudimentary cash flow forecast together so you understand exactly what cash is coming in and out of your bank account. I think I would tack on to that. Like this is the most common thing we hear when we’re working with customers.
(13:58 – 14:06)
It’s the number one, the first thing, very first thing we tackle with this cash management. And this is from episode three. If you want to go back and listen to that full episode.
(14:07 – 14:19)
But implementing the cash management mechanism like the profit first mechanism. I’m wearing a t-shirt today. It’s great, you know, sponsored by or not.
(14:20 – 14:42)
And filtering off your revenue received in different accounts so that you are making a profit and you know your business is making a profit and you forced yourself to run your operations on a fixed finite budget. I think is the number one thing that we put into place with people and that’s game changing. So yeah, that would be another thing.
(14:42 – 14:58)
So right there, we’ve got a handful of suggestions for you owners out there that are saying what the heck is going on with the bank? Why is it always zero or not the number I expect? And you got to get on top of it. Anything else to add? We’re good, next one. No, no, cash is king.
(14:58 – 15:08)
And you’ve got to make sure that you have enough money to open up the doors and pay your bills. So get those invoices out. So I think your job, I always say this to clients.
(15:09 – 15:22)
Here’s your main reason is get your bills out, your invoices out to your customers quickly and accurately and make it as easy as possible for them to pay you. Live by that, you’ll be all right. Awesome.
(15:23 – 15:38)
All right, next question. Still on cash there and talking about profit first. What percentage should I put in for the profit account to start? So this might sound radical, but 1%.
(15:39 – 15:52)
1% of the cash receipts that you receive, sock it away. Now that means that you can spend 99 cents of every dollar that comes in on your bills, expenses, whatever that is. Start with 1%.
(15:53 – 16:07)
Even if you owe money, even if you have it on the line of credit, start building up the muscle memory, start building up the habit and just start stocking that away. Don’t touch it. That’s gonna force you to start saving money elsewhere.
(16:07 – 16:14)
It really does work. It’s really that simple. People fight me all the time on it.
(16:14 – 16:28)
And when they start doing it and it works, they’re like, oh, I should have done this earlier. I’m like, why were we arguing for a couple of months, right? Like this is not my first rodeo and then start building that up and never taking away. So just chisel, chisel, chisel away at it.
(16:28 – 16:43)
And pretty soon, if you wanna make a net income of 15% to the bottom line, guess what? Your profit accounts should be about 15%. You’re forcing the savings to go to the bottom line. Awesome, I agree.
(16:44 – 17:11)
I’m not very disagreeable yet so far in this episode, but I agree. I do think it depends on the business too, right? Like for smaller, more manipulable businesses, you really gotta get into that rhythm and you can probably do some larger percentages more quickly depends on where you’re at, because I think smaller businesses have a tendency to just shift the dollars around. But I think you need structure to it and this system really works.
(17:12 – 17:24)
Again, reference to episode three for that profit first. I think it’s the number one game changing thing that we do for businesses. Yeah, it’s a key one for sure.
(17:24 – 17:46)
Awesome, okay, time for Ryan’s fun fact. Fun fact, revenue is vanity, profit is sanity, cash is king is such an old saying that nobody’s even sure who said it first, which is fitting because most owners have heard it and still run the business on the vanity number. We literally named an episode after that.
(17:47 – 18:08)
Revenue is a vanity metric, episode four, go re-listen, it was a good episode. Okay, quick break brought to you by Salmon Falls Nursery and Landscaping out of Burrick, Maine. And they’re a fitting sponsor for an episode about the lawn game because this is a business that has literally been growing things since 1978.
(18:09 – 18:24)
Over 35 years, they started, that doesn’t add up. 78’s longer than 35 years. They started as a little retail garden center and grew into one of the largest landscape firms and firms in Northern New England.
(18:24 – 18:39)
And here’s the part I love, a lot of the trees and shrubs they plant for you come from their own 200 acre nursery right there back in Burrick. How do you pronounce it? Burwick. Burwick, okay, go.
(18:39 – 18:48)
There you go. Guys, which is the opposite of a quick fix. You can’t rush a tree and it can’t teach John how to read.
(18:48 – 19:05)
That’s a company that understands patient value, which is most of what we preach on this show. Full service, residential, commercial, landscape design and installation, hardscaping, patios, walkways, retaining walls, fires, pits, irrigation, maintenance, and snow and ice when the Maine winter shows up. I read that.
(19:05 – 19:24)
Serving the Seacoast, Maine and New Hampshire, Salmon Falls Nursery and Landscaping, SalmonFallsNurseryAndLandscaping.com, you son of a gun, 207-384-5540. Can you sing it next time, please, Ryan? Grow something that lasts. Burwick, Maine.
(19:25 – 19:29)
Oh, third time’s a charm. I come from England, mate. We call it Berwick.
(19:30 – 19:37)
Go to Berwick for a cup of tea. No one else will get that except for your parents who are in England, so. Well, I’m the only one who thinks so, it doesn’t matter.
(19:39 – 19:45)
All right, let’s move on. Next question. My biggest client is my proudest logo.
(19:46 – 20:15)
You’re really telling me to run the numbers on them? And absolutely we are. Yeah, so this is a good callback to episode 12, your best customer is costing you money because revenue is not margin, right? We usually try to lower the margin to keep our biggest revenue customer. And when that customer gets too big as a part of our total revenue, our margins just crumble down into shambles, right? And so we can’t pay overhead.
(20:15 – 20:26)
We can’t fix the trucks. We can’t do that kind of stuff because we’re living off a 4% gross profit. By the way, gross profit is what you actually pay your fixed costs, right? The overhead, those kinds of things.
(20:26 – 20:46)
So if your gross profit percentage is low, you don’t have a lot of wiggle room. You might not even have a lot of money to pay for paper, turning on lights, getting the new office desk, right? So when customers get big, they also have expectations. They want the white glove, red carpet treatment.
(20:46 – 20:52)
They wanna run your meetings over. They wanna talk about whatever it is. They expect discounts.
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They expect you to do things faster, better, cheaper, all those kinds of things. And as they’re growing, your margins are deteriorating and you run a big risk. So now you’re getting priced in as one of the lowest competitors.
(21:10 – 21:33)
And if somebody comes in that offers similar type services, but undercuts you, that relationship might not be as solid as you think. I would say more succinctly for once, run the dang numbers. You just don’t know unless you’re counting up exactly what the amount of time and materials that you’re spending on them, right? That’s gonna prove it right then and there.
(21:33 – 21:47)
And then look at the margin, do a margin calculation on that. And if your biggest customers are your best paying and the highest margin, first of all, we probably would both be quite surprised because we know how this works. But then great.
(21:48 – 21:55)
Otherwise you gotta shape the relationship. Go out there and measure it. Measure all the hours, all the time and materials you spend on the client.
(21:56 – 22:05)
Absolutely. Price that in, price the cost in and how much does it really cost you to keep that client? Yep. Now, next question, it was a two part, same person.
(22:06 – 22:19)
If I lose them, it blows a hole in my revenue. Isn’t that too risky to try and adjust anything here? So that hole is the actual problem. You’ve got a customer concentration risk.
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And what happens with that is that one bad move, one bad email, one bad feeling, father to son. Now the son doesn’t have the relationship that you do. And 70% of your business is in that relationship.
(22:34 – 22:57)
You don’t have a company anymore. You’re scrambling. So you have a huge concentration risk, not only for day-to-day, year-to-year, keeping your business open, right? But also if you were to ever potentially go to sell, a buyer’s gonna look at that and say, well, uh-oh, you got a big problem here.
(22:57 – 23:05)
So if that customer leaves, this company’s not worth anything near what you’re asking for. That’s a huge risk. I’m gonna have to discount that.
(23:06 – 23:20)
Again, I concur. I think it does depend on the state your business is in. Because if your business is young and you’re growing and trying and maturing, then yes, you need that capstone client.
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That capstone client underpins you right now. So the last thing you wanna do is go and start trying to hone the relationship and lose them outright because you might not have a business at all, right? But you do have to shape things and have honest conversations to say, we’re not making money here. Can we evolve our agreement or our contract to actually make some money in those situations? But again, you gotta measure it first, right? If you’re through that kind of phase and you’ve got a wide range of clients and you’ve got a distribution of your resources across all of them, then that’s a completely different story, right? That one client really is causing you to be able to make more money and scale more quickly.
(23:59 – 24:08)
So again, we’ve said it. Go run the numbers and go from there. It entirely does affect how you’re gonna value your business.
(24:09 – 24:18)
Like if you’re looking to exit, then Brian’s already said it. That’s one of the first things that businesses look at, customer concentration. So you’re gonna devalue your business right there.
(24:19 – 24:37)
Right, and so don’t wait for it to get to that point. Start getting more customers, higher margins, start diversifying your base that way so that the concentration goes from 70% to 60 to 50 to 30. And that also takes away their leverage later on when they try to pin you down for lower prices.
(24:38 – 24:49)
You can live without that client and feel better and probably have even a better bottom line. Mm, awesome, good stuff. I will say one very quick contractual thing as well.
(24:49 – 25:13)
I think as we’re talking about it, when people are looking at contracts when you’re buying a company, you look at whether they’re transferable, right? If the contracts are not transferable, then that negates an asset sale. You actually have to go through a share sale more often than not. So if you want some more flexibility, which also increases the ease of sale of your business, then make sure your contracts are transferable to other entities that come in and buy you.
(25:14 – 25:19)
Yeah, and we’ll go through all that stuff too in another segment. So good point, John. Okay, awesome.
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Well, I jumped the gun. Shoot. Okay, John’s two cents.
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Marketing tip of the week. Got nothing to say about that. You’re gonna say 1.4 American? Well, we’ll see what the tip is.
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That’s right, right. Value. It’s all about the value.
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If you do only one thing, it is speed to lead. And so since this is a recap episode, my two cents is the single highest ROI tip we’ve ever given, speed to lead. The business that responds to lead first usually wins the job.
(25:52 – 26:08)
Often regardless of price, the conversion falls off a cliff after the first, I would say 15 minutes and certainly hours. And if you’re getting back to your lead in days, you’re done. Most owners let lead sit for days sometimes.
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Well, it’s free money leaking, which ties right in today’s episode of Cash Theme. That is right. You have paid to generate that lead.
(26:16 – 26:32)
Letting it go cold is just burning that money. So one step this week, set up an instant auto response for every inbound channel that you have. And a rule that every new lead gets a real human reply within 15 minutes during business hours.
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It really, it’s rejigging your system. It costs you almost nothing and it beats competitors with multiple times your budget. Do it.
(26:41 – 26:49)
I got the need for speed to lead. Oh yeah. Maybe you are a good marketer.
(26:50 – 26:55)
You know, once in a while. Brought to you by Breast Cancer Awareness Month. All right.
(26:55 – 27:02)
I didn’t know it was. In the US, it is Breast Cancer Awareness Month in October. All right.
(27:03 – 27:17)
One more from Salmon Falls Nursery and Landscaping in Berwick, Maine. And one thing I keep coming back to is that 200 acre nursery. Most landscapers buy their plants wholesale and mark them up.
(27:18 – 27:26)
Salmon Falls grows their own. So when they put a tree in your yard, it was raised in the same main soil and the same main winters it’s going to live in. Which matters more than people think.
(27:27 – 27:42)
A plant grown local to where it’s planted actually survives. That’s the difference between a landscape that looks great for one season and one that’s still there for many years. Design, insulation, hardscaping, irrigation, full maintenance and commercial work too.
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35 plus years of it across the seacoast. You’ve got a take on this. I can feel it.
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Oh yeah. As a Canadian, I have deep respect for anyone who gardens in a climate that spends half the year trying to kill the garden. Maine and my part of the world are in the same fight.
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That is my one. That’s your one. Salmon Falls Nursery and Landscaping.
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SalmonFallsNurseryandLandscaping.com 207-384-5540 in Berwick, Maine. Lovely. Something that lasts.
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The whole episode really. Not sure where that accent was. Kind of got lost there.
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Yeah. We are professional. That’s it.
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That’s it. All right. That’s another ad refund on the card.
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Okay. So let’s get back to the questions. I know we got one more kind of question area and then we’re gonna do some rapid fire after that.
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So next one. How do I know if I need a bookkeeper, a coach, a controller, a CFO? They all sound like the same thing to me. Well, John, actually it’s four seats that you need.
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Not three. A bookkeeper records the past. A controller makes the past accurate.
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A CFO looks forward and a coach works on you. So how you know the difference is what you need is let’s just do a gut check. You got a $50,000 decision ahead of you.
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How do you make it? Who do you talk to? Do you have somebody in that seat that can say, okay, let me plan this out. Is this in our plan? Is this where it needs to go? Is it just simply a rounding error that, you know, a controller can look at and say, okay, yeah, you got plenty of time, room in that budget for capital expenditures, whatever. That’s how you really know about that is not whether you can make the decision like a coach, not whether the transaction is a fixed asset and an expense, not whether it looks right and tidy like a controller.
(29:52 – 29:59)
Does it fit into your strategic plan or not? That’s a CFO. That’s how you make that decision. Who do you need on that team to make that decision?
(30:00 – 30:23)
that are necessary, right? It does depend on the business mode that you’re in. Because, you know what? Sometimes when you’re started off, your bookkeeper is gold, right? Understanding how to do all the books, how to get everything recorded properly, and you’re setting up your organization. If you’re really trying to grow, then you need some specialist growth expertise.
(30:23 – 30:35)
I would say you’d add some CMO services in there. You gotta look at how you scale your operations as well. You gotta look at how you recruit and hire, right? So, I think each stage that you’re business at needs different sets of expertise.
(30:35 – 30:57)
You need it all. Ideally, you have a bunch of C-suite people that are helping you grow the business, regardless of which phase you’re in. You gotta stay out of decision paralysis and leading by collaboration, right? Like, you don’t wanna just not be able to make decisions and get things done when you have too many people involved.
(30:57 – 31:09)
But, all of those areas of expertise are experts for a reason. I think we said it earlier. Bring in the people that are experts in their field so they can advise you accordingly, and you can go out and do what you do best.
(31:09 – 31:27)
You’re not gonna be great at all these different skill sets, right? The last thing you wanna be is trying to be a bookkeeper or a controller. You need all those things, including a coach. Because, you know what? Two episodes ago, I can’t remember how many episodes ago, we said how hard this is to do.
(31:27 – 31:46)
To actually build something successful takes years and years, potentially even decades. And, a coach keeps your head in the game for whatever type of coaching you might need, right? So, whatever it takes for you to be successful, go find it, go get it, go find a way to afford it at the right time. Just understand what you need for each part of your business growth.
(31:47 – 32:32)
Well, in each position, even though they might cost you money should have a return on investment, right? So, we have an expression here, crap in, crap out, right? If you say, give me your books and say, Ryan, analyze my company, value my company, what do I need to fix here to scale, or to grow, or to sell, or whatever it is, and your books haven’t been reconciled for three months, right, you’re doing depreciation at tax time because that’s what your CPA told you to do, there’s only so much you can do. Same thing with your marketing, right? People say, analyze my marketing, John. And you’re like, well, what are you tracking here? Where’s your CAC by channel, where’s your ROI by channel, what’s going on here? If you don’t have that information, it doesn’t do any good.
(32:32 – 33:06)
You don’t need a CFO, you need a bookkeeper, you need a controller to fix the mess, that then somebody can take that information and say, okay, now I can analyze this, now we can plan because I can trust the numbers, right? And you’re right, John, it’s get the experts around you, let them do their thing, but don’t let them operate in silos. That’s the other thing here. They need to talk to each other, have the same, hear what, everyone needs to be in the same room hearing the same thing, and working together to accomplish your goals.
(33:06 – 33:37)
Too many times we have a CPA, we have a marketing agency, we have a CFO, we have operations people, and they’re all having separate conversations on how best to lead this company. And a lot of times, there’s a lot of division, there’s a lot of conflict there, conflicting information. They mean they have the greatest intentions, they’re doing their best at their ability, however, they’re not connecting the dots together, and that’s what you need to do.
(33:37 – 34:03)
So important, so important what you just said there, connecting those different areas of expertise together because we can kill it in marketing. Send a bunch of leads in, and if you can’t handle it, it breaks your organization, right? Yeah, I think we’ve said that several times over the episodes, but yeah, getting the communication path. And crap in, crap out, yeah, new nickname.
(34:05 – 34:17)
A line, crap in, crap out, that’s a new slogan. What was the other one? Something about dutif? I don’t know, I’m not sure. It was no doubt at my expense.
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All right, so continuing that sort of theme, I’m only around four million, next question, I’m only around four million in revenue, can I even afford a CFO? So the question, the answer is yes, it’s a matter of how. So you don’t need a $250,000 CFO to full-time get their whole horsepower going for your business. What you need is the seat, you need the mindset, you need the expertise, and you can rent that, fractionally.
(34:50 – 35:21)
I can bring in somebody who has industry knowledge, knows my company, knows my geography, knows where I wanna go with this thing, and reasonably, you’re just renting some of the time, they’re project-based, however it is they’re gonna do, they might be embedded, might not be, and it’s gonna cost you thousands of dollars instead of tens of thousands of dollars a month. Absolutely worthwhile investment, even for somebody like Ryan. I don’t know that I’d go that far, but definitely for a fractional CMO like yourself, John.
(35:21 – 35:26)
Oh, yeah. And you tell me that all the time. Oh, yeah, it’s worth it, I promise.
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But you can get a whole fractional C-suite. You can get fractional CEOs, COOs, marketing, sales, finance people, they’re out there. You don’t have to get somebody full-time.
(35:41 – 35:56)
You can rent them, and they’ll do a great job for you. Yeah, I think the world’s kinda headed that way, too. I think with people piecemealing their income and how they work, how they structure their lives, so it’s only gonna get more of that.
(35:56 – 36:01)
So go find and buy that expertise. Okay, good stuff. Rapid fire time.
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So let’s try and be quick with these. So I’ll fire them out. Let’s just have a quick attempt to answer each one.
(36:09 – 36:15)
We’ll move on to the next one. One number to watch. So first question, one number to watch if I could only pick one.
(36:15 – 36:33)
Your 13-week cash position. For me, I’m going to go, I’m toying between CAC by channel or a metric ROAMI. Return on additional marketing investment.
(36:34 – 36:44)
How much more are you putting in to create your growth that year, and does it make sense for you to be able to spend the money? I’d rather look at that one first. There we go. Biggest mistake you see owners make.
(36:45 – 36:51)
That’s the next question. Revenue is a vanity. Look at the bottom line.
(36:51 – 37:00)
Look at your gross profit. Throwing dollars at marketing without tracking the channels. Simple, fix it.
(37:01 – 37:07)
Next question. First move to get myself out of the business. Leave your business, test it.
(37:08 – 37:24)
See what breaks, where the fires are, and start working on it. Promote someone who owns outcomes of the business and nail them down long-term. There’s a future of the business for you.
(37:25 – 37:34)
And last one. One habit worth building this year. 1% cash allocation, get it out of there.
(37:34 – 37:55)
Spend 99 cents instead of a dollar. Build your leadership team and your organizational operating system, a la SOS, so that you have structure in your organization and a leadership team that can take it into the future. All right, nice.
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Great, I think we have episodes for all of those different sort of independent discussions. You’ll have to listen to them all to find them. That’s right.
(38:05 – 38:14)
We’re not gonna give you any hints. I don’t remember the last episode, much less a specific one from six months ago. Okay, good stuff.
(38:14 – 38:18)
Well, we do hope this is useful. The takeaway. Ryan, take us away.
(38:20 – 38:35)
So different questions, one through line. The treadmill, cash gap, the unprofitable desk customer, the empty CFO seat, they’re all the same lesson wearing different clothes. Revenue is a vanity.
(38:36 – 38:47)
What matters is whether the business is profitable, durable, and able to run without you. Your cash is king. Make sure you’re running your business on cash.
(38:48 – 38:57)
Watch it, watch the velocity, 13 week cash flow. Your proudest logo might be your worst margin. So run the numbers.
(38:58 – 39:08)
Run the numbers on your biggest clients, your customers. Make sure it makes sense. Being needed feels like value, but really it’s an ego thing.
(39:09 – 39:27)
Lift up your folks, impart your knowledge on them so that you can actually stop working 70 hours and start living your life. Make sure that you’re building systems in place and test your business. See what breaks, fix the breaks.
(39:27 – 39:39)
Watch, wash, rinse, repeat. You’re okay. And at some point when you start doing these things, you’ll stop waking up at 3.17 in the morning and you’ll get your night back.
(39:39 – 39:44)
You’ll get your weekends back. Your family will thank you. And so will your stress levels.
(39:44 – 39:59)
All right, I concur. Yeah, I think nobody wants 3.17 AM. If something is made, anybody listening to this episode go, ooh, that’s probably the thing you need to go and dig into and try and tackle.
(40:00 – 40:09)
Absolutely. Absolutely, John. If it hit home for you, episode callbacks one, three, four, 12, and 18.
(40:10 – 40:24)
You can see them in the titles, but you’ll see if it really hit you in that subject matter. And just to clarify, everybody wants 3.17 in the book, John. They don’t want 3.17 AM on the kitchen table.
(40:24 – 40:34)
You are 100% right. Oh, oh, wait, there’s one more question we have. It is, John, you are so great at these episodes.
(40:35 – 40:44)
I love hearing your voice and so much expertise. Keep it up. By the way, your sister will be around in half an hour for dinner.
(40:45 – 40:52)
Love, Mom. Not really a question, eh? It wasn’t really a question at all. It seemed like a statement.
(40:52 – 40:55)
Yeah. Yeah. Thanks, Mom, love you too.
(40:57 – 41:02)
How about that? Thanks, everybody. Crap in, crap out. That’s right.
(41:03 – 41:11)
Hasta luego. That’s it for this episode of From Burnout to Bought Out. If something we said today hit home, don’t just nod in agreement.
(41:11 – 41:22)
Pick one thing, the number you’ve been avoiding, the process that only lives in your head, the conversation you’ve been putting off for six months. Do that one thing this week. That’s how it starts.
(41:23 – 41:30)
And if you’re not sure which one thing to pick, drop us a line. We’ll happily point you in the right direction. New episodes drop every week.
(41:30 – 41:35)
Until next time, stop running the treadmill and start building something you can actually sell.
