Show Notes
Hunter asks: "Last month my business brought in $80,000 revenue. Profit was $13,000. But I'm struggling. I need more customers but can't afford more marketing."
In this episode, Scott reveals why Hunter doesn't need more customers, explains why cashflow is always more important than profit, and breaks down how money leaks through the balance sheet—not the P&L. You'll hear the Michael story ($10K profit that became $0 after loan payments and owner draws), learn what doesn't show up on your profit and loss statement, and understand why "tight margins" is often an excuse.
The bottom line: You don't have a sales problem—you have a cashflow problem. Look at the balance sheet, not just the P&L. Put your business on a diet.
Got a business question? Ask Scott here: scotttodd.net/ask
📜 Full Transcript (Click to expand)
Scott Todd (00:00)
Welcome to Fix My Business, the show that helps you get unstuck. And we do that by answering your questions and growing your business so that you can learn from other people. We learn from, well, our audience. And today's question comes from Hunter. Hunter wrote, last month, my business brought in 80,000 of revenue. Well, that's good. The profit was 13,000. That might not be so good. We'll see. But I'm still struggling. I need more customers.
but I don't have the money for more marketing. Okay.
Look, this is a typical muddy mile type of a situation, right? We have the revenue there and Hunter, honestly, you do not need more customers. You don't need them. That's the wrong place to focus. It's your gut tells you to go focus on more customers. I need more revenue, but that's not what you need. See, here's the rule that I want you to apply. The rule that you should apply is that you should be asking yourself, do we have enough?
Do we have enough revenue to support profit? And the fact that, well, that you almost have a million dollar run rate of revenue, well, you have a nice, you have a nice ⁓ revenue cushion there. So you're generating sales. So sales is not your problem. Now the next piece comes in to profit. Okay, like that's the next rung up. After sales is met, we go to profit. And it looks like you're struggling with profit.
You might say, wait, wait, hold on a minute, Scott. I made $13,000 last month. Well, on paper you made $13,000, but if you can't afford to go get more customers, then that tells me that there's a cashflow problem. Okay, so you need more margin to support the cashflow, and that's what you got to look at is the cashflow. I want you to remember this. Cashflow is always more important than profit. And a lot of people miss that.
So many people miss that because we're trained to think, oh, well, man, my business is profitable. I'm making money. If you look at the profit and loss statement, it says that you made $6,000 this month or $10,000 this month or in your case, $13,000 this month. But guess what? That doesn't tell you the whole story. There's other money that could be leaking out that doesn't show up on the profit and loss statement.
Let me give you an example. There was a business owner who I was talking to one time and he was telling me that he had $10,000 worth of profit in a given month. So very close to your number, $10,000 profit in the month. The problem is that he also had a loan payment. Every month he had a $7,000 loan payment. So remember, he got $10,000 in the door. Well,
assuming that he was on the cash basis, okay, because if the $10,000 or the $13,000 includes money that you've built to your clients who haven't paid yet, well, that's a different problem. See, this is why cash flow is important. So in this guy's situation, he had made $10,000 on the profit and loss statement, but then he had a $7,000 loan payment. And I said to him, Michael, how much interest is on that loan?
look at your financial statements, how much interest is there? And he said, oh, it's $700. So remember this $7,000 went out the door, but only 700 of it appeared on the profit and loss statement because loan payments don't show up on the profit and loss statement. That's a balance sheet item. So he basically only was accounting for $700 worth of interest. He had $6,300 that left the business that does not show up on the profit and loss statement.
So his $10,000 got shrunk by 6,300. And then I said to him, well, did you pay yourself? He said, yeah, I paid myself. I said, how much did you pay yourself? $9,000. Okay, well, $9,000 on an draw. So unless you're a W-2 employee from your own business, which you might be, you might not be, but if you took an owner draw of $10,000 or $9,000, guess what?
Your cash flow is not mathin' up, And that's why you feel the crunch. You see, you can have all the revenue and you can have all the profits, but it's the cash flow. And it's the things that don't show up on the profit and loss statement that you have to look out for. And I think that that's what's happening here with the $13,000 is, Hunter, I think that you've got $13,000 on a profit and loss statement, but that doesn't tell the whole story.
And the only way to fix this problem, well, is to go back to the cashflow. How is money leaving the company? And in your case, you have to look at the margins. Now, one of the things that people will tell me is they'll say, well, Scott, when I look at the margins, you know, like I just work in a tight knit margin business. The margins in our business are always tight. Well, look, there's a lot of businesses that work on tight margins and they do make it up with volume. But at some point in time,
you still have to make the profit. You still have to be able to get more customers. still have to market. And if you're not able to do that, then you have to relook at the margins and you have to look at every penny. Because look, if you have a tight margin business, where are you spending money that you shouldn't be? And that is the trap, right? Like it is a trap that a lot of people fall into because they put emphasis on the profit and loss statement. And look at the number that's there.
And they think, man, I can go spend $13,000 this month or, you know, look, we got the money that's coming in. But you know, they'll rule. Your expenses will grow to the level of your revenue or exceed it even. So you gotta watch the margins. You gotta look at every dollar that's going out the door and put your business on a diet. Put it on a diet, man. Cut the expenses. Because I don't think that you have a sales problem. I think that you have a profit problem.
It does bring up another interesting point to me as I'm sitting here talking about this, because so many people think like, man, I'm gonna go get loans or credit cards or whatever. Remember this. When that money comes basically due, when you have to make the payment, it's important to stress this again. These are not profit and loss statement items. The interest is, but that's money that's gonna leak out through the balance sheet. And so many...
Business owners do not look at the balance sheet. To me, it's one of the most important. Well, I mean, there's three financial statements. All three of them are important. All right, Hunter, that's your mission, man. You gotta go, well, go hunt down your margin issue. And if you have a question, look, I wanna help you. Go to scotttodd.net forward slash ask. Let's get your questions in here. Let's keep growing. And I will see you in our next episode.
Welcome to Fix My Business, the show that helps you get unstuck. And we do that by answering your questions and growing your business so that you can learn from other people. We learn from, well, our audience. And today's question comes from Hunter. Hunter wrote, last month, my business brought in 80,000 of revenue. Well, that's good. The profit was 13,000. That might not be so good. We'll see. But I'm still struggling. I need more customers.
but I don't have the money for more marketing. Okay.
Look, this is a typical muddy mile type of a situation, right? We have the revenue there and Hunter, honestly, you do not need more customers. You don't need them. That's the wrong place to focus. It's your gut tells you to go focus on more customers. I need more revenue, but that's not what you need. See, here's the rule that I want you to apply. The rule that you should apply is that you should be asking yourself, do we have enough?
Do we have enough revenue to support profit? And the fact that, well, that you almost have a million dollar run rate of revenue, well, you have a nice, you have a nice ⁓ revenue cushion there. So you're generating sales. So sales is not your problem. Now the next piece comes in to profit. Okay, like that's the next rung up. After sales is met, we go to profit. And it looks like you're struggling with profit.
You might say, wait, wait, hold on a minute, Scott. I made $13,000 last month. Well, on paper you made $13,000, but if you can't afford to go get more customers, then that tells me that there's a cashflow problem. Okay, so you need more margin to support the cashflow, and that's what you got to look at is the cashflow. I want you to remember this. Cashflow is always more important than profit. And a lot of people miss that.
So many people miss that because we're trained to think, oh, well, man, my business is profitable. I'm making money. If you look at the profit and loss statement, it says that you made $6,000 this month or $10,000 this month or in your case, $13,000 this month. But guess what? That doesn't tell you the whole story. There's other money that could be leaking out that doesn't show up on the profit and loss statement.
Let me give you an example. There was a business owner who I was talking to one time and he was telling me that he had $10,000 worth of profit in a given month. So very close to your number, $10,000 profit in the month. The problem is that he also had a loan payment. Every month he had a $7,000 loan payment. So remember, he got $10,000 in the door. Well,
assuming that he was on the cash basis, okay, because if the $10,000 or the $13,000 includes money that you've built to your clients who haven't paid yet, well, that's a different problem. See, this is why cash flow is important. So in this guy's situation, he had made $10,000 on the profit and loss statement, but then he had a $7,000 loan payment. And I said to him, Michael, how much interest is on that loan?
look at your financial statements, how much interest is there? And he said, oh, it's $700. So remember this $7,000 went out the door, but only 700 of it appeared on the profit and loss statement because loan payments don't show up on the profit and loss statement. That's a balance sheet item. So he basically only was accounting for $700 worth of interest. He had $6,300 that left the business that does not show up on the profit and loss statement.
So his $10,000 got shrunk by 6,300. And then I said to him, well, did you pay yourself? He said, yeah, I paid myself. I said, how much did you pay yourself? $9,000. Okay, well, $9,000 on an draw. So unless you're a W-2 employee from your own business, which you might be, you might not be, but if you took an owner draw of $10,000 or $9,000, guess what?
Your cash flow is not mathin' up, And that's why you feel the crunch. You see, you can have all the revenue and you can have all the profits, but it's the cash flow. And it's the things that don't show up on the profit and loss statement that you have to look out for. And I think that that's what's happening here with the $13,000 is, Hunter, I think that you've got $13,000 on a profit and loss statement, but that doesn't tell the whole story.
And the only way to fix this problem, well, is to go back to the cashflow. How is money leaving the company? And in your case, you have to look at the margins. Now, one of the things that people will tell me is they'll say, well, Scott, when I look at the margins, you know, like I just work in a tight knit margin business. The margins in our business are always tight. Well, look, there's a lot of businesses that work on tight margins and they do make it up with volume. But at some point in time,
you still have to make the profit. You still have to be able to get more customers. still have to market. And if you're not able to do that, then you have to relook at the margins and you have to look at every penny. Because look, if you have a tight margin business, where are you spending money that you shouldn't be? And that is the trap, right? Like it is a trap that a lot of people fall into because they put emphasis on the profit and loss statement. And look at the number that's there.
And they think, man, I can go spend $13,000 this month or, you know, look, we got the money that's coming in. But you know, they'll rule. Your expenses will grow to the level of your revenue or exceed it even. So you gotta watch the margins. You gotta look at every dollar that's going out the door and put your business on a diet. Put it on a diet, man. Cut the expenses. Because I don't think that you have a sales problem. I think that you have a profit problem.
It does bring up another interesting point to me as I'm sitting here talking about this, because so many people think like, man, I'm gonna go get loans or credit cards or whatever. Remember this. When that money comes basically due, when you have to make the payment, it's important to stress this again. These are not profit and loss statement items. The interest is, but that's money that's gonna leak out through the balance sheet. And so many...
Business owners do not look at the balance sheet. To me, it's one of the most important. Well, I mean, there's three financial statements. All three of them are important. All right, Hunter, that's your mission, man. You gotta go, well, go hunt down your margin issue. And if you have a question, look, I wanna help you. Go to scotttodd.net forward slash ask. Let's get your questions in here. Let's keep growing. And I will see you in our next episode.