ControllerWindshield · Where are we right now?
Are we actually making money?
Busy isn’t the same as profitable, and profit isn’t the same as cash. This is how to see what the business really earns.
Revenue can climb while margins quietly shrink: a price that hasn’t moved in three years, a kind of job that always runs over, overhead that grew with the team. And profit on paper can disappear into unpaid invoices, inventory or loan payments.
An approach
- Start with net profit, not revenue. Look at the last 12 months of the P&L, month by month. What’s the net margin, profit as a percent of revenue, and which way is it moving?
- Separate the owner. Make sure owner pay and any personal expenses are recorded the same way every month, so profit isn’t flattered or buried.
- Walk profit to cash. For last month, list what happened between profit and the change in the bank balance: customers who haven’t paid, inventory bought, debt payments, owner draws.
- Read the direction. Is margin improving or eroding? One quarter of erosion is worth a conversation.
You can answer it when
- You know your net margin within a couple of points.
- You can explain why last month’s profit and cash didn’t match.
Related
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