“How do I know if I’ve had a “good month?” What does that really mean anyways?” I looked up from my notepad and my eyes met the young and eager first-time businessman who finally opened up. He had started his business about 3 years ago. Had a very successful corporate career in sales. And now. Loves his journey into entrepreneurship.

“Well…” I had to catch myself from starting each response with something lame like “Good Question.” They’re always good questions. Whenever a client feels comfortable enough to be vulnerable, we’re on the right track. I pressed on, “I suppose having a good month means different things to different people.”

Not that it would have mattered much. But. He hadn’t taken any accounting courses in College. Had he, it actually might have made him worse at running his business. He was cunning. A smooth talker. A great salesperson. And. He knew that building his high-end residential services business was his current project. 

I took a long look at my notes on all the various avenues we’ve dissected his business’s success. It was his session and if he wanted to ask the same question a dozen times, who am I to stop him. It’s his session. And. This is where the growth happens.

I didn’t look up, but I slowly let out a bit more of the answer. “A good quarter for me might be a terrible month for you. It’s all a matter of perspective.”

This is usually what clients want when they’re in session. They want the perspective of a business consultant who’s been where they’ve been a hundred times and made it out to give directions. It’s not really the textbook answer that he wanted. Sure, I could have dazzled him with a fancy PowerPoint or a cool pivot table. But. I knew it wasn’t what he was after. 

This client, like many clients, when visiting their business consultant and sharing their concerns about business, often want to relate stories and see how they’re doing. It’s almost like a “Hey. How am I doing?” kind of question that only someone who has unlimited dreams asks when they’ve accomplished so many of them before their peers. Like my client.

Related Article: The 4 Main Responsibilities of a CFO

“For you…” I had to be careful how I answered his question. Oftentimes, I start answering the question slowly when I know they know the answer so I can help them catch up. Then, I phrase their answer in a question that makes them think. Think really hard. Look into their souls hard. It’s a tactic that I first learned in Power Questions by Andrew Sobel. When the client learns that they can ask a question without getting a boring textbook answer and instead they will get confidence to answer their own questions by shifting their perspective, I’ve won as a Business Consultant. Why? Because I’ve just taught an entrepreneur how to think for themselves. That’s massive. 

“What do you think?” He was trying to get me to give him a number. Like a benchmark. Almost as if it were a dare. Like he wanted me to say, “If you made $100,000 a month, then that would be a good month.” But, I didn’t take the bait. I didn’t give him a number.

Instead, I retorted with this question. “What do you think is most valuable to you? How do you get more of it?” He thought about it for a second. With a quizzical look on his face. I could tell he was deep in thought trying to figure out what to say other than a financial answer. You see, Strategic Voyages Business Consultants are Outsourced CFOs for companies that don’t have a full time CFO, I teach my team and my clients to consider what’s truly important. Not just the finances.

After some more back and forth, we finally agreed that there wasn’t really a number that would make him feel like he had a “good month.” In fact, it was more abstract than that. He came up with the answer that it would be a good month for him if he got to take his dog out on his boat on the weekends. If he could figure out how to do that, then he’d have a good month.

Don’t worry. I know that I have a lot of bankers and accountants and attorneys reading my blogs too. Yes. I did eventually give him the formula, but I had to help shift his perspective first. Why? Because who remembers the teacher that gave them an easy answer? No one. Who remembers the teacher that changes your life? That’s forever.

Related Article: 10 Commandments of Cash Flow Management

Some misused terms that I’ve had to clarify over the years.

• In the red – my accounting principles textbook says that this is when incoming cash is less than outgoing cash. 
• In the black – this is when your business receives more revenue than it has in expenses.
• In the green – this is when your weed store prints money…. This is a joke a DopeCFO once told me.
• Bad Month – it’s all perspective. Have you invested in anything? Are you happy? Are you fulfilled? Are you making positive decisions for yourself and building others up along your journey? 
• Good Quarter – a partial “zoom out” of a financial situation. Many companies only focus on a month at a time but neglect to zoom out to get a quarterly perspective. Usually, that irons out any inconsistencies.
• Ebbs and Flows – The general ups and downs of cash levels, energy levels, and coffee levels.

Business Basics; Breakeven Budgeting. This is an especially important topic if you’re a newer entrepreneur. You have to learn how to have your finger on the pulse of your business’s finances. Here’s exactly how.

Step 1 – Create your business model

All business models come down to a few basic parts. Part One – You need to know how much Revenue you’re making. Revenue is not loan proceeds that need to be repaid. Revenue is not money that you put into your business. Revenue is not a refund from something you’ve already paid for. Revenue is when you sell something and you get money back for it. That’s revenue. So, how does your business actually make money? That’s Part One.

Part Two – You need to know what it costs you to make or deliver the product or service that your business just sold in Part One. Costs (of goods sold) aren’t what it takes to keep the lights on. Costs aren’t owners’ salaries. Costs aren’t loan payments. Costs aren’t insurance expenditures. Costs (usually referred to as Cost of Goods Sold or COGS) are the exact (and usually variable tied to Revenue) cost that it takes to produce a good or the time (converted into a financial metric) that it takes to deliver a service. That’s Part Two.

Part Three – You have to properly account for all your fixed costs and general costs. Fixed costs are Rent, an annual insurance payment broken down to a monthly cost, an advertising campaign that you’ve started, or membership fees to an organization you enjoy. Those are Fixed Costs. That’s Part Three.

Part Four – You need to account for all debt obligations. Loan Payments, Owner Repayments, and Accounts Payable Items are all Debt Obligations. You need to properly account for them so that you can calculate your Monthly Break Even.

Step 2 – Line up the Model

Part One goes on top. Right now it’s a variable number. So, we’ll use “GR” (Gross Revenue). Then you have to use a percentage for the Costs. We’ll use “COGS.” 

It ends up looking like this:

(Bonus) Grow Revenue while Maintaining Expenses

This is a surefire way to build your business. Think about it for a minute. If you don’t increase your fixed costs, and you figure out how to only increase your revenue, then you’ve invariably increased your profit. 

Want even more advice? Contact Us here and we’ll send you a copy of Matt Wilhelmi’s book, Taboo Business Questions – What’s Haunting Every Entrepreneur’s Growth

Chron Article – The importance of Breaking Even in Business Finance

Matt Wilhelmi – The more and more entrepreneurs I meet, the more I love what I do. Why? Because I get to teach. I get to simplify. I get to leave a legacy.