Ask an owner for last month's revenue and you'll have the answer before you finish the question. Ask for gross margin and you'll get a long look out the window.
Revenue gets the attention because it's the number people say out loud. The five below are the ones that decide whether you get to keep saying it.
1. The cash you actually have
Take your bank balance. Now subtract payroll, rent, the tax payment, and the equipment note, all of which have already made plans for that money.
Do this: Write your balance at the top of a page and subtract everything due in the next 30 days. What's left is your real cash. It is usually smaller and less fun.
2. Margin by line of work
Most businesses have one service paying for everything and one losing money every month. Owners usually guess wrong about which is which.
Do this: Take your top three services. For each, subtract what it costs to deliver from what you charge. Rank them. Try not to argue with the results.
3. Receivables over 60 days
An invoice unpaid after 60 days is a loan you made without meaning to, at zero percent, to someone who isn't returning your calls.
Do this: Pull every invoice older than 60 days, add them up, and call the biggest one today.
4. Your biggest client, as a percentage
If one client is more than a quarter of your revenue, you don't have a client. You have a boss.
Do this: Divide your largest client's annual billings by your total revenue. Then decide how you feel about your boss.
5. How long you could last
Divide your cash by your average monthly expenses. That's how many months the business runs if every customer disappeared tomorrow. Nobody enjoys this number. Everybody should know it.
“An invoice unpaid after 60 days is a loan you made without meaning to.”
Notice anything?
None of the five is revenue.
If you found all five in under ten minutes, your books are in excellent shape and you may close this tab with our compliments. If it took an afternoon, or you're still looking, that's worth a second thought. Good books answer a question the moment you ask it. Most only answer last year's.
Partner · Margin & Mark
