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In this insightful episode, the host discusses the critical financial numbers that business owners need to know for sustainable growth and success. Emphasizing the distinction between revenue, profitability, and cash flow, the conversation dives into the importance of understanding costs, operational expenses, and the impact of each business category on overall profitability. The host shares personal experiences and examples to highlight the significance of not only increasing revenue but also focusing on profitable services and managing cash flow effectively.
Key Points:
Revenue vs. Profitability:
- The distinction between revenue and profitability is crucial for business success.
- Highlighting the importance of knowing which products or services contribute more to the bottom line in terms of profitability.
Costs and Operational Expenses:
- Understanding the true cost of running a business, including operational expenses and hidden costs.
- Providing examples, such as hosting fees for websites, to illustrate how fixed costs impact profitability.
Cash Flow Management:
- Cash flow is identified as the most critical number for businesses.
- Explaining the significance of the Profit and Loss report and how it reflects the health of a business's finances.
- The importance of maintaining positive cash flow for sustainable growth and business scaling.
Employee Costs and Benefits:
- Highlighting that employee costs go beyond their salary, including taxes, benefits, and operational expenses.
- Encouraging business owners to consider the full impact of hiring employees on the overall financial health of the business.
Pad Budgets for Miscellaneous Expenses:
- Advising business owners to include a percentage for miscellaneous expenses in their budgets.
- Acknowledging the importance of padding budgets to account for unexpected costs and prevent financial strain.
Business Growth and Scaling:
- Recognizing that breaking even is not enough for business growth and scaling.
- Emphasizing the need to focus on increasing profitability and managing cash flow to take the business to the next level.
Quotable Moments:
"You need to figure out profit by category, you know, for each of your services. And I was like, okay. And I'm still thinking, like, it all feels the same. The difference is, I'm going to just do some quick examples. Let's say that t-shirts are a business line for us, gives us a 50% profit margin."
"So when you look at those numbers, you go, well, we make a lot more money off podcasting. So to increase the profitability, we should probably sell more of that, push that. That's right. Instead of t-shirt sales, which would bring revenue in. You should not sell that."
"I want to say we interview a lot of business owners and I only had one that could probably throw real hard numbers with me without looking at anything. I've only had one that could sit there and tell me, Yeah, my store in this one did this much last week.”
