Business Pillar 5: Managing the Money
If your business isn’t producing profit, it isn’t working. Period.
A few weeks back, I outlined what I call “Business Pillars,” the five critical elements to any kick-ass, top-notch, dominate-the-competition business. And here we are, the 5th and final pillar!
Our first pillar was Clarifying the Plan and Direction, our second was Designing the Customer Experience, our third was Designing the Team Member Experience and our fourth was Communicating to the Market. This week, we tackle the fuel that powers the entire organization: money.
Proper financial management and forecasting not only protect us from catastrophic failure but also allow us to “predict” the future and make the best decisions possible at any given moment.
And it’s really easy for owners and operators to get so drawn into day-to-day operations that we forget to look back at how we’ve done and intentionally design the financial future that will dictate where we go.
So let’s begin by identifying what success in this realm actually looks like.
Definition of Excellence
At its essence, exceptional financial controls produce net profitability at the top of your industry.
If you’re consistently doing that, you’ve either stumbled into a business model with exceptional returns, in which case competition will eventually come knocking, or you’re running a business with strong financial discipline and foresight.
But if we peel back the layers a bit further, we’ll see other fruits of that profitability.
First and foremost, the owners and investors see a handsome return. That’s right. The business owner benefits financially in a meaningful way.
“What? Are you saying, Scott, that many business owners have not received a return commensurate with their risk?!?!”
Yes. One hundred percent. It’s exceptionally common. We must eradicate that.
Second, top-of-the-industry profitability allows your team to be well taken care of. Above-market pay. Benefits. Flexibility. Growth opportunities. These are hallmarks of profitable businesses that invest in their people.
You can feel a profitable business. There’s a calm professionalism when you’re in its midst. There’s no frantic worry, no clamoring for payment, no payroll stress. It’s not easy. But it’s smooth.
This is what we’re shooting for.
Now let’s dive into the building blocks that get us there.
Element 1: Consistent, Accurate Data
Proper financial management begins with accurate data.
To have this, you or your team must consistently and accurately enter A/R, A/P, and payroll into accounting software.
You must also have a bold, dark “never cross” line in the sand between your business and personal finances. Separate bank accounts. Even better, separate banks. And absolutely no paying personal expenses out of the business.
This also means everyone on your team, including you, is paid a wage commensurate with the work they do.
“But Scott, if I do that, I’ll no longer be profitable!”
Yes. I know.
Because if you’re not paying everyone a market wage but you’re calling yourself profitable, you are, in fact, not profitable. It’s better to know this than live a lie.
So if you’re not entering financial data accurately, separating personal and business finances, or paying everyone a market rate, stop reading right now and fix those things. The following elements won’t work, or worse, will fool you, if you don’t get these right first.
Element 2: Review and Model Your Profitability
OK. Now we have clean, consistent, accurate financial data.
Now it’s time to build the model.
The best way I’ve found to do this is to use a single spreadsheet that looks both backward and forward.
The look back includes a monthly review of:
The monthly, rolling 3-month, and rolling 12-month Profit & Loss (P&L)
The balance sheet through the end of last month
The cash flow statement through the end of last month
“Rolling” simply means “the previous.” If you’re reviewing through February 2026, your “rolling 3” would be December 2025 through February 2026, and your “rolling 12” would be March 2025 through February 2026.
The look forward includes reviewing:
The upcoming six months of P&L projections
A 13-week cash flow forecast
And here’s where the magic happens.
If your projections do not show you achieving the profitability you want, make changes.
Yes. It’s that simple.
Accounting is a closed system. When you turn one dial up, like expenses, another dial must move down, like profit.
This involves bold and sometimes difficult decisions. But it has to happen if you want to excel in this realm.
Element 3: Build Your Core Capital
Greg Crabtree, author of the Simple Numbers series, has a great rule of thumb for the minimum core capital a business needs to weather inevitable ups and downs: maintain the equivalent of two months of all expenses in cash, and carry zero balance on your line of credit.
Once you achieve that, it becomes exceptionally difficult for your business to fail financially.
And this is very simple to calculate.
Each month, look at your balance sheet. Add up all cash accounts, operating, savings, etc. Then subtract your line-of-credit balance. That’s your core capital.
Now look at your P&L and total your monthly expenses: direct labor, management labor, marketing, facilities, payroll taxes and benefits, and operating expenses.
Divide core capital by total monthly expenses. That tells you how many months of core capital you have.
If the number is less than two, keep storing cash. If it’s greater than two, distribute profits to ownership or identify areas for investment within the business.
Element 4: Use Your Profit
OK. You’re a financial management wizard now.
Your data is clean and accurate. You’re looking back and forward every month. You have more than two months of core capital.
It may not feel like it, but you’re in the top 1 percent of operators now. You’re crushing it.
So what do you do with the profit?
Two options.
First, distribute it to ownership. Yes, it’s OK to do this. It’s ownership’s risk and ownership’s return. Letting it sit in the business just so you feel better is illogical.
Ownership doesn’t have to buy a Ferrari. They can reinvest in other assets, improve their family’s life, or give it away. To each their own. But keeping excess cash in the company beyond the required core capital is a terrible return on capital. Don’t do it.
Second, reinvest in the business.
This does not mean funding losses. It means strategically spending money in ways that increase profit.
Typically this falls into three buckets: marketing, equipment, and payroll.
Marketing can increase the top line. Equipment can help you do more with less labor. Payroll may mean adding someone who increases revenue or frees leadership to focus on growth initiatives.
But once again, model the money.
Adjust your three to six month projections for the new expense and determine whether the return justifies the investment. You should target a return of 30 percent or more.
If you invest $100,000 into marketing, equipment, or payroll, you should eventually see at least $130,000 in additional profit.
If you’re struggling to identify ways to achieve that return, option one is the logical choice.
Tools and Inspiration
Two books provide a strong financial foundation for any small or mid-sized business.
The first is Michael Michalowicz’s Profit First. It’s a simple, straightforward way to engineer profitability instead of hoping it happens. I’ve used this system since 2018.
The second is Greg Crabtree’s Simple Numbers 2.0. His system includes powerful concepts like the Thinking Model for forecasting, a Salary Cap for managing payroll, and Direct Labor Efficiency Rate to ensure labor is producing the return it should.
Get both. Dive in. You’ll be on a solid path toward financial strength.
Wrap Up
I saved the money pillar for last. But maybe it should have been first.
Because here’s the deal.
Even if we have a clear plan and direction, design an impressive customer experience, build a strong team culture, and communicate perfectly with the market, if we don’t generate a profit, our business is a failure.
Yes. I said failure.
A business is a machine built to produce a return for ownership.
Anything short of that is using the wrong tool for the wrong job.
I appreciate you following along through the five Business Pillars. As always, let me know if I can help in any way: scott@scottmonday.com.
My sister and I launched a podcast for sub-$20M business owners and operators. Episode 7 is out!
We’d be honored if you’d give it a listen! You can listen on Apple Podcasts, Spotify, or whatever other platform you prefer!
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