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Have you ever felt like no matter how much money comes in the door, you just can't keep up with the cost of running your business? In other words, you feel broke. Less than half of the small businesses that opened between 1994 and 2020 made it past five years. But that doesn't have to be your story. And today, John Felkins from the entree leadership team is going to help you answer important questions when your business feels broke.

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Okay, let's start with Dave's first question. What's the real problem when your business is growing but you're not making more money? Revenue's in a good place, but cash flow and profit are not. If you're not sure what the differences are between those three terms, don't worry. We're going to break it down in a super simple way. Let's start with revenue. Your total revenue is all the money that your business is bringing in from the products you're selling or the services that you're providing. So its revenue is actually your income. Think of it this way. If you're running a lemonade stand and you're selling the lemonade for $3 a cup, and you sell 20 cups, well, that's making $60 of revenue. Moving on to profit. Profit, or net profit, is the money that you have left over after you've subtracted all your expenses from your revenue, including taxes and interest payments, which hopefully is not a problem if you're operating from a lemonade stand. So if you earn more than you spend, you've got a profit. But if you spend more than you earn, then you've got a loss. So it's income minus expenses. Let's go back to the lemonade stand. You made $60 revenue from selling 20 cups at $3 a piece. If the lemons, the water, and the cups cost you $15, your profit is the leftover money. That's $45. Finally, let's look at cash flow. Cash flow is the movement or the flow of money into and out of your business measured over a specific period of time, like a month or a year. The idea of movement is important because cash flow doesn't include money that's just sitting in the bank, owed to you by your customers or credited by suppliers. It's your cash inflow, money from things like product sales, services provided, and royalties, minus your cash outflow, money going out from things like supplies, payroll taxes, and other expenses. So this is what it looks like, cash flow. What it is is money coming in minus the money going out. That's over A given period of time. Positive cash flow means more money is moving into your business than out. And to grow your business, you want consistent positive cash flow. Negative cash flow, on the other hand, means more money is flowing out of your company than into it for a given period of time. And we don't want that. If sales and revenue are good, but your cash flow and your profit are not. That brings us to question number two. Why is that happening? Well, there are a lot of potential reasons. You might be spending too much, your expenses might be too high, maybe you're not charging enough, or maybe it's taking too long to get the money to come into your business. Now, for most people struggling with cash flow and a broke business, the issue really comes down to one major underlying cause. Their business doesn't have a budget. You see, lots of business owners have convinced themselves that if they just make enough money, everything's going to be okay. What they're trying to do is they're trying to outearn their stupidity. Which is why we say revenue is vanity, but profit is sanity. Which brings us to Dave's third question. How can you fix this problem? It starts with a simple answer. You've got to have a budget for your business. And luckily that's not too big of a challenge. Just follow the process that we're going to give you. First, you need to write down all of your revenue streams. Just think about last month. Look at last month's profit and loss statement. How much you made and how much you had to spend. Number two, write down the cost of goods sold. If you have those, which are the expenses directly related to producing your product or your service. Remember those cups and lemons from the lemonade stand? Those kind of things. Number three, list your expense categories. Think through all the business expenses. Don't leave anything out. Number four, fill in the numbers. Just make an educated guess if you're just starting out. If your business has been earning money for a while, use past P and L statements as a guide. Number five, calculate your expected profit or loss. Remember, that's revenue minus expenses, minus cost of goods sold. That's going to equal your profit or your loss. Then number six is review your budget. Often we recommend looking at it every single week. Need to be asking yourself, are we on target to hit our revenue goal for this month? If not, what can you change to make that happen? See if there's any expenses that you can cut or minimize. Number seven, you want to work towards having a 12 to 18 month budget. This might not be where you start but it's where you need to get because you need to take into account seasonality. Think about if you're running a fireworks stand in June, you're going to buy all your inventory in July you're going to sell it. That's different from all the other months. So you got to pay attention to that. That was just a high level overview and if it's new to you, it's okay. Don't freak out the first month you do this, you're probably not going to be super good at it. But it's not okay to avoid the financial details of your business because they will make or break you. So keep applying these basics that we've covered and keep moving forward. Rinse and repeat, because once you see exactly what money is coming in and what money is going out, you're going to be able to pinpoint the problems leaving you feeling broke and hopefully start moving things up and to the right.