What's your margin?

Does anyone ask what your margins are or tell you to watch your margins? What does that actually mean?

Understanding margin(s) starts with which one you're looking at. Here are the "big 4" that are worth your time:

1. Product margin
2. Gross margin
3. Operating margin
4. Net margin

A...

How do you define success in your business? To me, it means the ability to take consistent cash distributions from a company.

1) Repurposing prices

This tactic could work for both inventory and service based companies. Get creative on pricing. Instead of taking your slow moving inventory and...

Writing out a yearly plan is a fairly simple process. In a nutshell:

• Review and reflect on how last year went
• List out all of the things that went right (and went wrong)
• Gather up your numbers for 2024 (and prior years if you have them)
• List all of the things you want to accomplish in the next...

Planning for profits in 2025

As I'm prepping for the end of the year and starting to write my annual letter, it's reminding me this is hands-down the best thing you could do for your business today — write out a plan for 2025.

"Send me your financials."

What I receive in response to this question is typically a mixed-bag.

Maybe there's a different answer depending on the recipient, but I'll share my 5 favorite financial reports. These are the ones I'd want to see in order to really help someone.

The...

Business breakdown part III

This is the final installment of a multi-part case study on Starbucks Corp. We previously covered the business model, profit model, unit economics, and financial statement analysis (links below).

1. (Part I) Business model and unit economics
2. (Part II) Financial...

Last week, we kicked off a multi-post series working through a case study, Starbucks Corp. to be precise. We covered the business model, profit model, and unit economics and today we're moving onto financial statement analysis.

1. (Part I) Business model and unit economics
2. (Part II) Financial...

Business breakdown

We've covered a wide range of topics this year and it feels like a good time to work through a case study for added practice. To keep things simple, we'll break this into a multi-part series covering:

1. (Part I) Business model and unit economics
2. (Part II) Financial...

Continuing on the theme of financial analysis this week – we've already dug into the Monthly Financial Review and Rolling 12-Month Analysis – this week we'll work on spotting trends in our business...

A recap from last week's Financial Review post – we're...

Models

To run a successful business, you need 3 essential models:

1. Business model — what you do
2. Profit model — how you make money
3. Revenue model — how you charge for it

Sounds simple and you probably have a sense for these in your head.

If you're managing a large...

If I were to "drop in" on your business today, could you tell me how things are going this week?

Most business owners don't have a formal tool or process for monitoring early warning signs (both good warnings and bad warnings). These "tools" go by many names: KPIs, scorecard, dashboard, balanced...

Big Picture Thinking

Can you give a quick and straightforward answer to questions like:

• What are you working on this week/month/year?
• What is your business model or profit model?
• What are your goals for the next 2-3 years?

If you’re anything like most business owners I know (myself...

Seeking help

Ever feel like running a business is a lonely endeavor?

When starting or running a business, going it alone certainly allows for more control but comes at the expense of added stress. I've heard some experts say that every business owner should have a coach, or mentor, or some other...

You need a good set of books. Period.

When working with a new client, I typically start with 2 questions:

1. Are you consistently getting financials reports on a timely basis?
2. Do you believe the numbers you're looking at (i.e. are they reliable)?

Don't worry if you answered...

We're wrapping up a 3-part series (here's part I and part II) on capital allocation – the effective use of profits and cash flow – with a concept called Return on Invested Capital (ROIC). [Sometimes just called return on capital or ROC.]

First, a quick reminder of...

Sources & uses of cash

This is Part 2 of a series on capital allocation. A quick recap from last week: We defined the 3 uses of profits as capital allocation. They are:

1. Buy more assets (with the intention of growing sales)
2. Pay off debt and other liabilities
3. Pay dividends to owners
...

In any business (that's any industry, any size, any product), there are generally only 3 ways to use profits:

1. Buy more assets (with the intention of growing sales)
2. Pay off debt and other liabilities
3. Pay dividends to owners

Most finance pros refer to this mix of profit usage as ...

How do you know whether you have enough cash in your bank account? This is a common question in both business and personal finance. My guess is you're taking one of the following approaches:

• A random amount of money that "feels" right
• Don't think about it until you realize it's time to run...

When it comes to managing a business, there are typically 2 schools of thought with staunch defenders on each side:

1. Delegation
2. Hands-on management

(The latter is sometimes referred to as micromanagement.)

In his recent article Founder Mode, Paul Graham (founder of startup incubator, Y...

With Labor Day promotions behind us, it feels like a good time to talk about the financial impact from discounts, promotions, and marketing campaigns on your business.

It goes something like this:

1. We want to get rid of slow-moving inventory, how about a 30% off sale?
2. Sign up for our...

Most business owners have a loose idea of their unit economics (margin at the product level), but it's usually:

1. Stuck in their head; and
2. Crude back-of-the-napkin math.

Your pricing strategy can make or break profitability... generally, I see companies fall into 2 buckets: those with...

Use visuals to spot trends and patterns

There are only 3 ways to convey information:

1. Words
2. Pictures
3. Numbers

If we rank them from easiest-to-hardest-to-understand, then it probably goes: 1) pictures, 2) words, 3) numbers. So why are we exclusively using numbers to understand our financial...

I'm tired of seeing crummy articles about building a budget, forecast, model, etc. so I decided to create this incredibly simple yet practical guide to budgeting. [In case you didn't pick it up, I use the terms budget, forecast, and model interchangeably.]

What are the steps?

You likely...

What are unit economics?

Today we'll cover a topic near-and-dear to every business owner – unit economics – we love thinking about how much we make on every sale!

What are Unit Economics?

Don't be fooled by the fancy term... unit economics are simply the profits you earn on...