What a Roof-First Business Looks Like

From the outside it looks like success. The website is good. The posts go out on time and people respond to them. There are clients, and some of them have been there for years. The owner is known in the industry, gets asked to speak, is described by people who meet her as impressive. The product is solid and the reviews say so. If you only saw the roof and the first floor, you would say this was a business that had made it.

Then you look at the bank account on the twenty-eighth of the month and the picture changes. Revenue is up on last year, but so are costs, and the owner cannot say by how much without going through the statements. There is a payroll to make and a tax bill that arrived earlier than expected because nobody was tracking when it fell due. The owner is paid last, when there is something left, which some months there is not. She works more hours than anyone in the business and takes home less than the senior person she hired eighteen months ago. When you ask her what the business made last month she gives you the revenue figure, because that is the number she knows.

This is the roof-first business, and I have sat across the table from many of them in the last eight years. The owner is not careless and is not bad at business. The sales are real. The product is real. What is missing is the layer underneath that would tell her whether any of it is working, and because it is missing, she is running the business on how it feels. Busy feels like growth. A full inbox feels like demand. A good month feels like a good year. None of these are numbers, and a business run on feelings is at the mercy of the next bad month.

The response begins with a single question, and I ask it of every owner I work with before we do anything else. What is the number this business is measured to? Not revenue, because revenue is what the business does, not what it leaves behind. Not the bank balance, because that is a snapshot of timing. The number is the one you would write down if someone asked you what the business had to produce every month for it to be worth running. For most owner-led businesses it is a figure of positive cash flow after all costs, including the owner's own pay, and for most owners I meet it has never been written down.

Once it is written down, the roof-first business starts to look different from the inside. Every activity can be held up against the number. The speaking engagement that takes two days and brings in no work can be seen for what it is. The client who pays late every month and consumes a third of the team's time can be priced properly or let go. The owner's own hours can be counted as a cost, which they are, rather than as free labour, which they are not.

The second step is to stop measuring the business by how it feels and start measuring it by what it leaves behind each month. This is less exciting than a launch and less visible than a post, which is exactly why it gets skipped. But it is the only way the owner finds out whether the admired, busy, well-reviewed business she has built is paying her, or whether she is paying it.

Tomorrow I want to take the two numbers that most often get confused, revenue and cash, and show you why one of them is said out loud and the other is the one that pays you.

Continue reading: Revenue Is Not Cash →

The session: The Nine Fears, and the floor underneath your business. Wednesday 2 December, 5pm UK, free →

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The book: The Science of Getting Rich and How to Apply It →