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Sep 5, 2023

Financial Page-Turners: 3 Business Finance Books to Conquer Cash Flow and Turn a Healthy Profit

Sponsored Content provided by Gretchen Roberts - CEO, Red Bike Advisors

"Revenue is vanity, profit is sanity, but cash is king."  — Unknown

Many business owners are what serial entrepreneur Roland Frasier calls “accidental entrepreneurs”—they’re good at and love something, whether it’s baking, consulting, selling, providing services, etc., and they “accidentally” built a business around it. 

Then reality sets in. Hiring. Marketing. Sales. Compliance. Managing people. Managing customers. Wrestling with technology. 

And then, there’s Finance, aka reading all those reports your accountant sends you and pretending you understand half of it, when you’re really asking yourself, “If this report says I’m profitable, why is there no money in my bank account?!?”

The truth is that you can hire people to do most of the above roles as you grow, but if you’re a business owner and you don’t have a finger on the pulse of your finances, you’re missing out on opportunities to increase revenue, bank more profits, and create an enduring asset that you can run, hire someone else to run, sell, leave to your kids, or whatever you want to do with it. 

That doesn’t mean you have to do your own bookkeeping, financial forecasting, or tax planning, but if you want to grow your business, you do need to work with your finance professionals to understand and advocate for key financial performance indicators and hold your team accountable to them. 

Here are three books that have a permanent place in the stack of reference books on my desk that I recommend to every business owner who is looking to grow, scale, level up, or just maximize profit while staying small. 

1. Simple Numbers, Straight Talk, Big Profits! 4 Keys to Unlock Your Business Potential” by Greg Crabtree with Beverly Blair Harzog.
 
Not only have I known Beverly Blair Harzog for years, but I actually keep this book out on my desk as a sort of reference manual. It’s practical and down to earth, addressing the actual issues actual small business owners have, like:
 

  • Paying yourself market wage and not kidding yourself about your profit: You may think your profit margin is in line with industry standard, but you might also be paying yourself $30K when a hired replacement would cost $150K. This book helps you benchmark and improve your real net profit margin. For S-corporation owners this is especially important as you try to minimize payroll and stay on the right side of the IRS. 
  • How to calculate your team’s productivity and hire against it: It’s really hard to scale, let alone survive hard times, if you’re not measuring and maximizing gross profit per labor dollar, aka overseeing how productive and profitable your team is. Crabtree throws the “hire and hope” plan into the trash, and instead advocates for small business owners to act like the NFL and establish a salary cap to achieve good pretax profit.
 
The bottom line: This book will both change how you think about business finance and give you tools to execute…and you get to pretend to own an NFL team while you’re at it.
 
2. “A Quick Start Guide to Financial Forecasting” by Philip Campbell.
 
Dump the budget and start forecasting, Campbell urges, because looking behind you in the tiny rearview mirror is not nearly as compelling as looking through the big glass windshield at what’s ahead. Campbell’s 10 rules for creating a forecast you can trust are the golden nuggets of the book, with my favorite rules being:
 
  • It’s all about decision-making, not precision. No one has a crystal ball on the future; we can only give our best inputs and move forward boldly, adjusting along the way. This is true for financial forecasts, tax projections, and anywhere you’re making assumptions from your expected revenue to the macroeconomic environment. The key is in scenario planning, or creating a range of possible outcomes, and then acting based on those assumptions.
     
  • Think top town, not bottom up. Budgets often start bottom-up, with individuals and teams putting in expense requests for the year. For forecasting, Campbell advocates for top-down planning. Instead of calculating how many marketing leads will turn into sales and into lifetime customer value, he says to start with your strategic vision and forecast based on that. 

    At Red Bike Advisors, we work with clients to set a 10-year vision, then ladder that down to a 3-year goal and a 1-year and quarterly execution plan. It starts with revenue, profit margin, and other high-level assumptions rather than conversion rates or capacity or individual expenses. 
The bottom line: This book is a great primer to the incredible world of forecasting and how a CFO-level member of your management team can drive exponential results. 
 
3. “Profit First” by Mike Michalowicz.
 
Mike’s wacky idea to turn the traditional accounting formula of Sales - Expenses = Profit on its head has revolutionized the world of small business (at least for those who can wrap their heads around the concept of taking a profit and then paying expenses).  

Mike flips the formula to Sales - Profit = Expenses, urging small business owners to determine their desired profit margin and manage expenses around that. If you’re feeling some resistance to that idea, you might need this book. My favorite nuggets in here are:
 
  • Stop looking at your bank account balance to decide if you are profitable (cash flow and profitability are less related than we mere non-accountant mortals would like to think).
  • Create a tax account and set aside funds so you never have a panic moment when quarterly taxes are due. Further, set aside enough so that the business not only pays business tax, but the personal tax of the owners. In our tax planning and projection meetings with Red Bike Advisors clients, we talk through tax estimates as well as changing tax laws such as the North Carolina pass-through entity tax
 
The bottom line: This book flips the script on profit, and you will profit from reading and executing on it. 

Calling all accidental and intentional entrepreneurs: If you’re looking for proactive advice for your business finance and tax strategy, look us up and book a free strategy session at redbikeadvisors.com
 

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