Run Your Business By The Numbers

In this session, Joshua Leyenhorst, CEPA, CPA of BasePoint CPA walked through a simple financial framework for owners who want to run the business by the numbers instead of guessing. The premise is worth sitting with: most owners are not bad with money. They are usually just too busy running the business to know where to focus first.

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Busy is not the same as profitable.

A business can have plenty of revenue moving through it, but if the margins, overhead, profit targets, and cash timing are not being watched, that revenue may never turn into the cash and profit the owner actually needs. Here are the five levers, and what to do with each one.

Revenue should not be treated as one big top-line figure. It is the output of several smaller drivers, and each one can be measured and improved on its own:

• Leads
• Conversion rate
• Referral rate
• Retention rate
• Transaction frequency
• Average transaction value

Small improvements across a few of these compound into a much larger increase in revenue. Worth a specific mention: referrals are often one of the lowest-cost ways to grow. When clients are happy and refer others, the business needs less paid advertising and less cold prospecting to hit the same number.

The second lever is the direct cost of delivering your product, project, or service. The important move here is resolution: know the gross margin on each major revenue line, not just the blended average.

• If you are a contractor, know the margin by job type
• If you sell products, know the margin by product
• If you provide services, know the margin by service line

This matters because a business can look profitable overall while certain types of work quietly drag the whole thing down, subsidized by the better-performing areas. The strategic question is which types of work are the most profitable, and which ones should be repriced, improved, reduced, or stopped.

The leverage here is bigger than most owners expect. In the example Josh worked through, lifting gross margin from 30% to 33% meant the business needed roughly $250,000 less revenue to cover the same overhead and hit the same profit target.

Overhead is the fixed cost structure of the business, the costs that are there whether you are busy or slow: insurance, software, subscriptions, financing, rent, and salaried staff.

This is where operating leverage lives. When revenue grows but overhead stays relatively stable, more of the additional gross profit drops straight to the bottom line. Put plainly: doubling profit does not require doubling revenue. If gross margin is healthy and overhead is controlled, a smaller revenue increase can create a much larger increase in net profit.

The warning attached to it is that overhead creeps quietly. Subscriptions, software, insurance, and financing pile up over time when nobody reviews them.

Profit should not simply be whatever is left over. If you wait until year end to see what happened to be left, it tends to round close to zero, because the extra cash gets spent along the way.

Instead, decide what the business needs to generate, then work backwards. That profit target may need to cover:

• Working capital reserves
• Debt repayment
• Reinvestment in the business
• Equipment or capital expenditures
• Owner distributions
• Taxes

Once you know the profit the business needs to produce, gross margin and overhead give you the revenue target required to support it.

Name the profit you need, then build the business that delivers it.

A business can be profitable on paper and still get into trouble if the cash is not in the bank when it is needed. The measure that matters here is the cash conversion cycle, which tracks how long cash is tied up between doing the work and actually getting paid:

• Days Inventory / Work in Progress Outstanding, how long inventory or unbilled work sits before being sold or billed
• Days Sales Outstanding, how long customers take to pay after invoicing
• Days Payable Outstanding, how long the business takes to pay suppliers

Days Inventory Outstanding + Days Sales Outstanding − Days Payable Outstanding = Cash Conversion Cycle

The example makes the stakes concrete. A $2 million business turns over roughly $5,500 of revenue per day, so every extra day in the cash conversion cycle represents about $5,500 of cash tied up. Shortening the cycle by 10 days could free up around $55,000 of working capital, which can be the difference between leaning on a line of credit and having enough operating cash on hand.

Josh also shared a simple exercise for getting overhead under control. Review expenses line by line and mark each one:

It turns the vague goal of "reduce expenses" into a practical to-do list. Export your overhead accounts from your accounting system, go line by line, and colour each one.

The goal of a dashboard is not to get lost in data. It is to see quickly where attention is needed.

You do not need to track everything at once. Understand these five areas, review them regularly, and you can make better decisions, spot issues earlier, and build a business that produces the profit and cash flow your goals actually require.