Revenue Is Not the Same Thing as Performance

When I was new in business, my top line grew year after year, but my cash flow did not. My employees got paid first, business expenses came second, and if I was lucky, there was something left over for me. I wore every hat, was responsible for everything, and barely got paid. But I became dependent on those dopamine hits from watching gross revenue increase. The business was growing, so I assumed it was performing better and that "someday soon" I would see a reward. Alas, as my gross revenue increased, business expenses also grew to absorb the margin.

I had fallen for the entrepreneurial myth. Many entrepreneurs think that by going into business for themselves, they are going to be their own boss, control their schedule, and make more money. Instead, they find themselves with hundreds of bosses in the form of clients and customers, working every waking hour, and making less money. I thought I was building a business, but I had really created a job for myself, one I never would have applied for and certainly would not have stayed in had I known what I was getting into.

Building an asset, not a job

It took me years to understand that what I wanted to build was an asset: a business that could be transferred to someone else and continue operating as though I had never been involved. Its ability to function should not depend on me continuing to do everything.

The turning point came when my first daughter was born more than 15 years ago. I suddenly recognized the value of every precious moment. Was I going to continue reinvesting my time into the business for nothing, get compensated for that time, or spend it at home with my family? I decided I was going to get paid first. My compensation needed to be part of the plan, not whatever happened to be left over.

Income statement work versus balance sheet work

I also had to recognize my strengths and weaknesses. I was a good leader but not a good manager. The 80/20 rule was playing out in my own business: roughly 20% of my employees were doing 80% of the work. I let go of some underproducing employees and suddenly had two salaries' worth of positive cash flow, with very little impact on production. I had been chasing more revenue without managing what was happening to the money we were already making.

I think about this as the difference between income statement work and balance sheet work. Income statement work is about making money that impacts the business now. It's about selling, getting people in the door, and spending time on the sales floor. It is focused on revenue. Balance sheet work is building an asset: creating policies and procedures, automating, reducing transactional friction, studying the financials, training management, and building the brand and company culture. It is "working on" the business rather than always "working in" it.

For me, that meant hiring a business coach, which led me to recruiting systems-oriented people who started systematizing processes so others could take responsibility. With average systems, you need stellar people. With stellar systems, you can hire average people and help them succeed.

What revenue alone cannot tell you

For a cannabis operator, a record sales month feels good. But did it produce more cash? Can you take a larger distribution? Can you afford a manager who frees up your time? Are you building something that can operate without you? Those are performance questions that revenue alone cannot answer.

I like the saying, "What is measured grows," but you need to be measuring the right things. Through our Client Accounting and Advisory Services, we help dispensary owners look beyond revenue through margin analysis, cash-flow projections, and comparisons of actual results against their budgets. We help identify what needs management's attention and whether the decisions being made are improving results. The goal is to focus your time and entrepreneurial energy on the areas that offer the best return.

If your revenue keeps growing but your compensation and freedom do not, it is worth asking what that growth is accomplishing. Contact us to learn how our advisory team can help.