Welcome to the Owner Institute Newsletter where we talk about getting owners working on and not in their businesses.

In this week’s issue:

• Backoffice blindspots

• The three financial phases most owners miss

• How to fix the operations gap

Quick Hits

1. 🙅🏻‍♂️ The Treasury announced Sunday that it won’t enforce the Beneficial Ownership Information registration requirements. BOI required owners of private businesses to register their ownership with the Federal Crimes Enforcement Network or FedCEN at Treasury. So I guess you don’t have to do it now?

2. 🏦Treasury’s policy brief highlights trends in small business capital access and the growing role of non-bank financial technology providers in the small business market. More here.

3. 📢Changing tariff policies are a big concern for small business.

Deep Dive: Why Your Business Makes Money on Paper but Not in Reality

You know that queasy feeling when your accountant wants to "schedule a meeting" to discuss your books? I've been there. Let me tell you about the time my accountants dropped a bomb on me.

"Congratulations! You just made $600,000 on $4 million in revenue!"

Sounds great, right? Except for one tiny problem: Where the hell was that $600,000? Because it sure wasn't in our bank account.

Turns out we were weeks away from going cash negative. With "record profits."

The Financial Operations Blindspot

Most business owners I talk to have a blindspot when it comes to their financial operations. They don’t invest in good bookkeeping and they don’t take time to monitor their financial metrics on a regular basis. Lots of owners just look at the bank balance and do some rough estimates.

But here's the real reason your financial systems (or to be more accurate non-systems) are a mess: You've outgrown them, but you're still running things like when you were half the size.

The Evolution Problem

When I started my first company, our financial operations were basically one part time person in the back office with basically no financial experience. I was 95% billable on client projects and didn’t really even know how to get into our online bank account.

I don’t think I’d seen a monthly report much less a financial projection since we’d started the business.

To be honest, that kind of worked when we were about $1m. I don’t recommend it. Flying blind with no data is a bad idea for a business of any size but I could cover payroll with a personal check at that point.

But when we grew to $3-4M, we still had essentially the same financial systems. Just more transactions. More complexity. More everything.

We hadn't evolved our systems to match our growth. And it nearly killed us.

The Three Financial Phases Most Owners Miss

Phase 1: Basic Bookkeeping ($0-1M)

At this level, you just need basic bookkeeping and to stay on top of accounts receivable and accounts payable. Record what happened. Pay taxes. Don't get in trouble with the IRS. This is when having a decent bookkeeper and a tax-focused accountant is enough.

Phase 2: Understanding Present Reality ($1-5M)

Now you need to know what's happening right now. Cash flow projections. Real-time expense tracking. Monthly financial reviews. You need someone who can tell you where your money is going before it's gone.

Phase 3: Predicting and Shaping the Future ($5M+)

This is when you need actual financial strategy. Unit economics. Investment planning. Scenario modeling. You need someone who can help you make decisions about the future, not just record the past. Most CPAs don’t really do this. It’s more of a fractional CFO-type activity.

Most owners never make it past Phase 1. They just keep doing the same thing, just with more transactions, more employees, and more complexity.

My $600,000 Mistake

Back to our financial surprise party. What happened?

1. We were tracking our P&L, but not our cash flow

2. We had no projections for the future

3. We had no one who understood business finance (just tax accounting)

4. We were making spending decisions based on bank account balance, not financial strategy

We had Phase 1 financial systems trying to handle a Phase 2 business. And it wasn't working.

How to Fix Your Operations Gap

Here's what I learned the hard way:

1. Get the right level of financial help Your cousin Jimmy who's "good with Excel" isn't going to cut it at $3M+. You need someone who's worked at your revenue level before.

2. Focus on tomorrow, not yesterday Stop obsessing over last quarter's numbers and start focusing on next quarter's projections.

3. Upgrade before you need to By the time you realize your back office is broken, you're already in trouble. Upgrade your financial operations before you hit the next level.

4. Learn to read the signs Cash getting tight? Projects running over budget? Invoicing delays? These aren't isolated incidents - they're symptoms of a system that's not keeping up.

5. Find a financial partner, not just a bookkeeper I finally found Greg Crabtree and Simple Numbers which I highly recommend . Finding the right financial partner changed everything for us.

The Bottom Line

Your business can only grow as fast as your weakest system. And for most owners, that's accounting and the data it provides.

So take a hard look at your financial operations. Are they built for where you are now? Or where you were two years ago?

Because if you're running a $5M business with a $1M back office, it's only a matter of time before you're having that uncomfortable meeting with your accountant.

Trust me, that's a conversation you don't want to have.

If you have some good stories about managing cash and maturing your financial systems, leave us a comment or reply to this email.

In this episode of Small Business Black Holes, host Alan and Tonya have an insightful discussion about breaking through revenue plateaus and scaling challenges.

• Analyze why only 4% of small businesses reach $1 million in revenue, and an even smaller fraction (0.4%) reach $5 million

• Delve into the concept of "trade-offs" in business growth, including difficult decisions about upgrading team members as the company scales

• Consider the psychological barriers owners face when making tough personnel decisions, particularly with long-term employees

• Highlight the distinction between venture-funded and bootstrapped growth paths, examining the unique challenges and opportunities of each approach

The conversation provides practical insights for business owners looking to break free from revenue stagnation and scale their companies effectively.

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