What an Agency Owner Needs to Know About Money

I grew up living the so-called American Dream. But the cold-hearted truth is that this “Dream” is less about reality and more about appearance. It’s less about being and more about showing

We want to look like we have money, but we HATE openly talking about it. My parents didn’t even tell me they had taken student loans for my college or how they worked! 

Money and personal finance were sources of incredibly high stress on my household, but we couldn’t let others know –that was taboo!

Something wasn’t right. I didn’t want to have the same relationship with money my parents had, nor the tension and arguments that came with it. 

I wanted to educate myself financially, learn about money management, and understand money –not fear it or endure its pressing stress.

One thing I started to uncover is that money doesn’t have to be such a closeted subject. 

There’s a clear resistance to openly discussing anything even slightly related to money –both in our personal lives and in business.   

And we need to overcome it.

That’s why we now share our financials statements every month at my company Jakt: to help other companies in the same position as we once were and to make an active effort to start a conversation about money. 

Not talking about it skews our understanding of money and inevitably gets us in trouble later in life.

We live in an economic system that promotes overspending and undersaving. 

We are taught from a very early age that it’s ok to spend money you don’t have to impress other people. But keeping up with that external facade of having money can get very expensive. 

And that’s a problem that follows you no matter how large your income gets —10% of individuals making over $100k/year say they still can’t make ends meet. 

People don’t like to talk about how much money they make, or how much they spend on things, or their real net worth: if you have $10K in credit card debt and $1K in your bank account, yes, you have a negative net worth. 

Most people don’t even have the most basic knowledge about how money works. Rather, we are taught to use credit cards, borrow money and live a blind fantasy taking out unnecessary loans. 

69% of Americans have less than $1,000 in savings and 78% of full-time workers live paycheck to paycheck. 

Yet most of us live above our means and don’t really know how interest rates work and how quickly we can go under. 

Instead of facing the reality that we have a negative net worth, we kid ourselves into thinking we’re well off and own “assets.” When, in reality, we’re one big walking liability. 

By the way, if you are unsure, an asset produces money and gives you a return. That $1,200 jacket you just bought is not an asset –even if repeating “but I’ll wear it a hundred times” or but it’s 70% off! helps you sleep at night. 

And when our expenses rise and reach a breaking point, what do we do?

We use credit and high-interest loans… anything that will allow us to maintain our fabricated image for just a bit longer

I’ve seen countless people spend money on credit cards like it was free money. 

There’s no blue genie behind it with unlimited funds, I promise. They don’t understand for a second that, when you carry the balance, the $10,000 watch they bought actually cost them $12,000 after the card company charged their interest.

And it’s not just about being in financial trouble. When you owe money to someone –a bank, a family member –you no longer have control. 

You’ve lost control of your money, yourself, and your freedom.

Instead of ignoring your personal finances, spending unnecessary money every month, and putting what you can’t afford on your credit card, look at your balance right in the face and don’t shy away from it. 

It’s a reality check and you might not like the answer –but it’s better now than later. 

Breaking out from the money taboo

We fear money. We’ve been told it is not polite to ask questions about other people’s finances –you should mind your own business, right?

But the truth is, it is okay to talk about it. 

Money is just a tool. Nothing more, nothing less.

And this tool allows us to fairly exchange value, keep (ours and other) businesses running, and advance as a society. 

Life and business are just one big game, and money helps us play it: from hiring employees, renting office space, to purchasing products and services we need. 

The problem is when you tie how many zeros your bank account has to your self-worth. You are attaching an emotional element to money –and that leads to showing off to people that you have money (even if you really don’t).

Your self-worth does not depend on how much money you dropped on a Gucci belt. Nothing will change, well, other than the skyrocketing credit card debt you owe the bank. 

Flaunting and trying to keep up with the Joneses will only lead you into financial trouble. 

Either you use money or it uses you.

Linking your happiness and well-being to the immediate gratification from material objects is a very short-sighted play. Americans between the ages of 55-64 (just inches away from retirement) have a jaw-dropping average net worth of only $45,447 –and plenty of them are still in debt. 

Considering that we now live longer than ever and Social Security does not account for that, the future looks bleak for many. 

When you retire at 65 (and you still have 20-30 years to live), what money are you going to live with? The government can’t and won’t take care of you –you have to care of yourself. 

For some (and I’d say many), the problem is not that they didn’t make enough throughout their life. It’s that their relationship with money was so messed up that they simply threw it down the drain with unnecessary purchases and high-interest debt. 

You don’t want to retire at 60 (or 70, or 80!) after decades of working and have zero dollars in your pocket or negative net worth.

Emotionally overspending will keep freedom –doing things by choice, not because you have to– the dream that always remained a dream.

Money doesn’t have to be a taboo or the root of all evil. 

But we are hesitant to talk about it, we don’t educate ourselves on how to manage it, and we care more about other people’s opinions than being financially responsible. 

But money itself, away from personal attachments and preconceptions, is just a tool! 

And by keeping it close to our hearts and not discussing it openly, we are making it extremely hard for others to rewire their relationship with it.

Money is meant to be used and multiplied, but as long as you let money control you and you don’t know how to use it, it will use you and you’ll never be free. 

Instead, shift your mindset towards money as an approachable tool that lets you keep playing the game and help more people. 


What Every Business Owner Should Know About Scorecards

When running a business, it’s easy to let your heart and gut drive your decision-making and forecasting. If you aren’t measuring actions and results, forward progress is difficult and unpredictable. A guessing game of sorts. Defining important metrics that you’ll keep an eye on, tracking them over time, and continuously analyzing them will help you monitor the health of your business.

I have taken this to heart in all the companies I run. And that’s something that, while it might seem tedious and repetitive, I pay a lot of attention to. I can look at them and see ahead at what’s coming or uncover why something happened.

How have I done this?

Through creating scorecards for every system in my business.

They allow me to quickly monitor our progress, make any necessary changes we deem necessary, and execute them going forward. But before I tell you all about them, let’s first take a step back.

What are Scorecards?

Scorecards are documents used to track how your business is performing over a period of time.

But it’s not just about measurement.

They are also management tools that help guide your actions and help you achieve your company’s goals.

Basically, they let you, the business owner, see “ahead of the curve” at what might unfold and back at the reason behind things.

As many fellow entrepreneurs, I didn’t take enough time to define, fulfill, and audit them at first.

In some ways, I felt like I was blind. I kinda knew we were going the right direction, but I had no way to know for sure.

I knew we needed to sell more and our revenue was going up. But I couldn’t say with confidence that would happen because I wasn’t tracking my marketing and sales activities well enough.

When I started working with my coach, however, I started taking these scorecards more seriously.

We now track financials and Key Performance Indicators (KPIs) through scorecards for every system within my company:

  1.    New business system
  2.    Production system
  3.    Back-office system
  4.    Financial system

But Why Are They So Important?

Scorecards tell you how your business is going. Where it may be off-track, and where you may need to make adjustments so that each system is working efficiently.

But here’s the thing:

You can see the future with them.

No, I don’t mean they are literally a crystal ball. But they do illustrate, metrically, if something may go wrong down the road.


Scorecards are especially useful when measuring leading indicators. Through them, you can see what will happen weeks, months, and even years in advance.

Leading indicators –and I’ll make an article on them specifically– can help both your decision-making and forecasting.

Let’s say you check out your financial scorecards and realize that you have under-collected money from your customers. What does that tell you?

That you might run into a cash-flow problem in the near-term. So you might have to take out money from your retained earnings to make payroll.

Much better to know now than in a month when the water is up to your neck, right?

Another question I often get is—

How Often Should You Look at your Scorecards?

And it’s interesting because I’ve seen everything on the spectrum. Some business owners review them once a month. Others once a quarter. Others once a year. And others, well, never because they don’t have them (they don’t usually last though).

I personally checked almost all of them on a weekly basis. As we’ve grown larger, I’ve started checking some of them monthly. I have a management team that I trust so I don’t have to monitor each week.

Maybe that’s just me. But I would rather make sure I’m up to date on our numbers before it’s too late.

Scorecards and the New Business System

One of the best ways I can think of to share the importance of scorecards is through the New Business System.

The New Business includes the people, tools, and processes that work to generating leads and close clients.

Back in the day, I used to do what many other entrepreneurs do. I tried to go out and sell as much as I could –but I wasn’t tracking anything other than the most basic stuff.

At the end of the year, I’d look at our numbers and say: “Oh, I closed this much business. I thought it would be more/less.”

Now, I look at this whole system differently—

It works like a funnel: generate leads → qualify them → close them. Since I have tracked our average closing and qualifying rates and deal value, I know exactly that…

If I want to make $4M in revenue, I’ll need to generate X number of leads. And then, I can break those leads down per quarter/month/week.

A quick glance at my scorecards will tell me if I’m on track for the time period I’m checking out. If we have to generate 10 leads this week and we’re at 20, things look good ahead. But if we’re at 3, something’s not working.

So, your scorecard isn’t just a tracker. It can tell you what you need to do to hit your goal and helps show if you are on track to hit your goals or not.

Who owns the Scorecards?

Each company and industry should have its own scorecards that need to be filled in, measured, and analyzed. But who is responsible for them?

In the early days, it was just me. I’d be the one tracking how much business we closed, what was our customer LTV, etc.

But, as we grew and I started working ON the business, things changed.

Now, every scorecard is owned by someone. There is an individual responsibility to track, quantify, and evaluate it.

For example, the Head of Sales could be responsible for the New Business Scorecard. Or the CFO for the Financial Scorecard, etc.

Along with the management team, my job to be aware of the big picture trends. See what’s going well and what are the weak links that need to be adjusted. But I don’t go in and work on each individual KPI anymore.

Scorecards Are Crutial 

  1. Scorecards tell you how your business is going, where it may be off-track, and where you may need to make modifications so that each system is working efficiently.
  2. By tracking leading indicators, you are now able to forecast future trends easily which also helps your decision-making. You can see this by reverse-engineering the New Business System.
  3. As you move from IN to ON the business, you’ll delegate ownership of each scorecard to your team. I still check them weekly to see how we’re performing and what needs to be adjusted.



The 1 Crucial Personal Finance Tip Every Business Owner Should Know

You’ve been lied to about the price of everything you buy.


Here’s the thing, personal items are always more expensive than you think when you add your tax rate to it. And your personal finances could be slowing down your business’ growth.

What do I mean by that?

Well, when you make a dollar, the government takes it takes. What’s left is the money you have to spend on things.

That suit you just spent two grand on — you had to earn over $3,000 to buy it.

That $500 dinner plus drinks at NYC’s most trendy place — you had to earn $750+ for that.

And, admittedly, the $25,000 Rolex I bought a few years back really cost me $35,000 – $40,000 when I incorporate my tax rate into the equation.

See what I mean?

Knowledge of personal finance as a business owner/CEO starts with understanding your pre-tax and post-tax income. Your pretax income – the earnings you make after deducting all of your operating expenses (insurance, depreciation, employees, etc.) – really needs to be $550 to pay for that $500 Gucci belt you loved.

There are ways to lower your pre-tax income, such as but that doesn’t help when you’re taxed afterward. Everything is 1.4x to 1.7x (depending on the state you live in) more expensive than you think.

Yup, it sucks.

Recognizing the expense of your overall tax rate is the first step toward making smarter spending decisions and reducing your living expenses. Fight off immediate gratification

Now, it’s not all doom and gloom.

If you understand the system, you’ll realize you can use it to your advantage:

Reinvesting in the Business vs. Personal Spending

We’ve talked before about keeping and reinvesting your profits back into the business. It speeds up your growth, it provides a safety net for when the shit hits the fan… But you are also now starting to get why it just makes logical sense:

The government is (indirectly and unknowingly) incentivizing you to spend money in your business.

Here’s how:

If I spend $1000 on a personal item, it’s actually costing me $1,700 because of my tax rate. You know that by now, so I won’t repeat myself.

But, if I reinvest the same $1000 into my business, I can expense the entire thing so my money goes much further. You end up making more money in the long run when reinvesting in your company – and you don’t have to pay taxes until you take profits out!

The 1 Crucial Personal Finance Tip Every Business Owner Should Know

Instead of going to the government or to Gucci, wouldn’t you rather have your hard-earned dollars go towards hiring new talented people, funding projects, scaling, or investing in new business opportunities? I surely would.  

Note: I am obviously not promoting tax evasion. There’s a BIG difference between that and being smart about how you spend your money and business expenses. Always (and I mean always) be legal and compliant.

It really just doesn’t make financial sense to me to spend post-tax dollars on things that don’t provide me an ROI. You could spend that money tax-free by investing in your business (e.g. spending on marketing that will bring you, new customers).

Personal Finances and Business Owners

Educating myself on personal finances (trust me, it’s taken some rewiring) has proven to be a huge competitive advantage.

At the same time, I sometimes hear from business owners that tell me things like:

“Anthony, dude, I made that money –I deserve the Porsche!” Or “you can’t take dollar bills with ya when you are 6 feet deep.”

They’re not wrong, and neither am I. Both options are viable, and I am no one to tell you how to live your life or how to spend your cash.

And listen, I get it. I bought myself a $25,000 Rolex because I also thought I deserved it –and I probably did. I also knew that its real cost was much, much higher.

But if you’re like me, you already LOVE spending money in your business. It’s not a sacrifice. You want to see your company grow, and you also realize that you don’t need to buy shit to impress other people.

The added benefit is that doing that also makes financial sense. I limit the amount of money spent on personal items as much as possible and throw the rest into my business. I get the most bang for my dollar, and my business expenses become tax-free. It’s a Win-Win.

Crucial Personal Finance Tips:

Next time you’re about to buy something, ask yourself: “do I want to invest $1,000 on a business expense and have the government incentivize me for doing so, or actually spend $1,700 on something personal?”

If the answer is the $1,700, go ‘head and buy it. Just know that you have options. So, three things to remember and apply right away:

  1. Know that everything you buy with post-tax money is much more expensive than what the price tag says. Multiply it by 1.4x to 1.7x depending on your tax rate.
  2. Leverage the power of pre-tax money by reinvesting in your business. Take advantage of tax-free spending to stretch your dollars.
  3. Educate yourself on personal finances for business owners and CEOs. It will help your business and your day-to-day lifestyle.

If you want to read more about personal finances, managing money, and business strategies, sign up to my email list on the form below.

Building a Business Entrepreneurship Finance

How Your Personal Finances Are Slowing Down Your Business’ Growth

I was recently talking with a friend who has a 9-5 job and also freelances on the side. To give you some context, his goal is to make enough money off the freelance work to cover his living expenses and, eventually, turn that into his full-time income –something that those of you with (or looking to start) a side-hustle or in the early stages of running a business might relate to.

We had previously discussed how important it was that he took control of his personal finances. He proudly told me he had been able to reduce his monthly expenses to only $2,500 –a long way from where he started. I congratulated him; he had done a great job and sacrifice. But I also challenged him to take one more step and get it to $2,000/month.

“Why? Isn’t this good enough?” he asked me. And don’t get me wrong, it is… but, that’s another $500 a month you can put in your pocket –that’s a whole extra month of runway after 4 months.

I then told him…

“You should NEVER have variable expenses”

When you are starting up, I’d argue that your focus needs to be on reducing your expenses as much as humanly possible.

You’ll then have an exact number that amounts to everything you need (not the same as want –more on that later), and you have to be sure that there is no imaginable way to go lower than that. That’s your expense baseline.

Your expense baseline has to be predictable –which means you can only have fixed expenses.

You need to personally forecast and budget: $X will go towards rent, $Y will go towards food, $Z will go towards gas, etc. There’s no place for variable expenses. You cannot drunkenly come back from the bar, pass out on the couch, and realize the next morning you spent $150.

[Sidenote: I’m obviously not accounting for out-of-the-norm incidents such as accidents, medical issues, natural causes, etc.]

Why am I so strict about this? Let’s go back to my friend for a second. His goal is to leave his job and work for himself –thus his income needs to cover his expenses. The lower his income, the faster this will happen, and the faster he will achieve his goal. Short term pain, but a much quicker path to his goal.

Having low expenses gives you freedom, and it lets you achieve your goals faster. But it does take self-discipline because, once you have a forecasted budget, it should not change –even if your income rises.

Throughout my first few months as a freelancer and then during Jakt’s very beginning, I knew exactly what was the minimum amount of money I needed to live –and I didn’t increase that for a long, long time. When I started making more of it, I didn’t run and spend it –I stockpiled it! Looking back, I should’ve hired more people earlier, but my living expenses didn’t change: I didn’t buy new clothes for almost three years, I didn’t move to a bigger apartment for a couple years, etc.

I just didn’t need it… which leads me to my next point.

Know the difference between “Wants” and “Needs”

Not all expenses are created equally.

People get very soft and permissive with themselves when it comes to what they need vs. what they want. Especially if you have just started running a business, you can’t be delusional:

You don’t “need” to go to SoulCycle –it’s $35/session. I used to go to a gym in NYC that cost me $20/month –less than one SoulCycle class. You don’t “need” that office, or that table, or that chair, etc. And, of course, there are things that you actually need like eating healthy. But, even then, you can find ways to eat healthy without dropping $40 for a meal.

Honestly, people’s relationship with money is one way I vet people that I could partner with through The Polpo Group. And I’ll tell you why:

Because it shows what’s really important to you –either your business (and the freedom that comes with it) or materialistic shit you don’t need. If you’re not willing to sacrifice yourself, this is probably not going to work out so well for either of us.

And if you don’t want it bad enough, that’s perfectly fine –but you have to be honest with yourself. It doesn’t really matter how many time you post #hustle on Twitter. You “kinda” want it –or you might have glorified the idea of calling yourself an entrepreneur–, but you’d rather go party at night. You still might get where you want to be, but it will definitely take longer.

It all comes down to priorities and knowing what you want. There’s no right or wrong answer –I’m just telling you what I believe is the fastest path to achieve the goal of having a business you can do full-time and get the freedom you desire.

It’s important to be self-aware enough to know your priorities but, once those are established, it’s time to make a plan, stick to it, and be laser-focused on executing it. To do that, however, you’ll have to get used to…

Telling people “no”

You can’t imagine how many times I had to do it:

“Anthony, do you want to go out to eat? Nope, I don’t have money” (even when I started making some money, my answer was still this –stockpiling, remember?).

“Anthony, do you want to go for drinks tonight? Nope, we can hang out, but I can’t buy drinks.

I said no to everything because I was extremely focused on growing and scaling Jakt. That was my one and only priority, and every step I took had to get me a bit closer to that. And, if it didn’t, I didn’t take it. It was that simple. Everyone looked at me like I was crazy, but I really didn’t give a damn. I was living month to month, barely scraping by…

But, honestly, I was so happy doing it. If I let my expenses bloat, I wouldn’t have been able to pay my rent, etc, and I probably would’ve had to end up on a 9-5 job I hated. To me, the freedom of having my business money cover my expenses (and staying away from corporate) was very much worth it.

I chose myself and what made me happy. If I had listened to what my friends or my parents said, I would’ve taken a job at a bank. Instead, I didn’t talk to my family for a couple of years (long story, I’ll cover it another time). I just knew that I had to follow my own path or I’d be terribly miserable —and I accepted the consequences.

Again, this is not for everyone, and you should do what makes you happy, but that’s what it takes to quickly build a business from a personal finance standpoint.

If you want to go full-time on your business as fast as possible

  1. Make your expenses fixable and predictable –and reduce them to the bare minimum. Keep them there for as long as you can. 
  2. There’s a difference between wanting something and needing something. But you already knew that. You just have to be honest with yourself. 
  3. Budgeting means prioritizing and saying no to things. Ask yourself if that’s what you want and, if it is, go all in.


Managing Cash Flow and Ensuring a Profit

Managing cash flow is critical to running a business. If not done correctly, it can kill your business. Over the years I created and refined my system for managing cash flow. While there’s a lot of factors to success in business, I can say that my ability to manage cash flow has been key, especially in rougher times (e.g., sales not closing, clients leaving, etc.), resulting in being profitable every year since I started Jakt 7 years ago. The system has evolved over time. I am constantly looking to improve upon systems so that this system could have adjustments in the future, and therefore this will be a living doc that over time gets updated. The system below is based on the latest version that we currently use at Jakt today.

Managing Cash Flow Each Month

I recommend having a minimum of five accounts:

  • Revenue
  • Expenses
  • Taxes
  • Retained Earnings
  • Profit to be distributed


Every dollar we get paid goes into the Revenue account.

Going into each month, I know exactly the amount of expenses we will have. Expenses will never go above that amount each month. Unless there is some unexpected event that is a unique occurrence or because we closed more business. The latter case is ok because it means there’s corresponding revenue coming in to cover these expenses. Having confidence in the dollar amount of your expenses for the month is very important — the less variance within a month the better which can give you confidence in how you move money throughout the month.


Because I know what my monthly expenses will be for the month ahead, I then move money from the “Revenue” account to the “Expenses” account until I’m moved enough money from the Revenue account to the Expenses account that month such that all the projected Expenses for the month are covered.

For example, if I know my expenses next month will be $25,000, the first $25,000 in revenue we collect gets moved into the Expenses account.

Taxes and Retained Earnings

Once the projected monthly expenses are completely covered, I move any additional money received.

  • 40% of the Revenue goes into the tax account (my estimated taxes each year are around this so I make sure to set aside 40% of any profit for paying taxes later)
  • 60% gets moves into the Retained Earnings account

I like to keep a minimum of 1-month cash in the “Retained Earnings” account. Less than this is a bit scary for me. More than three months is a bit too much in my opinion. At that point, you have too much cash sitting there and not being invested.

Building up a Retained Earnings account is important because 1) if you have a bad cash flow month, then you have this safety net and 2) if you want to make some investments into your business, you have cash on hand to do it.


Once we have reached our Retained Earnings threshold, then the remaining funds go into “Profit to be distributed”.

The flow then becomes:

  • 40% of the Revenue goes into the tax account
  • 60% moves into the Profits to be distributed account

Once we have reached our Retained Earnings threshold, then the remaining funds go into “Profit to be distributed.”

The “Profit to be distributed” is how I as the owner get paid. I take money last. And the money I take out is tax-free because I’ve already set aside 40% for taxes.

The “Profit to be distributed” is how I live and I use that money on anything else I need it for outside of the business. This ensures that I never take out more than the business needs.

I believe the owner should be paid last. Some people disagree with me here, but it’s served me well since I started.

The way I see it, if you need money each month, make sure the business is making a profit.

I’ve seen too many people take money out of the business thinking “we will make a ton in the next few months” then those future months don’t go well. Then they’ve taken money out of the company and either 1) have to put it back or 2) if they can’t put it back in because they’ve spent it, they now have a huge problem.


Common Questions and Answers

In this section, I will answer FAQs. If you don’t see a question you have, feel free to comment on the post and I will answer.

How often should you rebalance and move money according to the flow above?


I recommend weekly. So you are keeping an eye on cash every single week and ensuring you are managing your cash balances and running a healthy business.

How often should I distribute profits from the “Profits to be distributed account”?

Distributing profits is a bit of a personal choice. In the early days of the business, I did this monthly at the end of the month. Partly because there would be no money in that account because I needed to put money into the “Expenses” account and “Retained Earnings” accounts in the earlier weeks of the month. I also usually wouldn’t take out the entire amount each month just in case the next month we lost a little bit of money. This would very rarely happen, but I like to play conservatively.

Today I take profits out quarterly.

What do I do if one month I lose money?

You can either take that from the Retained Earnings account or put money in from your personal account.

If you take profits out quarterly, it’s less likely for this to happen. Losing money one month may occur (e.g., one customer is late on their payment to you and comes in the following month, but you still have to pay your employees) but losing money three straight months and ending the quarter on a loss shouldn’t. If it does, there are some more substantial issues to uncover.

Today I distribute profits quarterly because I don’t need money coming in each month.

How do you initially build up the Retained Earnings account to have at least one months expenses?

In the early days when you have 0 cash balance and need to build that up, virtually all money above expenses should go into retained earnings. You should be taking as little as possible out of the business. If you need a certain amount of living money, after you pay all expenses to take exactly the amount you need for expenses out (as little as possible) and the rest goes into retained earnings account until it is built up. This is key especially as you start growing and want to hire more people, outlay cash for some equipment, etc.

As you grow, your expenses will rise, and therefore the dollar amount needed in the Retained Earnings account will increase. Make sure you don’t take out too much from your business prematurely. Delayed gratification on this will pay dividends later, and the dollar amount in profits you’ll be able to take out will be much, much higher. At least that’s been my experience.

How do I ensure I will have excess money for Retained Earnings and Profits to be distributed?

This is where a firm understanding of how a Profit & Loss (P&L) statement is essential.

Revenue – Expenses = Profit (money left over for retained earnings and distributed profits).

I like to work backward on the P&L. I first ask, how much profit do I want? So for example, if I’d like to maintain a 20% margin, I ask myself, what needs to happen such that this is true? You can also ask the question if I want to make a specific dollar amount in profit each month (e.g., if I want to make $10,000 a month in profit each month), what needs to happen such that this is true?

For the rest of this example, we’ll look at it from the goal of attaining a 20% profit margin.

So assuming we want a 20% margin, I then look to my projections for revenue, cost of goods sold (cogs) and operating expenses. They all work very closely together to help achieve that 20% margin. It’s a simple formula, and revenue, cogs and operating expenses are the variables you can play with.

You start with a pie of 100% (revenue, with no costs). Cogs and operating expenses subtract from that 100%. Leftover cash is profit. You then can play with the cogs and operating expenses to figure out different proportions on how you can achieve that 20%.


For example, to achieve a 20% margin you could have:

Revenue ($10,000 = 100%)

  • Cogs (50% = $5,000)
  • Operating Expenses (30% = $3,000)

Profit (20% = $2,000)


Revenue ($10,000 = 100%)

  • Cogs (40% = $4,000)
  • Operating Expenses (40% = $4,000)

Profit (20% = $2,000)

As you can see, it’s a simple math equation that you can adjust. When looking at your business, you’ll have to make the decisions on how much to allocate towards cogs and how much to allocate towards operating expenses.

For Jakt, for example, our goal is to maintain a 20% profit margin. To do this, we have a goal of 50% cogs and 30% operating expenses.

If the system ever goes out of balance, we know we need to adjust. For example, if cogs go up to 55% one month we know, we must temporarily reduce operating expenses to 25% to maintain the 20% profit margin goal.

Knowing we can spend 50% on cogs and 30% on operating expenses to achieve our target gives us the parameters to play within. It helps us decide on everything from hiring, pricing, spending on marketing, etc.

There are too many scenarios to outline here, but if you understand the formula and variables, you’ll see that you can easily make decisions based on this.

What Are Some Questions You Can Answer from This System?

  • How much can you pay that freelancer?
  • What can you spend on marketing?
  • Can you spend on an accountant?
  • How much can you pay your employees?
  • Can you give your employees a raise? Or if you do, what else needs to change?
  • What happens if we lower prices?
  • What happens if we raise prices?
  • How many deals do we need to close to maintain this profit margin?
  • What has to happen if we don’t close that deal or the amount of money we thought we would?
  • Etc etc

But in general, virtually every question about “how much can we spend” comes back to this simple equation.

If you follow this formula and rebalance when needed, you will ensure there to be excess money after paid expenses.

Accrual and Cash Accounting: An Important Difference

Now, it’s critical to note that you must understand the difference between accrual and cash accounting.

We typically do this math based on accrual-based accounting which means that we will have billed for N dollars but not necessarily received it yet. If your cash collection system is good, you will have no issues. However, if someone is late to payment, for example, on a cash basis your margin may be less than 20% one month, and above 20% the following month when you collect that additional cash. Maintain Retained Earnings to help cover some of that cash when a customer is late paying.

Alternatively, you could renegotiate terms with your vendors. Re-negotiating with employees on salaries is not as easy (don’t do this). So long as customers do actually pay you and you have enough Retained Earnings to cover the difference until they do, you are fine. If you are not collecting cash from customers, even if on accrual basis you have a profit, you risk draining your Retained Earnings and potentially bring the business to a halt before you actually realize that profit. This is key, especially for service based businesses.

In short, keep paying attention to the accrual basis percentages to help decide on future spend, but don’t lose sight of the cash basis numbers and make adjustments when needed.

Some additional notes

  • This method I’ve outlined not take into account advanced strategies such as managing a line of credit. I’ll cover that in another post.
  • You can also add additional accounts as you see fit. The above is the minimum I’d recommend, but don’t feel scared to add more. For example, next year I’m adding a “Jakt team bonus” account.

Want me to help with your specific business and situation? I’ve launched Polpo Finance, a finance and accounting company for agencies to help you become more profitable and predictable. Email at [email protected] to chat and see if there’s a fit.