10 tips to make 2026 super profitable (pt 1)
“We are what we repeatedly do. Excellence, then, is not an act, but a habit.” — Will Durant
We’re just a few days away from the new year; and while it’s somewhat arbitrary in the sense that we wipe the books clean (hello retained earnings!) and start all over again, it gives us a renewed energy to make it the most profitable year yet.
This week, we’ll start with #1-5 (the foundations) on our list of ten tips to make this a profitable year. They are:
- Track your cash flows (every week)
- Build cash reserves (load up on cash)
- Invest in good bookkeeping (don’t do it on the side)
- Start a financial review process (look at your numbers)
- Make a scorecard (track your key metrics)
1) Track your cash flows
A 2-question pop quiz:
- How much cash did you collect last week and where did it come from?
- How much cash went out and where did it go?
If you can’t answer those 2 questions for last week, then I’m guessing you can’t answer them for the past 2 weeks or 2 months either.
Track your cash flows every single week.
This is completely separate from your financial statements and it will give you a very different lens to look at your business. Once you start tracking these cash flows for a few weeks or months, you’ll start to see recurring amounts and patterns which make it easy to forecast where cash is headed (we call this a 13-week cash forecast and every business should have one).
A cash flow tracker is also incredibly useful for new business owners or folks who are uncomfortable with financial statements.
2) Build cash reserves
One of my favorite stories about Bill Gates from his early days at Microsoft was his thought process around cash and liquidity.
Gates insisted on keeping tons of cash around for playing both defense and offense. His suggested amount of cash reserves? 12 months of operating expenses!
This is overkill (12 months), but the typical small business has somewhere between 2-4 weeks of expenses in cash on hand. That’s not enough to protect from unforeseen events.
Stick with 3-4 months of opex in cash plus open up a line of credit for emergencies (and treat it as such).
3) Invest in a good set of books
It’s never too late to invest in a good set of financial statements.
If you’re doing the books yourself, then hire a bookkeeper. If you have a bookkeeper, review the quality of their work. If you have a good bookkeeper, ask if you’re getting the right reports or have the right format. There’s always something to improve when it comes to the books.
What are some signs of good bookkeeping?
- Consistency → Everything is in the same place every month
- Timely → You get the financials in time to use them (it’s late-December, do you have November financials yet?)
- Concise → Do you have an unwieldy chart of accounts with 200 line items? Are some accounts getting used once every 18 months? This will not provide you with better decision-making.
- Trust → Do you trust the numbers? Sometimes “gut feel” makes sense. If you don’t look at your numbers because you don’t trust that they’re correct, then there’s no better signal to invest in a better set of books.
Treat bookkeeping like an investment, not an expense.
4) Start a financial review process
Finance and accounting are meant to be supporting functions for a business (data, information, reports, feedback).
What’s the best way to start using finance as a support tool? Start with a monthly financial review process.
Here’s the situation: you’ve just received last month’s numbers, what do you do next?
Answering that question is your review process in a nutshell. My suggestion is to start with a basic checklist of things to look at each month. From there, write down your notes, thoughts, and areas to investigate. Refining this process over time will better help you understand and communicate your financial story (to yourself, your team, or any external stakeholders).
A basic checklist to get you started:
- Year-over-year (YoY) performance → How does this month stack up against the same month last year? How about this year-to-date (YTD) vs. the same period last year?
- Growth → Every company should know whether they are growing or declining. What is your YoY growth rate (%) this month, last month, last week, or the last few years? Growth is imperative so track it across many time periods
- Monthly P&L → Grab a copy of your P&L with 6-8 months stacked together. This is known as “horizontal analysis,” and we’re looking for trends across time. Do you notice relatively flat expenses (perhaps rent & utilities)? These are your fixed costs, you’d be smart to track them every month!
- Common-sized P&L → This is known as “vertical analysis.” Take the monthly P&L and divide each line item by that period’s revenue, you’ll get a percentage (%) which you can compare across time. How do this month’s margins compare to last month? Or last year?
- Cash flow → Remember those weekly cash flows we started tracking? Now let’s look at them through a monthly view. How do cash inflows & outflows compare to your P&L? What is your cash position? These are good things to check in on at least monthly.
- Ratio scorecard → Pick 10-15 metrics for your business model + financial situation and track them each month. Consider this the best place to get an overall picture of your business.
- Rolling 12-month analysis → This is a bit advanced, but it’s very powerful. In a rolling 12-month view of your business, every column represents an entire 12-month period of time (i.e. a full year). This eliminates all seasonality and lumpiness in results (like paying a full year of insurance expense in a single month). A R12M is my go-to when assessing business trends.
Review your financial reports every month.
5) Make a scorecard
Whether financially inclined or not, we all have certain numbers or metrics we’re regularly looking at to get a pulse on our business. Take this one step further and track it in a scorecard.
What is a scorecard?
It’s a tool (can be a spreadsheet, notebook, or special software) to track self-selected metrics. Pick 10-15 metrics, calculate them, and track them each month (or weekly if you need more real-time information).
Some examples to get you started:
- Growth rate (YoY)
- Margin (gross, EBITDA, net, etc.)
- Inventory balance
- Cash balance
- Fixed costs
Think about your scorecard like this: you’ve been stuck on a desert island for a year and want to know how your business is doing; what are the fewest possible things you’d need to know to answer that question?
Use this tool as a “jumping off point” to see what’s going well and what’s going poorly in your business (i.e. early warning indicators). These can be a mix of financial and non-financial metrics too (like traffic, employee morale, etc.). And don’t be afraid to swap out metrics that aren’t helping.