Defining Your Financial Situation

Defining Your Business

Before digging into the financial plumbing of a new business, client, or acquisition, I like to level-set on where the business stands:

• Debt levels
• Growth rate
• Years established
• Current profitability & cash flow

We don't need to do any deep analysis to answer these questions. "Do you have debt? Yes! I have a big bank loan." Today, we'll look at a few business situations to help chart the course for regular financial planning & analysis.

"Every hand’s a winner, and every hand’s a loser" — Kenny Rogers, The Gambler

I've worked with businesses of all kinds, from startups, to turnarounds, to compounders, to profitable-but-highly-indebted companies. The most successful financial operators are those who first acknowledge where they stand, and then build a plan around it.

Defining your situation...

What does it mean to "define your situation?"

Using a checklist or a set of financial attributes, you're defining the current financial state of the company. When you go to the doctor, they like to run some tests before suggesting treatment. You should do the same.

A good example would be an established business vs. a startup. You wouldn't run the same financial playbook on those separate companies.

Here's a basic checklist of business attributes to help you find your fit:

Work down this list of attributes and note which column you fall into. A simple yes or no response is sufficient, you don't even need to dig up your financials for this.

For example, you could be a fast growing (#2) startup (#3) with low cash on hand (#7) and not yet profitable (#4). That's a setup with a very specific action plan.

Conversely, maybe you run a 40-year established business (#3) with solid cash flow (#6) but you have too much debt (#5). Again, this requires a specific action plan for financial management.

What to do with this...

From here, we can build a tailored set of steps to accomplish our goals. Ultimately, we want our business to fit squarely into the first column for each attribute.

Here are some examples of various combinations:

• Profitable but no cash flow
• Fast growing startup in cash burn mode
• Highly leveraged with positive cash flow
• Compounder – checks all 7 "strength" boxes
• No-growth but profitable established business
• Zombie business – checks all 7 "weakness" boxes
• Turnaround mode – no growth, no profit, no cash, high debt

I'm generally not a fan of mass-market business advice, but here are a few tactics for companies falling in the bottom categories of our checklist:

• Expense management – slash non-essential spending, pause capex, and renegotiate payables to hit breakeven ASAP.
• Find the margin – double-down on the one product/customer segment with the fastest path to positive margin; exit or mothball the rest.
• Revenue quick wins – deploy low cost tactics (price tweaks, add-on services, upsells) that convert existing leads into immediate sales.
• Liquidity – raise bridge capital or sell idle assets to extend runway 6-12 months while fixes take hold.
• Leadership & metrics reset – install turnaround-savvy operators and track weekly cash, sales pipeline, and unit economics—no other KPIs until these turn positive.
• Compounders – for those checking lots of the "strength" boxes, focus on what's going right in your business, build processes, double down on successes, and monitor closely.

Takeaway — Only certain portions of financial management apply to all business situations (good books, consistent review process, financial analysis, cash management, etc.). So if you're seeking financial advice or building out your financial plan for the next 1 year or 10 years, then start by reflecting on your current setup. Build from there.

P.S. Hit reply and tell me about your current financial situation