Episode 108: How to Actually Know If You’re Making Money (It’s 5 Questions, Not 1)

Hello, hello, hello, and welcome to another episode of Creative Minds, Smart Money. I think today is going to be the transformation point. We are officially taking “Bookkeeper” out of our name and stepping fully into that Fractional CFO name. Because I think when a lot of people hear “bookkeeping,” they think of the easiest option, someone who can just get your books done for taxes. And that’s no longer something that defines Firestorm Finance. Bookkeeping is the smallest part of what we do, and realistically we want to focus on the CFO stuff. So I want the podcast to reflect that so we can really get into these topics.

That said, one of the questions I get asked very consistently online, almost all the time, is: how do you actually know if you’re making money? Making money is not just one question. Realistically, it’s 5. And having clean books, even really good books, can’t honestly answer a couple of them. If you don’t know which of the 5 you’re actually asking, you’re not going to get a real answer, and your business decisions are going to be made on intuition and gut instead of actual facts and data.

Why the honest answer is confusing

The number one question that comes up in almost every intake conversation I have is “how do I actually know if I’m making money?” And most people aren’t asking it because they’re scared. They’re asking because the honest answer is confusing. There’s so much more to it than yes or no. I can’t just tell you “yes, you’re making money” or “no, you’re not,” because there’s something so much deeper.

It’s hard for me to answer honestly even when your books are clean, because clean books only give you half the data. There’s so much that goes into understanding whether you’re really making money, from the time going into your work, from your software costs, from whether your software is actually working for you. So many factors we have to consider.

So I’m going to walk you through why this question is so much harder than it sounds, and then I want to show you an example from a client that shows why, and what the honest answer actually requires.

Question 1: Revenue

The first thing someone means when they ask “am I actually making money” is often just revenue. How much money came in the door? That’s the number everybody knows.

You had a $50K month. Are you making money? The honest answer is you don’t know yet. Revenue is easiest to see because it’s the top line of your P&L. When you pull up your P&L, the first number you see is revenue. Most owners can name their revenue offhand. Most of the posts you see online from coaches and people talking about numbers, those are revenue-based numbers.

Revenue alone answers almost none of the real questions. It just tells you what you brought in. If you made $100,000 but you only kept $20,000, revenue is the wrong number to focus on. Revenue is such a superficial number, it shouldn’t be the number you rely on for your business.

Question 2: Profit

Profit is how much of your revenue you keep after expenses. It’s the bottom line of your P&L. So you’ve got the top line (revenue) and the bottom line (profit). Most people know these two, but profit and revenue are two completely different numbers, and treating them the same is one of the most expensive habits I see.

If you had a $50K month with $48K in expenses, you’re only making $2,000 in profit. A $30K month with $18K in expenses is $12,000 in profit. So which one is actually making you money?

You can get some clarity at this point, but there’s more to look at.

Question 3: Cash

How much of that profit is actually in your bank right now? This is why a lot of business owners are drawn to Profit First, because with Profit First they can actually see what cash they’ve kept.

Profit lives on your P&L. Cash lives in your bank account and on your balance sheet. They’re not the same number. You can have a profitable month and have no cash because you haven’t been paid yet (especially with accounts receivable). You can have a losing month and have plenty of cash because last month’s invoices just cleared.

The gap between profit and cash is where most of the “am I making money” panic actually lives, especially if you have AR. When you invoice in July, that hits your P&L in July, but the actual amount lives in accounts receivable on your balance sheet until it’s paid. Once the payment comes in, your AR decreases and your cash increases, but that doesn’t hit your P&L again. It’s how accrual-based accounting works, and it’s confusing without context, which is why I keep telling you we have to be looking at the P&L, balance sheet, and statement of cash flows together. Without all 3, you’re missing the full picture.

Question 4: Margin

The fourth question is what percentage of every dollar you’re keeping. I talk about this a lot in my Loom videos and meetings with clients.

$2,000 profit on $50,000 revenue is a 4% margin. $12,000 profit on $30,000 revenue is a 40% margin. Same “am I making money” question, wildly different answer to business health.

Maybe a 4% margin feels comfortable to you. Maybe 40% feels comfortable. What margin means is: out of every dollar coming in, you keep that percentage in your pocket. At 4%, you’re keeping 4 cents of every dollar. At 40%, you’re keeping 40 cents. Nearly half.

Margin over time is what tells you whether the business is actually healthy or slowly getting sicker while still looking okay. That’s where we really keep an eye on it. That’s where profitability lives.

Question 5: Owner’s take-home pay

The final question is what actually landed in your personal account. If you’re a solopreneur, a single-member LLC, or an S-corp, this is what actual money you took for yourself.

It’s different from margin. It’s different from cash. It’s different from profit. It’s different from revenue. You can have a profitable business and not be paying yourself enough. That’s the real question, because that’s what’s hitting you. When you ask “am I making money?”, it’s often because you’re not seeing yourself pay yourself. You can also pay yourself more than the business earned, which just means you’re drawing down reserves.

So the question really becomes: am I making money for the business, AND am I making money for me? Those are 2 completely different questions with vastly different answers, and neither one is easy to answer just by looking at your P&L.

The client story: same revenue, $58K profit swing

I want to show you the difference with a client I have. Small creative business. We compared the first half of this year to the first half of last year, January through June for both.

Revenue was basically identical between the two halves. The top line was the same. But the first half of last year, she had an $11,000 loss. The first half of this year, she has a $48,000 profit. Same revenue, but a $58,000 swing on the positive side (that’s the $11K loss added back to the $48K profit).

What actually changed? Nothing on the top line. Nothing about how much she sold. The difference was her cost structure, specifically payroll. Over the last year, we rebuilt how she was staffing her business, and that brought payroll down about 35%. Same sales, dramatically different keep rate.

So how does that answer the “am I making money” question? If she’d only been reading her top line, she’d have said “I did the same amount of business this year, nothing changed.” She’d have missed a $58,000 swing in what she actually took home.

Using the 5-question framework: her revenue was flat, her profit swung $58,000 up, her cash followed the profit, her margin improved dramatically, and her owner’s take-home pay went up meaningfully. There’s a different answer to “am I making money” depending on which of the 5 layers you’re actually asking.

She didn’t sell more. She kept more of what she already sold. And that’s a completely different kind of business win, and it’s invisible if you only track revenue.

Why clean books can’t fully answer this

You might be thinking, “Sam, I can look at my books and definitely answer this question.” Clean bookkeeping is the foundation, but to give you an honest answer with the advisory piece, you need more than a foundation.

Bookkeeping gives you the ability to run a P&L and a balance sheet, which answers the revenue and profit sides. That’s 2 out of 5. What bookkeeping alone doesn’t do is read the story across months, catch a category quietly moving up or down, compare against what “normal” should look like for a business at your stage, or connect profit to cash to margin to owner pay all at once. That’s advisory work. Different job, different skill set. And that’s the piece most creative business owners have never had.

The signs your honest answer is unclear

You might be thinking, “Samantha, I already know if I’m making money, I don’t need anyone else in my finances.” If you truly do, that’s amazing. But here are the signs the honest answer is unclear:

• You can name your revenue offhand, but you can’t name your profit.
• You had a good month and can’t say why it was good or whether it will happen again.
• Your profit and your cash don’t seem to match up and you’re not sure why.
• Your P&L looks fine, and you paid yourself out of savings or couldn’t pay yourself at all this month.
• You’re growing and your bank account isn’t. Or you’re steady and your bank account is dropping.
• You feel like your business is doing well and the actual numbers don’t confirm the feeling one way or the other.

Being in business for yourself is emotional. Us as women business owners, us as business owners in general, know that. There’s a constant fear of “am I doing good enough?” I want to make it clear: working with a bookkeeper or a fractional CFO is a necessity for the next stage. You can’t fully understand your business by doing books and taxes at the end of the year. You’re just going through the motions. When you’re ready to grow, that’s when you need to look at your business through a specific lens and actually pull it up.

Wildfire

The 5-question answer to “am I making money” is exactly what my new package, Wildfire, was built to give you every month. That’s the full CFO package: advisory, profitability, KPIs, cash flow, everything. It’s an option if you’re ready, but it’s not a necessity.

We have a forecast where each number tells you which direction it’s heading. And we have the advisory conversation that reads the story. Again, this is an option, you don’t have to do this. But if you’re tired of asking “am I making money?” and you’re not sure of the answer, email me or DM me on Instagram and let’s talk about whether Wildfire fits.

I never want to push a package on someone who isn’t ready. But if “am I actually making money?” is one of the top things on your mind, even just having a conversation to see where you’re at is so vital. We don’t have to work together. That’s never something I’d force. But I want to be able to answer your questions and help you figure out if you’re actually making money.

As always, if you enjoyed this episode, please like it, share it, subscribe. Share it with friends. It’s a vital conversation for understanding our businesses and whether we’re making money.

If you need to have a conversation, DM me on Instagram or email me at samantha@firestormfinance.com. No commitment ever to sign up for a package. Questions are always free. More often than not, I want to answer your questions first before we get into any package, because I know you’re scared. You don’t know who’s coming into your business. You don’t know me personally. You’re worried I’m going to see something in your books and be like, “oh my gosh, girl, you are terrible.” First of all, I would never do that. I’m someone who really is supportive. I want to be that support structure for your business, and I want your business to blossom and grow the way it needs to.

As always, I wish you the best week ever, and we’ll see you next week.

Farewell, my fellow travelers.