I am curious to know how many of you are familiar with financials statements and how often you review them. If you own a business, how often do you review your financial statements?

Contribution margin is the basis of unit economics and likely to be a focal point of future posts and classroom content. What is your contribution margin (CM)? Your CM is the difference between your selling price and all variable costs associated with delivering on the service. - CM = Selling price - variable costs The CM is what helps you pay the fixed costs of your business (think rent, software licenses, insurance, etc). Why should you care? Your business is delivering a service and requires labor hours (unless its automated) and so you have variable costs associated with delivering that service. The higher the CM, the faster you can pay your fixed costs and ideally, pay yourself. What if you have more than one service offering? Let's look at an example: Service 1 - requires 1 hour of labor - $100 of CM Service 2 - requires 2 hours of labor - $150 of CM What one should you choose? We will assume that your business is constrained by the amount of labor hours available. This is likely the case in a service business as you and each of your team members only have 24 hours each day. With this assumption, we MUST look for the contribution margin PER unit of constrained resource. In your case, labor HOURS. Service 1 - $100 CM / labor hour (100/1) Service 2 - $75 CM / labor hour (150/2) Although the total CM is greater for service 2, given that labor hours are limiting your supply, service 1 should be pursued as it provides more CM per labor hour used. For a further analysis on how CM relates to your total profits, please read the Operating Leverage post here: https://www.skool.com/poor-sams-almanack-7280/operating-leverage Stay Under Par, Samuel

How fast do you collect your receivables? How long do you take to settle your accounts payable? In a service business, these are the two main drivers to the cash conversion cycle. This is what creates "velocity" for your cash. Let's assume you collect your cash upfront (no receivable balance) and take 30 days to pay any suppliers for materials. - Your cash conversion would be 0 - 30 = -30 days. HUH? You read that right. Your cash conversion cycle would allow you 30 days to generate cash before paying vendors. Let's now compare this to a scenario where you grant 30 days of credit to customers and pay vendors upfront. - Your cash conversion cycle would be 30 days - 0 days = 30 days. This means that your cash leaves your account before you collect your cash from the sale. Scenario 1 allows you to grow significantly faster as the cash received upfront can be used to acquire more customers before having to pay vendors 30 days later. Why would you care? In a normal service business, the largest expenses is generally your payroll. Payroll is paid weekly or biweekly in most cases. That means that if it takes you 30 days to collect on sales, then you would have to cover 4 weeks of payroll before cash enters your account. And you wonder why your sales go up and yet there is no cash to show for it. Stay Under Par, Samuel

Hey everyone, just joined and wanted to introduce myself. I'm currently working on my own Skool community and connecting with other creators who are also somewhere in the building or pre-launch stage. I'd be interested in hearing from other community owners here. If you're the owner, feel free to say hello or send me a DM. I'd love to compare experiences.

Your accountant handles the books. But they probably don't tell you what the next customer is worth to you. That's operating leverage. It matters more than you think. What is operating leverage? Simply put, it's the relationship between your variable and fixed costs. The higher the proportion of fixed costs you have, the more operating leverage you have. Let me start with an ideal scenario. I'm building a course that takes 40 hours of work to produce. Once it's built, there's no additional time investment. Hence, no variable costs. - Total fixed cost: $1,000 ($25/hour) - Total variable cost per member: $0 - Selling price: $100 (for this example) How many members to break even? Fixed costs / (Selling price - Variable Costs) = 1,000 / (100 - 0) = 10 members After member #10, every additional member generates $100 of pure profit. That's operating leverage at its best. This can be seen in the graph below. The orange section shows my cumulative profit after the breakeven point. Notice that it is identical to the section for cumulative sales. This example is for illustrative purposes only. But your business is different. You run a service business. You don’t build it once and sell it repeatedly. Every customer requires labor. Let's say you're a plumbing service doing $400K in revenue: - Average job: $200 revenue - Labor cost per job: $120 - Materials: $15 - Contribution margin per job: $65 That's 32.5% of revenue. Not bad. There’s one problem: is your labor truly variable? Your plumber is paid a salary. If you add 5 jobs, labor doesn't scale smoothly. You likely hit overtime or need part-time help. The margin per job drops to $50 or $45. Your operating leverage tightens. Your accountant can tell you that you made $60K profit last year. But they won't tell you whether job #200 next month adds $65 or $40 to your bottom line. That gap? That's your actual operating leverage. Why should YOU care? Once you understand your operating leverage, you can answer the real question: "How many customers do I need to break even, and what does each one actually earn me?"