A Year-End Financial Guide: Three Numbers Every Entrepreneur Should Know

The Mission Driven Business Podcast

Your business made money, but did you? In this episode, Brian Thompson asks entrepreneurs to look past the revenue total and understand how much of it actually supports them. He walks through three numbers that reveal the financial health of a business: profit margin, owner’s compensation, and cash reserves, then closes with a 15-minute checkup to complete before the end of November.

 

Why Revenue Tells Only Part of the Story

As the year winds down, many entrepreneurs are reflecting on their record revenue for the year, a new service launch, or a milestone they have been working toward. Others are looking back on a more challenging year than expected. Brian has worked with many business owners who bring in impressive revenue and still feel anxious about money. They wonder whether they can afford to pay themselves, whether they will have enough for taxes, and how they will cover expenses at the end of the month. Revenue matters, and it is also a vanity number. What deserves just as much attention is how much of that revenue you actually get to keep.

 

Three Numbers That Show Your Financial Health

The three numbers every entrepreneur should understand are their profit margin, owner’s compensation, and cash reserves. Together they show whether your business is profitable, whether it pays you enough to live the life you want, and whether it can handle inevitable surprises. Grab your financial statements and accounting software, because each number comes with a question to answer for your own business.

 

1. What is your Profit Margin?

Net profit margin is the percentage of revenue left after expenses. Divide net profit by total revenue, then multiply by 100. A consultant who earns $250,000 and spends $200,000 keeps $50,000, a 20% margin. Whether that is strong depends on your industry and stage, so compare your margin to your own history and goals. If it is lower than you would like, review unused subscriptions and marketing that is not producing results, and look at your pricing. Keep in mind that owner’s draws and S-Corp salaries appear differently in your financials, so a bookkeeper or accountant can help you compare like with like.

 

2. Owner’s Compensation should come first

Many entrepreneurs pay everyone else first and take whatever remains. Brian recommends the Profit First system, which allocates revenue to profit, owner’s pay, taxes, and operating expenses from the start. Two consultants can each earn $200,000, with one taking home $90,000 and the other $40,000, which shows that revenue alone does not reveal whether a business meets the owner’s needs. Start with your personal expenses, savings goals, and the things you enjoy, then compare that figure to what the business currently pays you. If you need $75,000 and the business provides $50,000, the $25,000 gap becomes your target. Pricing, client load, expenses, and service delivery are the levers for closing it. S-Corp owners should confirm reasonable compensation with their tax professional.

 

3. Know your Cash Reserves

A business can look profitable on paper and still struggle to pay its bills. To see your runway, divide available operating cash by average monthly expenses, including your own pay. Three to six months is a useful starting point, and businesses with uneven revenue, employees, or long payment cycles may want more. Leave out money already set aside for taxes or payroll. Reserves also create options. With enough cushion, you can decline a project that conflicts with your values, invest in your growth, or take time off.

 

Your Action Step: The 15-Minute Profitability Checkup

It’s recommended to complete this checkup before the end of November. All you need is your financial statements, your bank balances, and a little time to reflect.

  1. Calculate your profit margin. Pull your year-to-date profit and loss statement, divide net profit by revenue, and multiply by 100. Consider how your owner’s compensation is reflected, and compare the result to previous years.
  2. Review your owner’s compensation. Look at what you paid yourself this year through salary, draws, or distributions, and compare it to your personal financial needs. If there is a gap, name the number.
  3. Calculate your cash runway. Exclude money earmarked for taxes or other obligations, then divide available reserves by average monthly expenses to see how many months you could cover.
  4. Choose one action. Resist the urge to fix everything at once. You might eliminate unused expenses, review your pricing before 2027, or set up automatic transfers into a dedicated reserve account. Make it specific, make it manageable, and give it a deadline.

If the numbers are not where you want them, treat them as information that helps you make better decisions going forward. Real financial planning creates options and gives you the freedom to make intentional decisions, so your business supports the life and impact you want to create. Share which of these three numbers surprised you most with Brian on Instagram at @BTFinancial.

 

Resources + Links

 

About Brian and the Mission Driven Business Podcast

Brian Thompson, JD/CFP®, is a tax attorney and Certified Financial Planner® who specializes in providing comprehensive financial planning to LGBTQ+ entrepreneurs who run mission-driven businesses. The Mission Driven Business podcast was born out of his passion for helping social entrepreneurs create businesses with purpose and profit.

On the podcast, Brian talks with diverse entrepreneurs and the people who support them. Listeners hear stories of experiences, strength, and hope and get practical advice to help them build businesses that might just change the world, too.

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