How to Know if Your Business Is Financially Healthy

Profit doesn’t always mean your business is financially healthy. In this video, Steve breaks down how a disconnect between strategy and cash flow can quietly derail even the most profitable companies.

You’ll learn why profit alone isn’t enough, how to align your financial operations with your bigger goals, and what it takes to build a business that’s both sustainable and valuable. If you want to avoid hidden risks and lead with confidence, this is the insight you need.

TRANSCRIPT:

Now, what I'm about to tell you, you may or may not like, but guess what? 70% of companies that go bankrupt are actually profitable when they close their doors. So if you're an entrepreneur, a founder, a P&L leader, a business owner, or a CEO, if you are running a small to midsize company, this channel is for you because here's the deal. This whole thing that I'm about to teach you almost destroyed my business.

And guess what? It destroys businesses every single day, both big and small. And if you don't understand what I'm about to share, you too can fall into this dangerous trap. I don't care how profitable your business is.

I don't care how smart you are. It happens to the best of the best out there. I've worked with a ton of companies.

My name is Steve Coughran. I'm the founder of coltivar.com. I've spent my entire career turning around and growing businesses of all different sizes across multiple industries. I was a CFO of a billion dollar construction and renewable energy company.

I was also a CFO of a FinTech company where we raised over a hundred million dollars and we grew from value to nearly unicorn status. So I've been in the trenches before. I've rolled up my sleeves.

I've done the work. I've built strategies for organizations and I've seen them executed to drive a ton of value. And I'm about to share with you why I started this channel.

Now, here's the major gap that exists out there. And it's a conversation about cashflow. When I was in public accounting, I was on a financial services company and they were doing over $20 billion a year in revenue.

Now they had a strategy over here. When I say they, senior leadership had a strategy and they defined their mission, their vision, and their values. And they had some tactics listed out of what they were going to do.

And they called this their strategy. So this is senior leadership right here, creating this strategy to direct and guide the company. Now on the other side was FinOps.

Now FinOps, they were creating this budget. And really what they were doing is they were talking to executive leadership and executive leadership was like, okay, our strategy is to grow by 20% and we're going to boost the bottom line. And yeah, I know last year, profits were flat, but we're going to do this hockey stick and next year it's going to be way better.

It's going to be way different because now we have this strategy, but it wasn't really a strategy. And over here, this budget wasn't really a budget. It wasn't super helpful because all they were doing is they were just saying, okay, we want to grow by 20%.

So just extrapolate 20% across the months and across the year. So I realized very early on, there's a massive gap between a company's money and their mission. And that's when I started Coltivar.

And Coltivar is all about connecting strategy and finance to drive greater value in organizations. But that's not why you're here. You're here because you want to learn more about making your business more scalable, more sustainable, right? More resilient.

Well, guess what? Cash flow is at the core of all these desires. If you want to scale your business, guess what? You need to have cashflow. If you want to make your business more sustainable, you have to have cashflow.

And if you want to make it more resilient, then you have to have cashflow. If you want to make it more valuable, if you want to sell it one day, it's going to come down to cashflow right here. Here's the problem that I found though.

And this is why I created the channel is because when I went out on YouTube and when I went to other sources, what I found is that most people talk about either A, just strategy, right? So they'll give you strategy tactics or frameworks. They'll say, okay, this is how you do a SWOT analysis, which by the way, is not strategy. Sorry if you're doing SWOT or, you know, they'll come up with other frameworks.

They have all different names here. We have rocks and we have this and that, and all these frameworks exist out there, which they call quote strategy. Now over here, there's the world of FinOps, financial operations, finance, accounting.

Now I come from this world. My background, my undergrad is in accounting. I did my master's in accounting.

I got my CPA. I went and worked in public accounting. I've been a CFO, but I also at the same time studied finance and I'm more of a finance person because accounting is very much backwards looking.

Finance is forward looking and finance is all about maximizing the value of a business. Here's what I realized though, when it comes to finance and other videos and channels that exist out there, they talk about the income statement, revenue or sales, cost of goods sold, gross margin, operating expenses, all the way down to profit, to EBITDA, net operating profit, EBIT, net operating profit after tax, whatever you want to call it, some variation of profit. And this is where most people live.

And in fact, when I was running my first business, this is what almost killed me because my CPA, and you may be relying a lot on your CPA as well to give you financial advice. Guess what? They only focused on the income statement. Sure, they produced a balance sheet for me, but when we had conversations, it was all about this, revenue, cost of goods sold, gross margin, op-ex, profit.

Then one day I woke up and I was like, wow, my business is profitable. We're showing a profit on the financial statements. But then at the same time, I was drawing down on my line of credit.

I was like, what the heck? I'm struggling to pay my vendors. I'm not reinvesting in my business. I could barely survive because profit is not the same thing as cashflow.

But I didn't realize that. And I didn't understand that it requires looking at the income statement plus the balance sheet in these two financial statements together. When they fall in love, which they do, they have a baby and the baby's called the statement of cash flows.

And this is my baby right here. The statement of cash flows. I love this financial statement.

And guess what? It's ignored by most business leaders out there. Most companies, they don't even have a statement of cash flows. You might not have a statement of cash flows.

I get it. There are a lot of nuances to prepare one, but if you're not looking at, at a minimum, the income statement, the balance sheet, and if you're not figuring out what your profit is, but more importantly, right, what your invested capital is, which is a combination of working capital in your net property plant equipment, then you're just living in this profit world and you're ignoring free cashflow or economic profit or some variation thereof that tells you what are the true economics of your business. And this can bankrupt you.

So now hopefully you're starting to see why I decided to start this channel and why I'm so obsessed with this concept, strategic financial leadership. I'm not here to teach you how to be a nerd. We're in a green shade doing debits and credits in the back office and celebrating when your trial balance ticks and ties.

Instead, I'm here to bridge the gap between strategy and finance. Now, guess what? Sometimes I do get nerdy and I throw out some big words or some big concepts, but I promise to you on this channel, I'll do my very best to keep it very, very simple because my job is to teach you these principles so you could go back to your business and then act to drive greater value. That's the big thing here.

I want to teach you how to take strategy and finance, combine these two concepts together, and it'll make all the difference in the world. All right, let me show you something here. Let me show you why cashflow is so important and why I'm so passionate about this topic.

Let's just say I go into a company and let's imagine that their revenue here is $10 million. Let's say their EBITDA, and I'm keeping things really simple here, and let's just say their EBITDA, earnings before interest, taxes, depreciation, and amortization, which is just another way of saying profit. When you look at EBITDA, it helps you to compare your profit to another company's profit because you're ignoring interest, you're ignoring taxes, you're ignoring depreciation and amortization, and these things can fluctuate company to company based on their tax bracket, their capital structure, how much they have invested in their assets, so on and so forth.

This just helps us to normalize profit. When I say EBITDA, that's what I'm talking about. Let's just say their profit is a million bucks, so they earn 10% EBITDA margin on their revenue.

Now, let's just say that companies in this space right here sell for, say, a 3X EBITDA multiple based on this amount of EBITDA. I'm just generalizing things here. Just follow me.

They sell for 3X. This business owner is working their tail off. She's working all hours of the night.

He's putting in all this time, sacrificing his or her health, being away from the family. I mean, he's putting everything, grinding to make this happen. Then, let's just say this owner can change their thinking.

What if they got access to better tools, better resources, which help them to put in the same amount of hours or even less hours, but change these numbers around? Let's just say revenue stays the same, just to keep it simple. What if you just keep revenue the same, but you're able to make better decisions when it comes to your finances and your strategy? Let's say you could take your EBITDA to three million. Now, that is a 30% margin, which means you're going to trade at a higher multiple because now your company is more attractive to investors who may want to buy you because you have more EBITDA, more stability, your margins are higher.

Let's just say your multiple now is 6X. That means that instead of doing one million times 3X to get a $3 million valuation, this is your valuation right here. What if you take 3 million times 6 and now your valuation is $18 million? That is massive.

That's a 6X upside here. It's huge. And guess what? You're putting in the same amount of time, you're grinding just as hard, if not, maybe a little bit less because you're being more strategic.

And look at the massive upside. So I don't know about you, but if I'm going to do something, I'm going to do it to the best of my ability. I love this story that I heard once of Kobe Bryant's wife, the late Kobe Bryant, the all-star rockstar basketball player for the Lakers.

She said to him, look, Kobe, if you want to be a professional basketball player, I got you. I got your back. I'll support you.

I'll take care of the family and I'm good with you traveling. But if you're going to do this, you better go out there and be the best basketball player you possibly could be. And I love that.

And I think about that in my own life. Like if I'm going to go out there and do business, if I'm going to be away from my family, which I love, I love my family. If I'm going to sacrifice my capital, my time, my efforts, everything, my energy that I'm going to put into the business, why wouldn't I want to deploy certain strategies and earn a higher return? I mean, that's crazy.

So many companies that I work with live over here on the left-hand side. They just wake up, they play to play and at best they earn this. At worst, they're earning zero or even negative profit margins.

I see it all the time. That's why I started this channel because I want you to be successful in business. And I want you to understand how to combine strategy and finance to drive greater value.

So let me show you the system. Okay. And then we're going to wrap up when it comes to business.

First, you need a strategy. The strategy is really simple. It doesn't have to be all complex.

Really think about it. Every business is dealing with a constraint. I call it a strategic problem.

This strategic problem you're going to overcome with a strategy. And essentially as a CEO or the head of the business, your job is to allocate resources to solving that strategic problem. That one constraint that's preventing you from growing.

So that's what a strategy is in layman's terms. Essentially, you're just choosing the priorities and you're allocating resources in order to overcome the constraint that's holding you back from growing. Right? So you put in place a strategy.

This positions your company and helps you to decide where you're going to compete, how you're going to compete, and how you're going to win. All right. So there's good strategies and there's bad strategies.

You have to make sure the customer's at the very center. That's what we do in our frameworks. It's all customer centric.

Okay, cool. You have a strategy. Then what we deploy is what I call IARs, initiatives, actions, and results.

And really what IARs do is they take a goal and they break it down into its component parts. You have the initiative, you have the actions you'll take, and then you have the results that you want to achieve. From here, from IARs, you will then put in place KPIs and other success measures so you can monitor performance and drive improvements.

So the old saying is, whatever gets measured gets managed. And the same thing is true in your business. And then guess what? When you combine the income statement plus the balance sheet plus the statement of cash flows as your report card, and as you're looking at these on a monthly basis in the system that I'm referring to, then you evaluate your performance here from a financial perspective.

Then you ask yourself, okay, is our strategy still relevant based on the performance that you're achieving? And then you trickle this down and say, yeah, our strategy's good. Do we need to make adjustments to our initiatives, to our actions, to our key results, what we're measuring? And then you build, measure, and learn. And it's this iterative process right here that you're doing over and over again.

You're identifying the constraint. You're putting in place a strategy. You're identifying your IARs, your initiatives, actions, and results.

You're measuring performance through your KPIs and success measures. You're paying attention to your income statement, balance sheet, and statement of cash flows. And guess what? The value of your business will increase.

Just remember that last example that I gave you of the two companies, that will be you on the right-hand side. You'll be driving tremendous value with the same amount of effort. So it's crazy.

Now, the last thing I'll say, in order to get there, in order for the system to work, in order for you to drive more cash flow, you have to have some baseline of financial literacy. Like I said, I'm not here to turn you into a nerd, but you do have to understand how to read financial statements, and more importantly, how to interpret the story behind the numbers. Because when you can understand the story, then you'll be able to take action to drive value in your business.

And that's what it comes down to. It's okay sometimes to be distracted or to have too many priorities or whatever, but it's not okay. It's not okay to focusing on the one constraint that if you resolve it, will make all the difference in the world.

Think about all the people in your company that rely on you and your leadership, and they rely on this for their own livelihood. I was there. I was the CFO of this billion dollar company.

I remember one night, everybody was gone. And I walked down to the third floor and I was walking office to office to office. And every office that I stopped by, I looked in and guess what? They had pictures of their families.

And it hit me. The first office I looked at, I was like, dang, that's a cute family. And they had little drawings that their kids did.

And they brought in, they tacked it up on their wall. So obviously family mattered a lot, just like family matters a lot to me. And I went office to office and I saw this and I realized very quickly, like, oh my gosh, I have a fiduciary responsibility as a CFO of this company to make strategic decisions and to put in place a system to make sure that the company thrives.

And guess what? I turned around this business. The business was in the red. I turned them around to be in the black.

I made them so much more profitable in this same system. I deploy over and over and over again in the companies that we work with and in the companies that I own. So on this channel, I'm going to be walking you through principles of strategy and finance.

So I'm so glad that you're here. Be sure to like and subscribe. So you get notified every time I drop a new video and it would mean the world to me if you shared the video as well.

If you ever want to talk business or you want to hop on a one-on-one strategy call to talk about your situation or your business, you can do that at coltivar.com. All the information is down below in the description. All right, until next time, take care of yourself. Cheers.