Mark: Most business owners think profit is the money left over at the end of the year. That single mistake is why their business feels like a black hole, constantly sucking their life, time, and money into a void. Michelle: Wow, that's a brutal opening. And a painfully familiar one. That image of a 'black hole'… it’s that feeling when you’re working harder than ever, but your bank account just doesn't reflect it. It feels like you’re feeding a beast that’s never full. Mark: Exactly. And it’s that exact feeling that our book today is designed to eliminate. We're diving into See Beyond the Numbers by Gregory Crabtree. And this isn't some abstract theory from a university professor. Michelle: Right, I looked him up. This guy is in the trenches. Mark: Completely. Crabtree is a CPA who built his entire firm around working with hundreds of real-world entrepreneurs. He’s seen it all. He even pioneered a now-famous metric called the 'Labor Efficiency Ratio'—which is a fancy way of saying he created a dead-simple tool to see if your team is actually making you money. His whole philosophy is about demystifying the numbers that terrify most founders. Michelle: Okay, a 'business black hole'… I think every founder knows that feeling intimately. It’s the 2 a.m. panic session with a spreadsheet. So if we’re stuck in that gravity well, where do we even start to climb out?

Mark: Well, Crabtree argues the escape plan has four very specific, sequential steps. You have to do them in order. And the first one is the most counter-intuitive for any entrepreneur. It's about your own salary. Michelle: Hold on. Why would I give myself a salary? I own the company! Isn't the whole point to not have a salary and just take home whatever is left at the end of the month? That’s the dream, right? Mark: That’s the dream that creates the nightmare. Crabtree is adamant about this. You have to pay yourself a reasonable, market-based wage for the job you are doing. If you’re the CEO, pay yourself what a CEO of a similar-sized company would make. If you’re the lead salesperson, pay yourself that salary. Michelle: But why? It feels like just moving money from one pocket to another. If the business can't afford it, it can't afford it. Mark: Here's the breakthrough moment. Your salary is a business expense. It’s the cost of the labor you provide. Profit, on the other hand, is the return you get for the risk you took as an owner. By not paying yourself a proper salary, you are fundamentally lying to yourself about your business's health. You might think you have a 15% profit margin, but if you’re not paying for the CEO’s work, your real profit might be negative. You're hiding a massive expense. Michelle: Oh, I see. You’re confusing your paycheck with your investment return. You think the business is profitable, but it’s only "profitable" because you’re working for free. That’s a tough pill to swallow. Mark: It’s the toughest, but it’s the one that provides all the clarity. Once you’ve fixed your salary, you know your true pretax profit. And that leads directly to the second key: setting the right target. Crabtree says 10 percent pretax profit is the new breakeven. Michelle: Come on, 10 percent? For a startup, just not losing money feels like a massive win. Isn't breakeven… breaking even? Zero? Mark: That’s what we all think. But look at it this way. From that 10% profit, you still have to pay taxes. You have to repay any debt you have. And you need to build up cash reserves in the business—what he calls 'core capital'—so you're not one bad month away from bankruptcy. If your profit is zero, you can’t do any of that. You’re perpetually fragile. A 10% profit margin is the minimum required to build a resilient, healthy business that can actually grow and put cash in your pocket. Michelle: Okay, that makes a frightening amount of sense. You need a buffer. Zero isn't a buffer. So, first, pay yourself what you're worth. Second, aim for at least 10% real profit after that. What's the third key? Mark: Labor Productivity. This is his big thing. Once you have a profit target, the main lever you have to hit it is your people. It’s not about paying them less. It’s about the gross profit you generate for every single dollar you spend on labor, including your own salary. He has a simple ratio for it. Are you getting $2 of gross profit for every $1 of labor? $3? You have to know that number. Michelle: And I imagine most business owners have absolutely no idea what that number is. They just know they have a payroll bill that makes them sweat every two weeks. Mark: Precisely. They manage the cost, not the productivity. And that leads to the fourth and final key, which is understanding what he calls the Four Forces of Cash Flow. Think of them as non-negotiable laws of business physics. Michelle: I like that. So they're like gravity. You can pretend they don't exist, but you'll still hit the ground. What are they? Mark: They are, in order of priority: One, paying taxes. Two, repaying debt. Three, reaching your core capital target—that safety buffer of cash. And only after those three are handled do you get to the fourth force: taking profit distributions for yourself as the owner. Michelle: And everyone does it in the reverse order. They take money out whenever they can, forget about taxes until April, and wonder why they’re always in a cash crunch. It’s a fire drill, as he says. Mark: It’s the definition of a fire drill. He tells this story about a client who was a "fourteen-year overnight success." For fourteen years, his business was good, but it was a constant struggle. Debt, inconsistent cash, stress. The moment he implemented these four keys—paid himself a real salary, targeted real profit, and respected the four forces—the business transformed. He finally paid off his debt and started building real wealth. It took fourteen years to find the formula, but the success felt like it happened overnight once he did. Michelle: That story is so powerful because it’s not about finding a new product or a genius marketing hack. It was just about seeing the numbers clearly for the first time. You know, this all sounds incredibly logical, but I can see why some readers have a mixed reaction. The book is highly-rated, but some find this 10% rule, for example, a bit rigid. What about a social enterprise, or a tech startup that’s intentionally burning cash to acquire users? Mark: That's a fair challenge. And I think Crabtree's response would be that he's not describing the only way to run a company, but he is describing the only way to build a sustainably profitable economic engine. You can choose to burn cash for growth, but you should do it with your eyes wide open, knowing you are intentionally violating the principle of profitability for a specific strategic reason, not just stumbling into it because you don't know your numbers. It’s the difference between a planned demolition and a house accidentally falling down.

Michelle: I like that distinction. It’s about being intentional. Okay, so once you’ve escaped the black hole and you’re respecting the laws of business gravity, what’s next? You can’t just float in stable orbit forever. Mark: Exactly. And once you respect those forces of gravity, you can start building a rocket. That's where Crabtree moves from survival to strategy, starting with what he calls 'taming the tax monster under your bed.' Michelle: Oh, I know that monster. It’s big, it’s hairy, and you’re terrified to look at your bank account in April because you know it’s waiting for you. The anxiety is real. Mark: It’s the number one source of stress for most entrepreneurs. And his advice is radical in its simplicity: Stop making business decisions based on avoiding taxes. The goal is not to have the lowest possible tax bill. The goal is to have the biggest possible after-tax profit. Michelle: That’s a huge mindset shift. We’re so conditioned to think 'tax deduction good, taxable income bad.' Mark: Right. People will spend a dollar on something they don't need just to save 30 cents in tax. It's madness. He says to think of taxes as a percentage of your success. If you have a huge tax bill, congratulations, you made a huge amount of money. Just plan for it. Set the cash aside as you earn it. The IRS is the worst possible lender you could ever have. Michelle: There’s a story in the book about a tech startup, 'Innovate Solutions,' that learned this the hard way, right? Mark: A perfect example. They were so focused on product and growth that they completely ignored tax planning. They got hit with penalties, missed deductions, and it almost sank them. Once they hired a CFO and a consultant who implemented a real tax strategy—not to avoid taxes, but to manage them properly—it transformed their financial health. They saved a fortune, which they could then reinvest in the business. They tamed the monster by looking it in the eye. Michelle: So you’ve got your salary right, you’re profitable, and you’re not scared of taxes. You’re building a solid foundation. But the world changes fast. How do you steer the ship? Mark: This is the final piece of the puzzle, and it’s my favorite. He says: Skip the budget, learn to forecast. Michelle: Music to my ears! I despise the annual budgeting process. It’s this huge, agonizing exercise to create a document that is completely irrelevant by February. Mark: It’s a corporate ritual that has almost no value for a nimble small business. A budget is a look at the past. It’s a static photograph. A forecast is a look at the future. It’s a living, breathing GPS. He advocates for a simple, rolling forecast that you update every month or at least every quarter. Michelle: This sounds so much better. But how simple are we talking? Is this something a non-finance person like me can actually do on a Tuesday afternoon without wanting to cry? Mark: Yes, and that's the beauty of it. He says most people make it way too complicated. A simple forecast can be just a few key lines on a spreadsheet: What do you project your sales to be for the next three to six months? Based on that, what will your cost of goods be? What are your fixed overheads and labor costs? That’s it. That gives you a projected profit. You can see problems coming months in advance, not a year later when your accountant tells you. Michelle: And there's actual data on this, isn't there? I remember reading that companies using these rolling forecasts perform better. Mark: Significantly better. A study by the Hackett Group found that companies using rolling forecasts had 20% higher revenue growth and 12% higher profitability than those stuck on annual budgets. Because they can adapt. They can see a storm coming and change course. Or they can see a tailwind and press the accelerator. Michelle: It’s the difference between driving while looking in the rearview mirror versus looking through the windshield. One is a recipe for a crash, the other is the only way to get where you want to go.

Mark: That’s the perfect analogy. And it really synthesizes Crabtree's entire philosophy. It all comes back to a fundamental shift in perspective. You stop running from the numbers—the tax monster, the fear of not making payroll, the confusion of the P&L statement—and you turn them into your dashboard. Michelle: You put them to work for you, instead of letting them control you. Mark: Exactly. The four keys we talked about—owner's salary, profit target, labor productivity, and cash flow—that’s how you build a reliable car. It ensures the engine works, the wheels are on, and it has fuel. But the forecasting, that’s the GPS. That’s what lets you actually drive the car with confidence and purpose, heading towards a destination you choose. Michelle: It’s about moving from being a passenger in your own business to getting firmly in the driver's seat. Mark: And that brings us back to that incredible story of the "fourteen-year overnight success." That business owner had a car, but it was sputtering along, always on the verge of breaking down. He was constantly stressed, just trying to keep it running. For 14 years. Michelle: He was stuck in the black hole. Mark: Deep inside it. But once he applied these principles, once he built his dashboard and started using his GPS, he wasn't just surviving anymore. He was thriving. He paid off his debts, built wealth, and finally enjoyed the fruits of his labor. Success wasn't a magic trick; it was the direct result of achieving financial clarity. Michelle: It makes you wonder, what 'unseen number' or 'financial monster' in your own life or business are you avoiding? And what would happen if you finally decided to look at it? Mark: That's the question. And we'd love to hear your thoughts on this. What's the biggest financial monster you've had to face in your own journey? Find us on our socials and share your story. We read everything. Michelle: This is Aibrary, signing off.