WTF Do These Financial Words Actually Mean?

Financial Clarity, Profit, Cashflow and Your Enough Number Explained

Part 1 of the WTF* Series

*What The Finance... obviously

One word seems to be everywhere right now.

CLARITY.

Business clarity.

Marketing clarity.

Mindset clarity.

Financial clarity.

And whilst I'm sure everyone means well, I've started wondering whether we've all nodded along for so long that nobody has stopped to ask what we're actually supposed to be getting.

Because if someone tells me they'll help me get "financial clarity", I want to know what that actually looks like on a Tuesday afternoon when I'm sitting with a coffee, my bank account, and a mild sense of dread.

The same thing happens with profit.

And cashflow.

And revenue.

And financial goals.

These words get thrown around so often that it's easy to assume we all mean the same thing when we use them.

We don't.

And that matters.

Because if you don't understand the language of business, it's very difficult to understand what your business is trying to tell you.

This article is the first in a short series unpacking some of the financial words that get used constantly but are rarely explained properly.

Let's start with four of the most important.

Financial Clarity

Let's tackle the big one first.

Because, honestly, I think this is where most people go wrong.

Financial clarity isn't a spreadsheet.

It's not a dashboard.

It's not a profit and loss report.

Those things can help.

But they aren't the destination.

For me, financial clarity means being able to answer questions such as:

• Can I afford this?

• Am I actually making money?

• Can I pay myself more?

• Is this client worth it?

• What happens if I take a week off?

• What decision makes sense next?

Because ultimately, numbers are information.

And information only becomes useful when it helps you make decisions.

I've met plenty of business owners with access to lots of data.

They have accounting software.

Reports.

Graphs.

Bank feeds.

More information than ever before.

But they're overwhelmed and still don't know what their business is telling them.

Drowning in data.

Because the goal isn't having numbers.

The goal is understanding them.

That's what financial clarity really is.

A better understanding of what is happening, why it's happening, and what options are available to you as a result.

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Profit

Profit is one of those words that everybody knows is important.

Ask someone whether profit matters and the answer is usually an immediate yes.

Ask them what profit actually is and things get a little fuzzier.

Keeping it simple...

Profit is what's left after your business pays its costs.

Revenue comes in.

Costs go out.

The bit left over is profit.

That's the accounting definition.

And it's a very useful one.

Because profit tells us whether the business is creating more value than it is consuming financially.

Without profit, eventually something has to give.

Your savings.

Your time.

Your energy.

The business itself.

You.

Something has to (and I speak from experience here).

Which is why I care far less about revenue than many business owners do.

Revenue tells me how busy you are.

Profit tells me whether the business is actually working.

The challenge is that profit isn't the whole story.

(I'll come back to that later in the series.)

Because you can have profit on paper and still feel stressed, overwhelmed, or financially uncertain.

That's where cashflow enters the conversation.

Cashflow

A business can be profitable and still run out of cash.

I know.

That sounds ridiculous.

But it happens all the time.

Here's an example.

You complete £5,000 of work in June.

Your costs are £2,000.

Fantastic.

You've made £3,000 profit.

Might even be your best month every.

But your bank balance is showing £500 and there are bills to be paid.

Because two of your clients haven't paid yet.

The invoices exist.

The work is complete.

The profit is real.

But the money isn't in your bank account.

And your software subscription, insurance renewal, and HMRC payment don't particularly care about that distinction.

This is why cashflow matters.

Cashflow is simply the movement of money.

Money coming in.

Money going out.

And, crucially, when those things happen.

Profit answers the question:

"Did we make money?"

Cashflow answers:

"Do we have money available right now?"

Those are very different questions.

And your bank balance only cares about one of them.

Cashflow is often the missing piece for business owners who feel confused.

They know they're making sales.

They know they're profitable.

Yet they're still worrying about money.

Often the explanation isn't profit.

It's timing.

Your Enough Number

This is where things become personal.

Because most business owners have never properly defined what they actually need their business to do.

When I ask people what they want to earn, I often get answers like:

"More."

Or:

"Enough."

Fair one.

But neither of those are numbers.

And they're not targets.

They're feelings.

An Enough Number is the amount of money you need your business to generate in order to support the life you want.

Not somebody else's life.

Not a six-figure dream pulled from social media.

Not a revenue target copied from a business coach.

Your life.

Your bills.

Your future.

Your pension.

Your savings.

Your occasional takeaway because you've had a long day and cannot face cooking.

(Just me?)

The reason this matters is that it changes the question.

Instead of asking:

"How much can I make?"

You start asking:

"How much do I need?"

And that's a very different conversation.

One is rooted in comparison.

The other is rooted in reality.

I've taught the Enough Number concept in workshops and webinars for years now, and one thing comes up repeatedly (and have a mini course on it available here)

Most people have never actually done the calculation.

They're working incredibly hard without being completely sure what they're aiming for.

And that uncertainty creates a surprising amount of background noise.

How These Four Ideas Work Together

This is the bit most articles (and so called business coaches) miss.

These aren't four separate concepts.

They're four pieces of the same picture.

Financial clarity helps you understand what your numbers mean.

Profit tells you whether the business is creating a financial surplus.

Cashflow tells you whether money is available when you need it.

Your Enough Number tells you what success actually looks like for you.

And together they help answer a much bigger question:

Is my business financially working for me?

Because ultimately that is what most business owners want to know.

Not whether their turnover has increased by 12%.

Not whether their gross margin improved by 3%.

Useful information, yes.

But not the real question.

The real question is whether the business is supporting the life they are trying to build.

That is the conversation I am interested in.

What's Coming Next?

In the next article in this series, we're going deeper into one of these ideas and asking a slightly uncomfortable question:

WTF Does Profitable Actually Mean?

Because I think we've been using the word "profitable" incorrectly.

Or at least incompletely.

A business can be profitable on paper and still not be worth running.

We'll explore why.

[I'll add the link in here when it's published... but I will let you know if you're subscribed to my emails!]

Until then, a question for you:

Which of these feels least clear in your business right now?

Financial clarity?

Profit?

Cashflow?

Or your Enough Number?

The answer is probably pointing towards the next thing your business needs from you.

If you'd like help understanding what your numbers are actually telling you, the Business Confidence Session is designed to do exactly that. Together we'll look at your business, your numbers, and your goals, and work out what they mean in practice.

Or join the DaM Good Business Club for free and start building your financial confidence one step at a time: Sign up here

Frequently Asked Questions

What is financial clarity in business?

Financial clarity means understanding what your numbers are telling you and being able to make confident business decisions.

What is the difference between profit and cashflow?

Profit measures whether your business earned more than it spent. Cashflow measures whether money is available when you need it.

What is an Enough Number?

Your Enough Number is the amount your business needs to generate to support the life you want, including current needs and future goals. You can get the course on it here: https://payhip.com/b/Eh4Y1

Why do small business owners struggle with financial confidence?

Often because they have access to numbers but haven't been shown how to interpret them and use them for decision-making.