The School of Knowledge is the weekly newsletter for SME owners and investors who want frameworks they can actually use — frameworks, checklists, and operating manuals every weekend, built to read on Sunday and use on Monday.
As a business co-owner I’m constantly spinning five plates at any one time. I want to focus more on the future of my business—capital allocation and identity—but i’m distracted by the now and day-to-day running of my business.
As an operator this is to be expected. After all, it’s unrealistic for 99% of people to expect for themselves the typical day that Warren Buffett has famed: read for 5-6 hours a day and make capital allocation decisions. The key distinction though; Berkshires businesses are run by their owner-operators, whereas for the rest of us—we’re left to run them and make capital allocation decisions.
That’s why for most of us the dream of reading 5-6 hours a day is just that—a dream.
A big part of how companies survive—and continue to thrive is because they deliver on what they’ve promised. But, the other side to that coin is financial intelligence. Once again owner-operators can look to investing concepts to better understand how their own business is running. The two are symbiotic. If you don’t understand why revenue isn’t cash, or know that your company gets paid on average 45 days when it should be 30, you’ll find yourself in hot water quicker than you can say ”how the hell has this happened?”
Because time is typically tight it deserves an appropriate solution. Once again we can draw from a legendary investor: Charlie Munger. Munger once told a story about the importance of using checklists to combat our built in biases and used a pilot as his example. To paraphrase, Munger said a pilot, regardless of how many flights they’ve flown will use the same checklist before each flight; and that if an intelligent professional like a pilot still uses a checklist, then there isn’t any good reason at all why you shouldn’t be using one as well.
With that in mind, I’ve produced a pdf with 45 financial metrics and examples I believe owner-operators must know to better understand their business.
I’ve also put these metrics in a .csv for those of us who use flashcard software such as Anki to learn.
45 Financial Metrics For Owner-Operators (Flashcards)
Until next time, Karl.
If you know somebody who this would help, be a pal and pass it onto them: