2.150 Profit Over Vanity Metrics with Jonathon Hunt-Mason

In this episode, Karen Kirton sits down with accountant and business advisor Jonathon Hunt-Mason to unpack the real numbers that keep small and midsize businesses healthy. If revenue looks fine but something feels off, this conversation will help you spot survival mode early and course-correct with confidence. 

You’ll learn: 

• Why cash flow data is a lagging indicator and what to watch first 
• The three numbers that matter most day to day cash flow, profit and capacity 
• A practical bottom up approach to paying yourself first and setting a real break even 
• The difference between accrual and cash so you do not get blindsided by liabilities 
• How to think about benchmarks without copy pasting someone else’s model 
• Pricing with value not scarcity and why losing the wrong client can be a win 
• What working on your business actually looks like across different stages 
• The role of education and accountability in making better, less emotional decisions 

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Visit https://www.amplifyhr.com.au/ for more insights and resources.  

Free download: Unlock Business Growth Through Your People 

Free download: Hire right: Making your business a people magnet - Amplify HR 

Also Mentioned in This Episode: 

Jonathon@leddys.com.au 

www.leddys.com.au  

Book a chat with Jonathon here https://shorturl.at/nLgqJ 

Transcript

 Jonathon Hunt-Mason   

Thanks for having me. I'm excited to be here.  

Karen Kirton   

Excellent. It's great to have you. I'd be really interested to start off with, what are the early signs that a business is heading into survival mode, even if their revenue seems to look okay?  

Jonathon Hunt-Mason   

This is a really interesting question, and we kind of jokingly, sort of talk about the Business world, it essentially means there's a lifestyle creep. One of the biggest key indicators for a business's lack there of performance is actually mindset a lot of times people, especially with accountants, most people think accountants are really boring, which a lot are. But it's the non financial metrics that are actually generally the first warning signs in how a business is actually performing, not the monetary financial business signs, they're obviously just lagging indicators. One of the biggest problems with financial data for most businesses is it's it's lagging. And so by the time you've got that information, the writing may already be on the wall, and it becomes a really difficult task to unwind. 

Karen Kirton   

Yeah, and I think that's unfortunately for a lot of people, you know, they rely on an accountant and assume that the accountant is looking at everything all the time, and we'll tell them what's happening, but sometimes they don't know, right? So they're just looking at that revenue number and thinking like we're cool. So which takes us, I guess, to cash flow, because people talk about that a lot. So what are the most common reactive decisions that you see owners make when they have those cash flow pressures? 

Jonathon Hunt-Mason   

Yeah, it's it's a question we actually talk about a lot internally, and we always kind of ask ourselves the question, well, what would we do in that situation? The answer is, probably not, get into the situation, proactivity is so much better than reactivity. I think the the issue with cash flow, by the time you're starting to run into cash flow issues, you've already had cash flow issues for a long period of time. As I said earlier, probably one of the biggest indicators of cash flow issues is lifestyle. Because what we generally do with clients is actually a bottom down, up approach. We basically go, Well, what do you need to live? So we go, okay, let's say you need $100,000 net, in order to put your kids in school take a holiday once a year. I mean, that'd be nice, probably not anymore, but you know, so we go, okay, we've got to pay ourselves 120,000 plus super. So let's call it 130 let's call it 130 so now we've got our first break even point number as to what the business actually needs to make in order for me just to not die from there, let's say the operating costs are 100 grand. Then we know we got 230,000 plus GST, and that's our numbers. A lot of times, people kind of go, Well, what the revenue is going to be. And I don't, frankly, care. So often, revenue, for me is a vanity number to be able to say I've got a million dollar business feels really nice in the heart, and the emotional feels, what did you make? Oh, you lost half a million dollars. I'm glad you've got a million dollar business. I mean, I'd rather have $100,000 business that makes 50 grand than a million dollar bill. Million dollar business that loses 100 it's, it's pretty simple, but a lot of times the wrong metrics are actually being looked at in the business, and they're not paying attention to the numbers that really matter. 

Karen Kirton   

So what would be the right metrics there? Like, if we could just look at maybe three numbers for a healthy business? What are they? 

Jonathon Hunt-Mason   

Yeah, that's a great question. I think cash flow, obviously, is the big one. You know, you go broke making a profit. There's a big difference. And I think small business owners tend to not know the difference between accrual and cash. You know, you've built all of all of the work, or you've sold all of the products. You haven't paid your suppliers yet. You haven't paid the ATO yet. You haven't paid your super yet. Probably one of the biggest questions I've been asked over my career is they go, Oh, well, I've got money in the bank. And the thing is, that's not indicative of how you're actually performing. Because if you look at a balance sheet, that's not actually your money, you might have $100,000 in the bank and $50,000 worth of liabilities, creditors, staff, entitlements. Now you've only got 50, and your average cash burn for the month is 50. You now have nothing. So I think the three biggest numbers really to look at, definitely cash flow number one, timing of when things are coming in. Are you actually profitable? If I'm going to be broke, I'd rather sit on the beach and enjoy myself than actually work really hard to do it. So really understanding your numbers. A lot of times, for business owners, it's kind of gut feeling like if you ask them, How did you come to that number? And they go, I don't know, hundreds sounded like a good number. It seems like a big number, you know? And I used to get paid. 30 bucks an hour. So I guess $100 an hour is pretty good, not factoring in staff overheads and everything else that comes with it. And yeah, I think capacity is is a massive one time is the only commodity that we all have the same amount of. And so oftentimes you hear, Oh, well, I don't have the time. No, you don't value the activity. You spend an hour watching Netflix, but you couldn't spend 15 minutes reconciling your Xero account. And at the end of the day, you know, doing things like that seem completely pointless, and oh, the accountant or the bookkeeper or whoever will sort it out. But without your numbers, I don't know whether your business is profitable or not, and you've got to stay close to those numbers to actually understand how your business is performing, and you want to be doing it proactively, rather than reactively. 

Karen Kirton 

Yeah, so we're looking at cash flow profit. Is there a third? 

Jonathon Hunt-Mason   

It's an interesting one, because it probably really depends on the type of business what, what I always sort of tell clients is you really want to stay close to the numbers that affect you the most. You know, if you're a product based business, obviously, you know being very carefully watching your margins. And you know, you look at all these trade tariff pieces and all of these things, things can change instantly. And if you don't have a plan and you're not staying really close to your numbers there, you're never going to understand it. Because for me, in a business, you know, accounting practices, we have WIP and write off and all, I frankly, don't care profit. There is one number that actually matters, and then it's the mechanics of how you got to that profit. And what I described earlier there around, you know, actually understanding what you need personally, to live in your own name, and then, you know, extrapolating that out. I think really, it's not that there's one perfect number, if there was to be one, it's just, it's, it's profit. 

Karen Kirton   

It reminds me of, you know, the book Profit First, and very much, what you're talking about is in that vein. So it's about got to keep an eye on the profit. You got to look at your cash, and you got to work out what you need to pay yourself. Because in my experience, a lot of business owners don't pay themselves for years and years and years and but then they think that they have a successful business. So yeah. So I like that approach of doing the bottom up and going, Well, what do you actually want to get out of this business? And then let's do everything else right on top of that. Yeah. 

Jonathon Hunt-Mason   

I mean, I always, I always joke with my wife, I said, we need to get so successful. You can have a business that's losing money, because that's the that's the true measure of success, when you can have a partner who's losing money on something they enjoy. But the reality of it is, is, sure, I enjoy being in business, but if I'm going to lose money, I probably have a hobby. Even my hobbies are, you know, the inner accountant in me is strong. At times, I kind of go, Well, can I make some money out of my hobby? Can I at least make it break even? But I think, I think that's key, you know, you do have to love what you do. And I think, I think the problem, too, is people actually look at the numbers as a metric of their success. And there's so much more to that. You know, we have large businesses who you go, Well, I don't ever want to work in it. I want to have it under management. And you have some small guys who go, Well, I just want to own 100 grand, feed my family and sit in the beach. And you know what? They're both equally as successful in their own right, because the definition of success is varied based on the person. 

Karen Kirton   

Yeah, and you have me thinking about when you said about looking at margin, for example, if you're a product based business, and also working out like, what's my revenue number, what's my profit number? And that's something that I've found with business owners, that I've made is that a lot of people struggle to find. Well, what should that be? Because trying to get that information, like market information, for example, about what profit should look like for your business, is actually kind of tricky. So do you have any benchmarks that you use? Or how would you advise someone to work out what their profit percentage should be? For example, what their margin should be? 

Jonathon Hunt-Mason   

Yeah, that's that's a great question. And you know, it does vary so much. You know, I was in aviation, you know, and a 5% profit margin on $10 million is actually good, you know, as a professional services business, if you're getting 5% you probably need to go home and rethink your your career choices. So, you know, a metric isn't the same, you know, because it's so different based on every business look. We've got plenty of benchmarking tools. There's plenty of ways. We kind of have a term internally called r&d, which is rip off and duplicate. So one of the things is, if you're, let's say you're a trucking business or a trade business, you've got other mates who are in the industry, you know, people. So while we have industry data that we can access, you know, through reports and, you know, surveys and all of that kind of stuff. You also want to have a look around you and see what everyone else is doing, because you don't operate in an echo chamber, but in the same token, like I said, that's going to really be dependent on how you build. Is structured. You know, I've looked at probably seven accounting practices to acquire over the last 10 years. Accountants can't make money to save their life, because they don't know how to run a business. Because accounting and business are very, very different skills, and unfortunately, accountants are taught to I kind of ask people, I go, Well, what's the definition of an entrepreneur for me, I sort of say risk taker. And I call accountants the Antichrist of risk because we know through covid, we had clients come to us whose accountant had said, close your business down. I mean, you're not going to fail, but you've already filed because you're not even in the race. And so, you know, it's really about being clear on what you actually need in managing your own expectations. You can get all the data everywhere else, and you need to be competitive in the market, so that industry information is important, but you've got professional bodies, you've got data research coming out of the wazoo, chat, GPT. I mean, the information's there. The key is actually understanding what the information means and how it relates to your business. And that's probably the hardest part, and that's where having a business advisor in place to be able to actually interpret the data, understand what it means, I can tell you as much about a business by just looking at the balance sheet as I can from a profit and loss, and that's because I know what I'm looking at. And so if you don't know what you're looking at. It doesn't matter what data you have. In fact, more data can actually be more detrimental, because you're comparing yourself to someone else with a you don't know if their business model is the same. You don't even know if the product is entirely the same. On the outset, it looks the same, but there's so many intricate, you know, pieces inside that business that changes the dynamic of what the profitability is 

Karen Kirton   

actually going to look like. Context matters, right? Yeah, another thing is around pricing. So I find a lot of people will under price because they're concerned about, you know, having things too high, and then they never put up their prices for five or six years. And then, you know, the wheels start to fall off, because obviously everything else is going up, but their pricing isn't. Is that something that you come across as well? 

Jonathon Hunt-Mason   

I think that's human nature. I think, you know, even internally, over over my time in business, you know, you've probably had those conversations you go, Well, if we put the price up, you know, they might leave. And it's kind of like the if we train an employee and they leave, what happens? Well, what happens if they stay and, and I think it's the same with pricing, you know, we lost a client the other day, and they, I think they thought I was going to be really upset, and I'm like, we really didn't make that much money. They were a legacy client, and, you know, we were, they were fine, and it helped cash flow. I'm actually better off because they're not with us. And and I think our pricing models often come from a place of scarcity. Is that if we do this, we'll lose that client, but you then free up capacity in order to actually service the clients that you have properly, to add value, to find new people that have you know similar mindsets and similar philosophies to work with. The best thing I've ever heard is that is that your your worst client is someone else's ideal client, and by actually holding on to that client you're you're losing the opportunity to find the client you want because you don't have the capacity to service them. The person who the sole trader, who's just started their business and just wants individual tax returns or just wants, you know, the the Sparky will come out on a weekend at 12 o'clock at night because he's just trying to get by. It is a market for everyone, and you've just got to find your place. And I think that's what happens with pricing so often, is that we price out of scarcity. You need to price out of value, because it's a race to the bottom. There's always going to be someone cheaper than you. The key is actually, how much value can I provide for the price that I'm charging. Sure there's the back end metrics of how you get to that and, you know, that's I used to joke. I go, you know, you can go to PwC, and you'll pay double the Junior will do the work, and you're actually getting a worse result. You're just paying for the enormous overheads of having a massive business, you know. So there is the law of diminishing returns as as they get bigger, and so you've got to kind of find that happy medium as to where you're going to sit. You've either got to determine whether you're a premium product and can charge a premium price. No one really wants to be the bottom of the tier, but that does work for some, you know, high volume, low cost, but you've got to be very clear on your model. And a lot of times with pricing, people aren't really sure where they are. They kind of go, Well, I want to be this, I want to be that, and then they end up being nothing to no one, and pricing just falls out the window. And if a client's only with you because of price, they were never with you in the first place. 

Karen Kirton   

Yeah, that's true, and I think there's, from my perspective, there's a huge linkage there to culture. As well. It's like, what you pay people, right? Like, everyone doesn't matter who you are. Can go on and get paid more money somewhere else, yeah, but it's what you're giving up to do that. So you're giving up your weekends and you're spending all your days doing Board Papers. Like, you know, there's always a trade off, and so, yeah. And I think when you think about that principle in your business, it's the same. It's, well, the pricing is going to attract and deter certain clients. And is that okay? Like, are they the right clients that I want to attract and deter? 

Jonathon Hunt-Mason   

Maybe you want to deter a client. Like, think about that for a second. And I think that's the same with staff as well. Is, you know, people like, Oh, I've been in the same job and I haven't really got any pay rise. And you go, Well, what value did you provide to the business? You know? And that goes both ways, you know. I know, when we've looked at hiring staff in the past, we're like, Oh, do we need a gym membership included? Do we need to provide lollipops every morning like, you know, at the end of the day, you know, sure, some people will come for those kind of incentives. But are they there for the right reason? You actually have to make sure, like, culture wise, you've got a place that you want people to work and want to be a part of, and that you're doing something that actually matters. And I think we forget the that's how you make money. The person who provides the most value is the person generally, who's because money is just a byproduct of of the output. So I think that's people. We focus on the wrong thing. We focus on the outcome, rather than how we actually get to that outcome. 

Karen Kirton   

Yeah, it's a great point, and it kind of leads me to some of your content that I've seen you talk about accountability and communication and education. So how do those values show up in how you advise clients. 

Jonathon Hunt-Mason   

Yeah, look, this is massive. Look, I'm a Christian, and don't hold that against me. I'm the second most hated person on earth. I'm a straight, white Christian male, so whatever. But I'm used to that at this point. For me, I kind of take a philosophy like Jesus used to be a storyteller. So what he would do is, if he's in the country, talk about things of the country, talk about farming and things like that. And when you're in the city, you talk about the problems of the city. You know you're not going to talk about a tractor, because everyone's going to sit there and go, I have no idea what you're talking about. And I think that's really where that's kind of the philosophy I've always taken in financial, money management and communicating with clients if the client doesn't understand what I'm saying, because I can say division 7A, and I can say this and this and this, they go, mate. I'm not an accountant. I don't know what any of that means. So I think there oftentimes is a big disconnect between the actual complexity of what the problem is and the understanding from the client. So for me, education and accountability really come into play. There is, I want to teach you how to fish. I don't want to give you the fish, because if I give you the fish, you won't know what to do with it. I was having a conversation with my barber, and he's like, I'm like, if I gave you 10 million bucks, what would you do with it? He goes, I know exactly what to do with it. I said, you know, you probably wouldn't. I said, the thing about earning money is it's the lesson that you learn and the ability to actually do it that is the value and the wealth that you provide. Because if I lost everything today, I actually know how to do it again. And and they've done studies in the US, you know, you've got the mega million winners. You know what? They end up, they end up bankrupt, they end up in enormous debt, or they end up dead, which is pretty morbid, but it's because they didn't know how to manage the money and the responsibility is so much. So what you actually learn, and that's where education comes into play, what you actually learn along the way is the wealth and not the money. The money is just the by product. And it's the same with accountability. I've had accountability partners all through my career, not because I don't necessarily know what to do, but I'd rather sit on the couch some days and watch Netflix when I really need to go, get up and go for a run. And I think that's where accountability and having an accountability partner. Because the other thing too, with clients I talk about all time, I'm like, I'm not emotionally attached, like I care about you and I want to see you do well, but at the end of the day, the only person who can get you where you need to go is you. You already know the answer. You just need someone who's going to go, hey buddy, it's 5am we're going for that run and and, you know, that goes straight into the business. You know, I there was probably, probably a couple of years ago. I kind of, kind of coined a piece that I go, Well, every decision I make, whatever decision I want, I'm just going to do the opposite, because I was making, in my own mind, kind of emotional decisions based on what I actually wanted. You know, emotionally as opposed to what actually made sense. And so you've got to disconnect the emotion with the logic as well the emotions. What will keep you going? You know, the motivation and these sort of things, but it's the habit and the structure that actually allows you to be successful. 

Karen Kirton   

Yeah, I like. That and getting to time. But I would like to know people talk all the time about, work on your business. don't work in the business. You know, to you, what does that look like from a week to week basis? 

Jonathon Hunt-Mason   

Yeah, look, when I was a kid, people used to ask me what I wanted to do when I got older, and I always said, retire. And they're like, you haven't even started. And, you know, I've, I've really sat down with that a lot now, and actually understand what that means, and it always meant financially retirement, have the ability to choose what I do on any given day, as opposed to having to do it. And I think working in and on the business is, it's a bit like we talked about margins and pricing. It's all relative. When you're in your early stages, you're going to be working in on out every year. You know, you're up down. It's a roller coaster that you're riding, and you're screaming on the way up and the way down. And you know, as the business grows and matures and you start making those decisions, it's really about having the right Lego blocks in the right place. I see it so often. I mean, we I've got a mate who's in it and, you know, he's getting pushed into sales. I'm like, he doesn't like sales. You know, it's not his strength. Play to your strengths. Oftentimes, as the business owner, we think, Well, I'm the only person who can be the BDM, because I'm the business owner. And look for me. I love that. That's what I want to do. I don't want to pick up a calculator, you know. I don't want to be on the tools ever, because I'm a business owner and not an accountant, you know, very I need that definition well on the record, but at the end of the day, there is always a time and a season that you will be on and in, and it's based on the life cycle of the business where you're at and and it's about really placing the right skill sets in the right place. Look, we've had businesses over the years with with clients that are fantastic producers, and we leave them producing, because it happens all the time. My best plumber, promoted him to manager. He can't manage because he's a plumber, you know. And that's his skill set, you know. And so I think it's, it's the round, you know, peg in a round hole and and I think that's what working in and on the business is. And I think the biggest, probably key issue with in and on is when you're working in it, you're not actually doing anything to develop it. You know, you've got yourself into a rut, and you're drifting. And I think drifting is probably the most dangerous thing in a business is that you have no clear direction. You're not sure where you're going, what you want to do, you know, what the next step is, and everything becomes very reactive. And I think really that's the big key delineation between working in and working on and oftentimes we will. A lot of us as business owners have started as the producer. So when things get tough, you go back to the thing you can do with your hands tied behind your back and your eyes closed. That's not often the best use of your time, but it's the easy and and it's choosing your heart. It's going to be hard now. It's going to be hard later. Which one do you want? And so I think that's the, really the crux of working in or on. When you're working in, you can't work on it. You can do them sort of simultaneously. But it all depends on where the business is in its life cycle as to whether you need to work in and on, you know, and you know, I'll still take the bin out in the office, and because I'm still part of the team and and that's where culture is really important, and I think we often neglect that. And I think, you know, depending on the size of the business, definitely small to medium, you're always going to be working in it at some point. As you get bigger, you can just work on it, but it's all relative based on where you're at in the business's life cycle. 

Karen Kirton   

Yeah, I think that's great advice. But I think often it's the comfort point, and it can be when we want to procrastinate, like, if you were like, I want to be an accountant, not a business owner, for example, when you want to procrastinate, then you'd be just be sitting there on the tools, right? Like that. That would be what you're comforting, yeah, because it's comfortable. So it's just about being a bit conscious and going, Okay, why am I why am I doing that thing? Especially there's someone else in the team that can do it and wants to do it, and then they're seeing me doing it, and going, Well, what don't you trust me? Why can't I do that thing? So final question, if you could go back in time to your younger self, what's the one thing that you wish that you knew earlier about running a business or being a leader? 

Jonathon Hunt-Mason   

Yeah, I like this question as well, and as we spoke about a bit earlier, there's, there's 1000 answers, but I think we often can in hindsight, we'd always make the right decision. There's a lot of decisions I'd probably do differently, but would I make a different call? Not necessarily. I remember when I was an employee, you know, you have the boss and you're like, What a stupid decision. I wouldn't do that. Why on earth would you do that? And you get yourself into the same. Decision, and you make the exact same call, and you're like, Am I really that bad? Like, I thought he was the worst person on earth. And now, now I'm making the same decision. You know, it's the Oh crap, I'm my father or my mother and and, you know, you find yourself making those decisions because it's the right decision. I think I wouldn't change anything necessarily in what I did, because it's brought me to where I am, and it's taught me what I need to know in order to learn and grow. Look, there's definitely decisions I would make differently, you know, I deploy capital differently. I'd probably, what I probably would have done is hired, you know, earlier, like before, you know, covid and things like that, you know, because the employment markets just changed so much now, you know, with outsourcing, offshoring, you know, there's so many different ways of looking at it. I think the big takeaway and what I tell most business owners, no one actually knows what they're doing, I think oftentimes we get in our head and we kind of go, well, we're not meeting that standard, or we've been in business for X, Y, Z years, and we should be at this particular place, and we're always and we're always comparing ourselves, and comparison is the killer of joy. And so I think I probably would be clearer on my mission earlier, so that I could have a clear purpose as to where I was going the whole way through. And I think every decision and look, don't get me wrong, I did that a lot like I remember my business plan, I looked on it a few years after, and I'd followed it to an absolute tee because I believed in it and was in my heart. And it wasn't just something I wrote down on a piece of paper, but I think at the end of the day, I think I'd just be a lot more intentional and a lot braver. I see all those, you know, memes and inspirational posts and things on Instagram. You know they go as a business owner, your worst case scenario is someone else's best that, you know, they're an employee, and that's that's the best they can do. That's the worst for you. So take the risk. Oftentimes we, we are so fearful about what the outcome is. You know, I had this irrational fear of being broken, homeless, and then I realised I really like camping, you know? So it's actually not that, it's not that bad, you know what I mean? And it's under the Story Bridge, next one. Yeah, my new Office, Office is opening. But, you know, it's, it's, it's all relative. And I think the biggest takeaway that I could give is take the risk. You know, I hear it so often, you know, someone's 45 or 50, and they're like, I just started my business. Gee, I wish I did this earlier. Take the risks. Don't be scared. Don't be stupid. You need to be calculated. You need to be smart, and you need to make sure you're going to have a market, and, you know, it's going to make sense, but oftentimes we are the thing that holds us back, not the external factors like the market and all of these, you know, you see all through great depressions, a lot of businesses grew in them. You know, yes, a lot fall and you see that, but I think what you need to believe in yourself and take that leap of faith and do it. 

Karen Kirton   

Great advice. Thank you for joining. How can people get in touch with what's the best way? Is it LinkedIn or your website? 

Jonathon Hunt-Mason   

Yes, well, homing pigeon to the under the Story Bridge, apparently. But no, look, the best way is generally jumping on our website and booking an appointment. You can give us a call, you can email us. Ultimately, we try and make it as easy as possible. Keep It Simple Stupid, is our logic. So if you've got a phone, a computer or whatever form of communication, we just love to hear from you, because at the end of the day, we really just love helping people, and we want to work with other people to see them grow their dreams and and make their life the way they want 

Karen Kirton   

it awesome, and we'll put the links to how to get in touch with you into the show notes. So for those listening, if you've received value from this episode, I'd love it if you can leave a rating or review over Apple podcasts or Spotify, so someone else can also find the episodes to help with their business. Episodes are released on Monday, so click subscribe, and you'll be notified of when it's available. If you have any feedback, questions or ideas for future episodes, head on over to amplifyhr.com.au, or connect with me on LinkedIn, and we can start a conversation.