Why this matters
Revenue can grow while margins rot and cash quietly drains. Dashboard totals won't warn you; the monthly Profit and Loss and cash reports will. Founders who never open reports learn about problems from their bank balance.
What "done" looks like
- A monthly 30-minute review right after reconciliation
- You can state gross margin, monthly net profit or burn, and months of runway from memory
- Months compared against each other, not read in isolation
- Every review ends with one concrete decision or follow-up
How to do it
- Run the Profit and Loss (Accounting > Reports) comparing the last three months.
- Check gross margin first, revenue minus direct costs, as a percentage. A shrinking margin with rising revenue is a warning, not a win.
- Scan operating expenses line by line for creep: subscriptions, fees, anything growing faster than revenue.
- Open the Balance Sheet: cash, accounts receivable (who owes you), accounts payable (who you owe).
- Compute runway: cash divided by average monthly net cash outflow.
- Write down one action, chase an overdue invoice, cut a subscription, reprice, and do it before next month.
Common mistakes
- Watching revenue only; profit and cash are what keep you alive.
- Confusing profit with cash, an invoiced sale on the P&L isn't money in the bank until it's paid.
- Skipping the review in busy months, which are exactly when numbers move.
Real-world examples
- Xero's P&L and Balance Sheet are built into every plan. Depending on your plan and region, Xero Analytics may add a short-term cash flow projection and business snapshot.
- CB Insights' startup post-mortem analyses consistently rank running out of cash among the top reasons startups fail.
From a founder's point of view
The first few monthly reviews feel like homework. Then the numbers start forming a story, which products carry the business, which costs creep, how long the cash lasts, and decisions stop being gut calls.
Rule of thumb
If you can't state your gross margin and months of runway without opening Xero, you haven't read your reports recently enough.
