The Margin Mirage: Why Revenue Is Up but Cash Still Feels Tight

Revenue is up… so why does it feel harder than ever to run your business? In this episode of Books & The Biz, we break down what many business owners are experiencing right now: strong top-line growth paired with shrinking cash flow, tighter margins, and rising frustration. We explore the hidden forces quietly eroding profitability—even when your financial statements look “fine” on paper. From labor creep and rework to pricing lag and operational inefficiencies, this conversation gets honest about why more revenue doesn’t always mean more money in the bank. In this episode, we cover:

• The difference between revenue growth and margin health
• Where profits disappear inside daily operations
• Why monthly financial reports often arrive too late
• How businesses slowly lose margin without realizing it
• What owners should actually be monitoring every week—not every month

If you’ve ever looked at your numbers and thought, “We should be doing better than this,” this episode will help you understand why—and what to do about it. Subscribe for weekly conversations on the financial and operational realities of running a business. Built for owners who want clarity, control, and predictable performance.

[00:00:24.06] - Alice

Welcome to Books in the Biz, the show where real-world business meets real-world results. It's Hosted by business strategist Dan Paulson and veteran CFO Richard Beltry, this podcast breaks down the stories, trends, and financial insights shaping today's company. Dan brings decades of experience helping leaders simplify operations, build strong cultures, and scale with confidence. Rich adds his deep financial expertise from guiding organizations across healthcare, construction, logistics, and professional services. Together, they dig into what's really happening behind the numbers and what it means for owners, executives, and anyone trying to grow a stronger, smarter business. This is practical conversation, real talk, and tools you can use right now. Welcome to Books and the Biz.

[00:01:19.04] - Dan Paulson

Happy New Year. Rich, how are you doing?

[00:01:24.13] - Rich Veltre

I'm doing well. Happy New Year to you as well.

[00:01:26.20] - Dan Paulson

Well, thank you. It has been a whirlwind of a winter, ups and downs, and staying warm and getting cold again. I know you are battling the ick. I think I'm getting over battling the ick. But anyway, We're on to a new year, 2026. Actually, I was looking up, this is season four that we are going into for us. We have over 120 episodes we've created already. So in that respect, I think we are well-established. But there were some interesting conversations we actually had over the holiday with some clients, and that led to our subject for today, which we called the Margin Mirage, the idea that you're making all this money, but it doesn't seem to be getting to where it needs to go, ideally in your profits and in your pocket eventually. And I thought this would be a good one for us to maybe talk about. I know we've touched on this in the past, but it's not a bad idea to go through this because we are also hitting your favorite time of year, which is tax season. So your tax business will be dealing with customers or clients that are going through some of these issues and asking, where did all my money go?

[00:02:50.13] - Dan Paulson

I can't pay taxes. Well, here's why you plan ahead, guys. And we're going to talk a little bit about that. So Rich, why don't you explain what you see from a CFO side of things that leads to some of these cash crunch problems when you look on the paper, it says we're making all this money, but when you look in the bank, it says something completely different.

[00:03:15.11] - Rich Veltre

Well, I'll do the easy one, and I'll do it from, I'll call it the tax return perspective, right? So there's a lot of people that they are advised to use the cash basis, which means cash in, cash out. And that's where they can look and say, well, here's what cash is coming in, and here's what cash gets paid out. Problem is your profit loss statement that comes out of your system really just shows you the profit loss cash, or I like to call it the tax cash, right? Because the pieces that you don't show on there would be anything that you pay for debt. So when you're looking at cash basis and you see I brought in $100,000, I paid out $100,000. I didn't make any money. I don't have any taxes due. Well, the big part of that $100,000 out was you paying any debt or credit cards or anything else that you have on your books. And at that point, the numbers change, right? Because your profit loss, according to you, it showed you at zero because you're saying, Cash basis, cash in, cash out. Your debt's on your balance sheet. It's not in your tax PnL.

[00:04:34.25] - Rich Veltre

That part, you're basically paying tax on. And if you're not looking at it from that perspective, then you get surprised because you think you're at zero, you're not making anything. And then all of a sudden, somebody like me has to tell you, Hey, guess what? You got this big tax payment to make. And everybody jumps on you and says, Why do I have any tax payment? I didn't make any money, like you said when we started the podcast. So the only thing I I would also tell you is the alternative is where all the accountants jump in and say, well, if you buy this equipment, then you can depreciate the equipment and write it off. And that goes the opposite way of the dead. But your mindset as the business owner still remains that $100,000 came in, $100,000 went out. What are you talking about? I got to do all these moves and make all these changes in order. I should be at zero. Not how it works. And I think it's a good point to make right Now that anybody who's making a business and growing a business and has employees, you should be looking at the accrual basis anyway, because the cash basis should be what probably helps you out when you're figuring out your taxes.

[00:05:46.11] - Rich Veltre

But as far as managing the business, accrual is so much more intuitive and so much more able to show you not only what has happened, but at least a little bit of what's coming.

[00:06:00.13] - Dan Paulson

Maybe you could explain a little bit more about that, because I think a lot of us use Quickbooks, small to medium-sized companies, even medium to large. I've seen use Quickbooks for things. And I think QuickBooks sometimes defaults to one or the other. And of course, the owner, not knowing whether he's in cash or accrual, looks at the numbers and gets, like you said, a certain idea of, well, I either didn't make money or I made too much money or whatever it might be. So for those non-accounting people, what's really the difference between cash and accrual? And why are you saying accrual should be the better part if you How do you compare that to cash?

[00:06:47.13] - Rich Veltre

So I don't want to call it the true accounting way. When you go to school, accounting- The preferred.

[00:06:57.28] - Dan Paulson

How about that?

[00:06:58.16] - Rich Veltre

Cash first. Well, they They do teach you cash first because they try to teach you money in, money out. But accrual is really earned in. And I always blank on when When I say it on the expense side, you've incurred it. I think incurred is the right word.

[00:07:21.14] - Dan Paulson

Incurred, yeah.

[00:07:22.08] - Rich Veltre

So you've earned it or you've incurred it. So if you owe somebody money, it's reflected in the business. It's reflected in the If you owe somebody money, you're on cash basis, it doesn't show anywhere. It's in your drawer. That note that I owe Joe 50,000 dollars is in your drawer. It's not in your books anywhere. So it's misleading. You think, hey, look how great I did. But you're forgetting about the fact that in your drawer is a $50,000 bill you have to pay, and suddenly you're not going to look as good. On the other side, on the income side, if you build it and they owe you the money, you earned it, right? So you're expected to get that and convert it to cash. So you're getting a picture of what have I actually done, as opposed to who's actually paid me. So there's a difference between the two. On the payable side, It's just reverse. And that's what the big change is between cash basis and accrual basis, is that you switch to... Quickbooks will show you what you've billed, who owe you money. That's the accrual side. So it will continue to go down and follow that path, and it'll change as you go.

[00:08:35.22] - Rich Veltre

And then you have the responsibility that if you build somebody and they didn't pay you, then you have the responsibility of going in and telling not only the QuickBooks, but yourself that this person hasn't paid you, and you might not collect it. And if you're not going to collect it, then number one, why? Number two, is there anything you do about it? But you certainly You shouldn't be telling yourself you still earned that money because you may not catch it. You may not get it paid. So somewhere along the line, you have to set up rules that essentially say, if it goes over 90 or 120 days, six months, whatever you want to actually set your rule to be, if they haven't paid you by six months, are you going to collect it? What's your company history? At six months, unpaid, do they eventually pay you? Or have they run for the hills or put their head in the sand or whatever they're doing on their side, but it's not coming. So you can't keep looking at it like it's coming.

[00:09:41.19] - Dan Paulson

Yeah, I have a couple of clients that have very long pay cycles, three to six months. And what you don't realize, especially if you're not reading the numbers right, like you said, I build $100,000, but you're not going to see that $100,000 for three to six months. You're still paying employees, you're still paying for materials, you're still paying for your overhead and other operational expenses. And then by the time you get towards the end of that, you're now Okay, I go, Where'd all my money go? I should have all this money because I made all this money. Well, yes and no, you made the money, but it's taking you so long to collect. And I've gotten into a few heavy discussions. I wouldn't say heated, but With clients that allow these patterns to stretch out where basically their customers using them as a bank, an interest free bank, where they're doing short term borrowing and they're making money off of your product or service, and then They're paying you well after the fact, and you're essentially holding all the costs to that. And I think that's probably the biggest part of what we're talking about here, because there's something that stuck with me early on when we first met.

[00:10:59.01] - Dan Paulson

I can't remember remember the exact phrase, but you basically said you had a client that said, I have this bucket or I have this barrel. And as long as there's money in the barrel, I'm making money. And you very succinctly corrected him on that. That, well, there might be money in that barrel, but how often is that barrel refilled? And maybe you can clarify what that actual discussion was.

[00:11:25.16] - Rich Veltre

That was his discussion, 100 %. That was his barrel theory, that money came in, you put it in the barrel, you pay the expenses out. And if there's money left at the end, you're good. The problem is, what if there isn't money left in the barrel? Because that's really a great example, right? Because at that point, if there's no money left in the barrel, but you have all additional bills to still pay, your barrel theory doesn't answer, how are you going to get that paid? It doesn't really tell you anything other than when When the barrel game is over, you're going to know it because you ran out of money. There's no money left in the barrel. And that sounds like a really bad game. In that case, that company was a $10 million company with probably 30, 40 employees.

[00:12:18.26] - Dan Paulson

Yeah. So we're not talking about businesses that are only doing 50 to $100,000 a year. You're talking about... I mean, $10 million to me is pretty solid. It's a smaller company, but it's still doing pretty good.

[00:12:30.27] - Rich Veltre

Yeah. I mean, it runs the gamut, right? I mean, the theories around these things are really the same, whether you're a couple of hundred thousand dollar business or your $10, $20, $30 million dollar business. I had the client that put medics on oil rigs, and it should have been a very simple business, because it's a service business. You have training, you put the person on the oil rig. The oil rig would pay you for the fact that you gave them medical expertise on site with a connection to a doctor by satellite phone.

[00:13:11.29] - Dan Paulson

Telemed, yeah.

[00:13:13.08] - Rich Veltre

Right? So It should be a relatively small business. Somewhere along the line, someone decided that there was a long pay cycle from the oil and gas industry to the medical industry. So what wound up happening was they were factoring the invoices with the oil and gas people, which I'll explain in a second, because I know everybody goes, what is he talking about? Essentially, they were using a financing company to get 80 % or 60 % of the money up front. And then once the oil company paid, they would take their cut out of that differential. So the financing company was getting 30, 40 % interest on invoices. It's crazy. But they were so hung up on we need to cash that they went into this arrangement, and then it was not very well-monitored. So it made it way more complicated, and it made it where there was no policing it. So you became reliant on the factoring because you've shifted all of your expenses to go along with the factoring. So you got way out ahead on your expenses because you were just going to keep factoring. And then when the business started to shrink, you had nowhere to go.

[00:14:30.00] - Dan Paulson

Yeah. And I think that's a perfect example of where you are now treated as the bank because now you have to finance a loan to pay yourself instead of getting payment from your client And also now that margin, and in your situation, I don't know how much they have factored in for actual margin, but as you point out, if they're making or they're giving up anywhere between 30 to 40 % in interest because they have to finance their income, essentially, that's a huge chunk. I can't imagine that there's much left over after that's all said and done. And from another perspective, looking at from either manufacturing or construction, where there's what I call float. You're doing work, you're then sending out, you might be invoicing for some of that work, but you're not collecting the full balance until the work is completed and shipped or in the construction case until the work is done. There's this gap that happens. And I see too many times where lines of credit are brought in, and there's this ebb and flow in lines of credit. Usually, at least in construction, a lot of times I saw at end of the year, beginning of the year, you see this huge cash dump from their line of credit into their accounts because they got to pay their employees, they got to pay for materials, they got to pay for the lights, every everything going on.

[00:16:01.05] - Dan Paulson

That money is then paid back over the next three to six months, but then that cycle repeats itself the following year. And I think what we're talking about here is how do you break that cycle? Because that's the thing that gets us into trouble, because like you said, it's fine when the money is coming in, but if something changes, for example, you have a large client that goes away all of a sudden, and now that money dries up, but you still owe or you're still borrowing against, you're now in this pickle where there's more going out than there's coming in, which can lead to some serious problems.

[00:16:37.05] - Rich Veltre

Yeah, add another part to that, right? Because I've been thinking about this a lot recently with a bunch of clients that if everybody thinks, well, we talked about tariffs a lot, right? Because that was the big 2025 buzzword was tariffs, okay? Tariffs drove prices up, okay? On top of regular inflation before that drove prices up. So now, prices are significantly higher. So everybody's like, well, you just raise your price because you have to, and your excuse is the tariffs. And that way, you cover the increase in cost for your cost of materials, right? So your cost of goods sold is covered by your increase in price. What about your overhead? Okay? Your base cost of everything has gone up as well. So you're trying to increase margin to cover an increased cost of goods sold, and you also have to increase margin to cover the increase in your overhead, so that doesn't affect your profit. Now you're hitting twice, at least the way I think it is, it's hitting twice. So How do you come up with a price that's not going to drive every customer away because you're increasing your margin to cover your overhead and to cover your cost of goods sold?

[00:17:56.12] - Dan Paulson

Yeah, that's where I think most people We'll get into these problems. And now I'm going to tap into your CFO hat. So let's put on your CFO hat. It's now the beginning of the year. We've seen this cycle happen in your client's business for the past several years. We've noticed this up and down in riding this wave. And now we're saying, well, we want to stop doing that. So here we are, the first part of January. What's the recommendation from a strategic side financially to now start moving away from this up and down cycle? Is it changing your prices? Is it operational structure? I mean, what do you got to do to basically get out of this roller coaster?

[00:18:49.26] - Rich Veltre

It might be a combination depending on how much you have to actually, I'll call it find, right?

[00:18:56.23] - Dan Paulson

Yes.

[00:18:57.17] - Rich Veltre

But I think when you think about it, okay, one of the problems I've always had with founders, CEOs, a lot of times they think that they'll just sell their way out of it. We're short on cash, we're going to sell our way out of it. And I would look at them and go, the fastest way to actually cure the problem is to cut costs. And you can only cut costs so much without suffering outside quality problems or just running into an issue of the perception of the fact that you're cutting costs and you're getting rid of people or you're getting rid of services that you don't necessarily use enough. But when you get rid of a cost, it's dollar for dollar in the financials, right? If you're spending a dollar on software and you cut it out, you just cut fully a dollar. If you increase sales by a dollar, you still had to make whatever your for whatever you're selling for the dollar, or you have to pay the labor for whoever did the work for the dollar. So maybe you only get 50 cents. Because you got an extra sale for a dollar.

[00:20:13.11] - Rich Veltre

That's fabulous. But that 50 cents didn't show up because you had to give 50 cents to somebody else. So you only got 50 cents out of the dollar by raising the salary. You got a full dollar by getting rid of the expense.

[00:20:25.14] - Dan Paulson

Yeah. And here's where I'll jump in on the operational side. Nobody's ever cut their way to growth. So you have to find that balance between what you need to cut back and maybe it's a short term reduction for a long term growth. Because, yes, in the short term, dollar for dollar, you can save quite a bit of money, keep cash in the pocket. And I think we've all been in those situations where we've needed to do that. At the same point, there's got to be a reinvestment, and that reinvestment is in operational improvement. It is in employee performance improvement. It is in sales because eventually you do need to sell back or get that growth is going to be in marketing. So as you take those dollars out of the system in your way in cutting back, you have to take a look at where those dollars are now being reallocated because they can't just sit in the bank and you go, okay, life is good. You got to figure out how to strategically plug that money back in where it's now going to lead to financial growth. Because First, we got to figure out where we're bleeding.

[00:21:31.28] - Dan Paulson

We got to do the triage. So you were talking medical before. So do the triage, cauterize the wound, and then do the surgical that you need to do to now get back to good health. And I think that's the important part we got to see here. I don't mean to throw you in on that, but I all too often hear from financial people, specifically accountants, we'll just cut your way out of it. This is one I dealt with when I was in the restaurant industry, well, just raise your prices. Yes, you'll lose business, but the price difference, you're doing less work. You should still be making the same or more money. And I had an owner who bought into that. Well, that works the first couple of times. But after you finally raise your prices enough that you've hit that price sensitivity point and somebody's going to say, well, I can get a very similar product or quality somewhere else for the same or less money, I'm no longer going to pay for these price increases. That's another issue you run into. So there's always this balance that has to take place. And I think that's what most organizations don't realize.

[00:22:40.06] - Dan Paulson

They either listen to the account and they cut everything back, and then they go, I've got all this money. I'm good. But then all of a sudden, those sales start to come back down. And now you're back in the same problem. Now you have less resources to fight with.

[00:22:53.17] - Rich Veltre

Yeah. I don't believe in cutting costs that aren't real, that it's not... If you're telling me I've got 52 different software programs that you're paying a monthly fee on, and you realize that nobody's on it, that's the cut. That's really easy. Making cuts further, you have to justify. Because a lot of times, you have to figure out, is it just mismanagement of the money or ops that we have, or is it a bad strategy? So when I go back and I think about the fact that I work with shoe company for four years. When I got there, operations were a mess. Here's the problem. The founder had already run everything very, very lean. There wasn't a lot of expense to cut. So when they hit a problem with supply chain, that they were getting shoes that were defective, and they didn't have the ability to flip that script and make things work, they were losing sales already because you couldn't get good shoes. You didn't have the inventory. So they were going to find something somewhere else. Once they actually recognized that that was the problem, and they did a restructure of what they were trying to accomplish, they changed the strategy, the whole strategy for the company.

[00:24:18.03] - Rich Veltre

They were a wholesale distributor... The wholesale distributor. Distributor.

[00:24:23.10] - Dan Paulson

Distributor.

[00:24:24.26] - Rich Veltre

They were a wholesale distributor, and they held a warehouse full of shoes So that special doctors could actually say, this is the shoe you need for the problem you're having with your feet. And what they turned around and said, well, wait a second, we're selling it to the doctor at a low margin. At that point, it was time to go on the Internet. And they said, what happens if we become an online retailer and sell the shoes ourselves, direct to consumer? Well, the margin on those was we were selling it to the doctor for 65 bucks, but we could sell them online for 120. And guess what? Our cost of goods sold was still the same, whether we sold it to the doctor or we sold it to online retail. So that increase in margin, it just became a whole new strategy of, hey, we just have to go out and market the crap out of it. And once we marketed the crap out of it, this thing, all of a sudden, sales started going up again.

[00:25:19.28] - Dan Paulson

At the same point, though, we were already clean. You had to make an investment there, right? Correct. I'm guessing you didn't have the sales channel set up for that yet. So there you had to invest in a website. You had to invest in SEO, probably, keywords, things like that, and of course, keeping that updated. So there were still costs that were needed. Now you're in this price pinch, if you will, you got to work through that hurdle. And this is where I think most companies get into trouble is they cut themselves back to the point they have no resources left, and then they finally figure out how to pivot. But now they've got to figure out how to pay for it all. And that's the hard part. How much debt are you going to leverage to make that happen? So that's where having somebody like you or I come in and figure out how to make that work so that you're getting the biggest bang for your buck could be quite helpful.

[00:26:20.03] - Rich Veltre

Absolutely. And understanding those margins will help you make those decisions. If we didn't know that our margin was decent as a wholesale distributor, the margin was a heck of a lot better as an online seller.

[00:26:36.20] - Dan Paulson

Definitely.

[00:26:37.19] - Rich Veltre

So that flip, the cost of good sold didn't cost us anymore. The only thing that actually did change was we had to match the volume. When we started selling online, the volume went up, which was great. It was fabulous. But we had to keep up that supply chain. We had to make sure that the shoes were coming in fast enough and we weren't running out of Running out a product. Because that was our original problem. We would have just repeated it if we didn't have that coming in.

[00:27:09.25] - Dan Paulson

That's really where forward thinking needs to happen. And I guess this is where I will as we're wrapping this up, turn this into a soft pitch, because we haven't talked about in a while anyway, that 20 questions we do helps uncover these particular issues. Because within a few short questions, we can start seeing where potential problems lie and start addressing how you need to fix it. And as you're getting into the first part of the year, you've got 12 months in front of you right now. Don't wait till month 11, when you now have to borrow 50 or $100,000 in cash to get you through the winter months, so that way you can turn around and try and make it back the following year. Fix it now versus waiting until later. And I think that's the key message that we want to as a takeaway from this episode is, if the problem exists, Figure out how to deal with the problem. Some of it's going to require cutting, some of it's going to require reinvestment and growth. And there's people out there that can help you do that.

[00:28:09.20] - Rich Veltre

Yeah, 100 %.

[00:28:12.16] - Dan Paulson

Excellent. Rich, if they do want to do our 20 questions or want to talk to us maybe about getting over this roller coaster cycle that they have before things go nuts with tax season, what's the best way to get a hold of you?

[00:28:26.16] - Rich Veltre

Send me an email at rich@xcxo.net

[00:28:30.00] - Dan Paulson

And you can do the same for me at dan@cxco.net Rich, great discussion this time. I think it's very fitting and timely with everything that's going on, especially that we're now into the new year. And I'm sure we will have some more exciting topics to talk about next week.

[00:28:47.02] - Rich Veltre

Always do.

[00:28:49.07] - Dan Paulson

All right. Take care. Have a good one. Get feeling better.

[00:28:52.11] - Rich Veltre

All right. See you later.

[00:29:00.00] - Bob

Thanks for listening to Books and the Biz. If today's conversation sparked new ideas for your company, the team at XCXO can help you turn those ideas into action. Xcxo brings together seasoned executives, fractional CEOs, COO CFOs, CFOs, and CXOs who step into your business with the experience, strategy, and leadership to drive real results. Whether you're trying to scale, strengthen operations, improve profitability, or prepare for transition, our experts help you move faster and lead with confidence. To learn more or start a conversation, visit xcxo.net that's xcxo.net, your shortcut to stronger leadership and a better run business. Thanks again for joining us. We'll see you next time on Books and the Biz.