By Kim Stewart-Smith, CEO

The reason we are sharing this story is simple: it is fictional, but it is based entirely on true scenarios we face with clients every single year. We call it the Golden Trap – the moment a founder becomes a high-revenue, zero-profit celebrity.

Alex, the owner of a successful trade services business, was the picture of entrepreneurial success: $5 million in annual turnover, a flashy social media feed, four luxury vehicles in the driveway, and a new designer office. He was the definition of “living the dream.”

But behind the veneer, the business was silently haemorrhaging cash. The ATO was calling daily, credit card debt was spiralling, and the sheer chaos of his finances meant every month was a desperate scramble just to cover the next payroll.

Alex had fallen into the Red Ocean trap – focusing on revenue (vanity) while losing grip on profit (sanity).

At this stage, an intervention was needed – not a sales boost, but a behavioural and structural reset. The core issue wasn’t a lack of income; it was a lack of control. The solution drew heavily on the principles of Mike Michalowicz’s Profit First.

Phase 1: Imposing Financial Authority (The Profit First Doctrine)

The pain for Alex wasn’t the debt; it was the psychological disconnect. He believed the traditional accounting formula: Sales – Expenses = Profit. The flaw? Humans spend what they see. When all the revenue landed in one account, Alex treated it as a bottomless pool of cash, falling victim to Parkinson’s Law – the idea that expenses will always rise to meet available income

Our Intervention: Mandating Intentional Cash Allocation

There are several ways to intervene in a financial crisis, but for simplicity, we focused on implementing the core behavioural solution of cash allocation by introducing a structured banking model.

We created five core bank accounts, imposing financial guardrails that compelled discipline:

1. Income: Where all revenue initially lands.
2. The Tax Account (ATO Shield): Before any other allocation, the statutory percentage for GST and income tax was immediately transferred here. This stopped the ATO crisis by proactively building the reserves. The ATO cannot enforce a debt if the funds are ready when due.
3. Profit: A fixed, non-negotiable percentage of every dollar was then transferred out. This instantly forced Alex to view profit as a liability he owed to the business’s future, not a reward for past effort.
4. Owner’s Compensation: Alex was transitioned from variable draws to a fixed, realistic salary. This defined his personal spending budget and cut the lifeline to excessive lifestyle spending.
5. The Operating Expenses Account (The Constraint): By running the business with only what was left after the mandatory Tax and Profit transfers, Alex was forced to manage his Opex budget under severe constraint.

By flipping the formula to Sales – Profit = Expenses, we constrained Alex’s spending and exposed the real limits of his business model. Within weeks, he saw what “living within means” really looked like – including the unsustainable cost of those $20,000 monthly vehicle loans.

Key Lesson for Founders: Profit is an intention, not a reward. You must allocate profit first to survive.

Phase 2: Eliminating the Waste (The Pumpkin Plan Principle)

Once we stabilised the immediate cash flow, we had to address the underlying disease: why was Alex working so hard for such thin profit margins? Alex, like many founders, was serving every client who walked through the door – the “small, noisy, demanding clients who paid late” (the definition of a Red Ocean struggle).

Our Intervention: Drawing on The Pumpkin Plan:

Michalowicz teaches that to grow a prize-winning pumpkin, you must prune the weak ones early. We analysed Alex’s client base and discovered that:

• 15% of clients generated 70% of his profit, while
• 30% of clients consumed 50% of his time and produced zero profit.

So, we made the hard call – trimming the bottom 20% of clients. It was uncomfortable but transformational.

The result? Revenue dipped slightly at first, but profit margins soared. His team morale lifted, debt repayment accelerated, and for the first time in years, the business had breathing room.

Key Lesson for Founders: Not all revenue is created equal. You must starve the unprofitable parts of your business to nourish the truly profitable core.

The Turnaround: From Scramble to Strategy

Within six months, the change was dramatic. Alex had sold two of the unnecessary vehicles, the ATO debt was on a manageable payment plan (funded by the segregated tax account), and, crucially, he was paying himself a stable, reasonable salary.

The Stewart & Smith intervention wasn’t about finding a magic bullet; it was a fundamental shift from emotional, revenue-driven chaos to a disciplined, cash-flow-first operation. We moved Alex out of the Golden Trap and into a structured reality where his business could finally afford its own success. The pain was necessary, but the lasting gain was an antifragile business built on true profit, not just glamorous turnover.

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