Yonatan Stern advises founders to operate using an “Operational Cash Business Model” instead of a standard accounting Profit and Loss (P&L) statement. The reasoning is that employees, landlords, and vendors must be paid in cash. A company cannot pay salaries with accounting profits; it pays with cash in the bank. Therefore, the business model must track actual money in versus money out.
The calculation is simplified to income minus expenses. If the result is positive, the company is profitable. If it is negative, the company is burning cash and living on borrowed time.
To calculate profitability effectively, the SmartUp model categorizes expenses into three groups. Sales expenses include costs directly tied to selling, such as cost of goods sold, commissions, and customer acquisition costs. Stable expenses, often referred to as fixed expenses, include salaries, rent, and overhead. In technology startups, salaries typically account for 70–80% of costs and are considered rigid because they recur every month regardless of sales. One-time expenses are large, non-recurring costs such as building a lab or paying major consulting fees.
Achieving positive cash flow fundamentally changes the nature of the company. A business that relies on investors to cover losses is playing a finite game with a lifespan determined by its burn rate. A profitable company becomes independent and sustainable, giving founders leverage and the ability to say “no” to investors or buyers when terms are not favorable.
