Where Is the Money Going in Your Business?
- Lorenzo Ostili
- Oct 22
- 4 min read
Why Financial Transparency Is the First Step to Strategic Clarity
If you're running a startup, an already old business or simply a freelance practice, money flows reveal what your business actually is, beneath the surface of branding, ideas, or ambition. It tells the story of priorities, efficiency, value creation, and sometimes, hidden inefficiencies; in short, tracking where every euro, dollar, or yen is going is not just bookkeeping since it is business's insight.
When we look at a business model, we usually start with the "canvas": value proposition, customer segments, channels, and so on. But embedded within each block are financial choices, how much you're spending to acquire a customer, how much you're investing in product or service delivery, and what kind of cost structure supports (or undermines) your model. A business can have a brilliant idea and a compelling value proposition, but if it's bleeding cash in the wrong areas, it won’t survive long enough to make an impact.
This is where financial transparency becomes strategic. It’s about more than seeing numbers, it’s about reading what they mean.
For example:
if your biggest costs are in client acquisition and marketing but your retention rate is low, then you're investing heavily in front-end visibility without securing long-term value. That insight isn't just financial; it’s operational and strategic.
Another key benefit of examining where the money is going is identifying bottlenecks and scaling risks:
Are your fixed costs too high for the revenue you’re generating? Are variable costs eating into your margins as your volume grows?
These questions only become visible when you drill into financials,not just to report, but to understand.
And there’s a psychological layer too. Entrepreneurs often fall in love with their own ideas and spend on what "feels" important, premium branding, extensive tools, beautiful office spaces. But the truth about a business model lies in the spending pattern. It reflects what you're betting on. If you're spending more on internal systems than customer engagement, you may be optimizing before validating. If you're heavily funding growth without clear ROI, you're running on borrowed time.
What You’re Really Paying For
When analyzing where money is going, the cost structure is the backbone of the conversation. This part of your business model reveals what it takes, operationally and financially, to deliver your value proposition. But here's the catch: many businesses don’t look at costs in layers or categories. They see expenses as a whole, not as a diagnostic map.
To truly understand your model, you need to break costs into strategic clusters: fixed vs variable, direct vs indirect, essential vs optional.
Fixed costs are those that don’t change much with the volume of activity: office rent, staff salaries, licenses. They represent your commitments, the baseline price of just “keeping the lights on.” On the other hand, variable costs scale with your activity, production materials, freelancer fees, packaging, shipping. These tell you how scalable or fragile your business is. A lean model tries to keep fixed costs low and variable costs efficient. That way, you only spend more when you earn more.
But cost structure isn’t just a financial architecture because it’s a mirror of your priorities. Let’s say your largest budget allocation is in customer support; that tells us you’re investing in retention, loyalty, and satisfaction. If, instead, the majority of your spend goes to R&D, it means innovation and product evolution are central to your strategy. Every euro spent speaks a language, what you believe matters.
There's also the concept of hidden costs: time, inefficiencies, and opportunity cost. If your team spends 20 hours a week solving technical issues that could be automated with a €100/month tool, you're burning far more than euros, you're wasting growth potential. Likewise, recurring mistakes, rework, and overly complex processes drain not just finances, but morale and momentum and knowing where the money is going means counting both direct invoices and invisible energy.
Furthermore, businesses need to evaluate how cost structures change over time.
A cost that makes sense at launch, say, a high-end web design agency, may not be justifiable once your business matures and your needs shift. This is where periodic financial audits aligned with business goals are essentia, why? Because it’s not just about staying lean, it’s about staying aligned.
Finally, your cost structure also tells you what your business model can tolerate.
Can you afford to drop prices during a downturn? Can you double output without collapsing your margins? These questions are answered not in mission statements, but in spreadsheets. Therefore, understanding what you're really paying for is an act of honesty. It's where emotional attachment meets economic reality. And only by facing it directly can you build a business model that is financially sustainable and strategically intelligent.
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Article written by: Lorenzo Ostili
©Iuppiter International Consulting. All right reserved.
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