The three statements, in operator terms
The profit and loss says whether the model works: is gross profit covering operating cost with room left. The cash flow says whether you will be alive to enjoy it: cash moves months apart from profit, and payroll is paid in cash. The balance sheet says what cushion and obligations sit underneath. For people decisions the order of authority is cash first, P&L second, balance sheet third.
You do not need accounting fluency; you need the same three questions answered monthly until the answers become familiar enough that anomalies announce themselves.
Signals that say hire, and signals that lie
Trustworthy: three or more months of gross profit above target with demand still unserved, revenue that recurs rather than spikes, and a forecast that survives the ramp months at the new burn. Liars: one great month, a big invoice not yet collected, a pipeline of maybes counted as money, and the fatigue argument, which is real but is a workload fact, not a finance fact, and gets its own read.
Write the hire’s trigger into the people plan in advance, and the good-month temptation mostly disappears.
Before the raise, and before the goodbye
A raise clears when the trailing six months carry it, the role’s market has genuinely moved or the person’s scope genuinely grew, and the people ratio survives it. A goodbye is the hardest read: the kind test and the honest test agree more often than feared, because keeping a role cash cannot support ends with a worse exit later, for them and for everyone else’s jobs.
Run the reduction math with the same rigor as the hire math: full cost out, severance and transition in, the work’s destination named. Cutting a role without relocating its work just moves the cost into overtime and churn.
The pre-decision checklist
One page before any payroll change: current cash and runway; three-month trailing gross profit; the fully-loaded cost or saving of the change; the forecast rerun with it; and the trigger or evidence being relied on, written in one sentence. Ten minutes, every time, no exceptions for good moods.
The checklist is not there to say no. It is there so that yes means something.
The reads, assembled for you
The Finance Desk keeps the budget, records and reports in one place, and Velora runs the pre-decision read against your own numbers on request. When the decision is a hire, the HR Desk carries it from offer to onboarding with the record built as you go.
For the wider cash discipline, the Tools guide to cash flow and runway pairs with this one.
Frequently asked questions
Which financial statement matters most before hiring?
Cash flow first, because payroll is paid in cash and cash moves months apart from profit; then the P&L for whether sustained gross profit covers the new cost; the balance sheet for the cushion underneath.
When can a small business afford a raise?
When the trailing six months of numbers carry it, the market or the scope genuinely moved, and the people-cost ratio survives the increase. Budgeted pools beat hallway improvisation.
How do I decide a layoff in a small company?
Run the same rigor as a hire: full cost out, severance and transition in, and the work’s destination named. Keeping a role cash cannot support ends worse for everyone than an honest, early goodbye.