Subject: The Finance Gem 💎 #98: 5 Deadly EBITDA Mistakes and 7 Red Flags

Hey there!

Welcome to this week's Finance Gem Newsletter #98.

We're almost at issue 100! I'll need to think of something special to celebrate 💛

Here's what I'm covering today:

• I’m hosting a free EBITDA masterclass (Register here)

• How to spot red flags in a balance sheet in 7 steps

• The CEO Financial Intelligence Program enrollment is open (I talk about how you can save $500 if you join before June 15th)

Let's get started.

Free Live Masterclass: EBITDA - 5 Deadly Mistakes (and how to fix them)

Join me on July 11th for a Strategic Financial Intelligence Masterclass designed for CEOs and executive leaders who want to scale smarter.

EBITDA is one of the most overused—and misunderstood—metrics in business.
It looks clean on paper, but it can hide serious financial risks that destroy value.

In this masterclass, you’ll uncover:

• The 5 most dangerous ways EBITDA misleads executives

• Why relying on it alone can sabotage growth, deals, and funding

• What smart CEOs track instead to make stronger decisions

You’ll walk away with practical frameworks and real examples you can use to lead with insight—not guesswork.

This session is for leaders who want to move past vanity metrics and master the numbers that actually drive performance, capital, and valuation.

How to spot red flags in a balance sheet in 7 steps

Before we dive in, take a minute to think about this.

When’s the last time you really looked at your balance sheet beyond a quick scan? 

Many business leaders focus obsessively on their income statement: revenue, margins, profit. 

But your income statement can look fine while serious problems develop elsewhere. The balance sheet reveals issues that don't appear in your P&L. 

Problems like declining cash, growing receivables, and rising debt compound over time and can threaten your business's stability.

So let me walk you through the 7 balance sheet red flags that indicate your business may be developing financial problems.

Red Flag #1: Your cash balance is steadily declining

Cash is the lifeblood of your business. When it declines consistently month after month, it means your operations aren't generating enough cash to sustain themselves. 

That kind of cash dip can quickly turn into missed payments or hard calls with vendors. Or lenders. The problem often goes unnoticed until payment delays become unavoidable.

The warning signs to watch for:

• Cash declining for 3+ consecutive months

• Operating cash flow turning negative

• Increasing reliance on credit lines to meet payroll

• Delaying vendor payments to preserve cash

If that’s happening in your business, don’t wait to fix it. Review spending, accelerate collections, and consider whether you need to raise capital while you still have options.

Red Flag #2: Accounts receivable is growing faster than revenue

When accounts receivable (AR) grows more quickly than revenue, it indicates collection issues.

This disconnect signals that you're either struggling to collect from customers, recognizing revenue too aggressively, or selling to customers who can't pay. 

A 10% revenue increase with a 30% AR increase means you're not collecting cash efficiently. This creates cash flow problems despite apparent revenue growth.

Calculate your Days Sales Outstanding (DSO) monthly. If it's trending upward, you have a collection problem. Every extra day of DSO represents cash that's stuck with customers instead of available for your operations.

Red Flag #3: Inventory is up, but sales aren’t

When inventory increases but sales don't, it signals demand or production problems.

This imbalance reveals several potential issues. 

• Your products may be becoming outdated. 

• You may have overestimated market demand. 

• Quality problems might be causing returns. 

Whatever the cause, that inventory represents cash that's tied up in products that aren't selling.

Keep an eye on how often your inventory actually moves. It’s easy to miss a slow build-up. When it drops below your thresholds or benchmarks, you need to take action. 

Consider discounting products to generate cash flow, reducing production, or preparing for inventory write-downs that will reduce your profits.

Red Flag #4: Goodwill suddenly spikes on your balance sheet

Goodwill represents the amount paid for a company above its tangible assets. When it jumps significantly, it can mean management paid too much for an acquisition. 

If that acquired company doesn't perform well, you'll have to write down that goodwill later, which reduces future profits.

Watch for goodwill that exceeds 25% of total assets or any acquisition where goodwill represents more than 50% of the purchase price (although the "right" threshold actually varies by several factors, including industry, company strategy, or market conditions).

These high goodwill amounts suggest the acquisition was expensive and needs excellent performance to justify the price. Otherwise, you're buying headlines, not value.

Red Flag #5: Short-term debt is increasing

Increasing reliance on short-term borrowing shows cash flow problems.

When you can't generate enough cash from operations, you often turn to short-term financing as a quick fix. But debt is finite—and it comes with strings.

More debt means more interest, less cash, and higher risk—a negative cycle that quickly feeds on itself.

Monitor your Current Ratio (Current Assets ÷ Current Liabilities) and Quick Ratio (Current Assets - Inventory) ÷ Current Liabilities) monthly. 

If they're declining while short-term debt rises, you're developing liquidity problems. Short-term debt must be repaid quickly, which can really test your finances if cash flow doesn't improve.

Red Flag #6: Your debt-to-equity ratio is spiking upward

Debt can be useful for growth when used wisely.

But when your debt-to-equity ratio spikes without driving higher profits or cash flow, you’re not leveraging—you’re overextending.

Too much debt too fast forces repayments before the business has time to generate the cash. That strains liquidity and compounds risk.

Set a debt-to-equity ceiling that fits your industry and stage. Once you’re near it, future growth should come from operations—not more borrowing.

Red Flag #7: Retained earnings remain negative

Negative retained earnings mean the business has consumed more capital than it has generated through profits. That cash had to come from somewhere—either debt, equity injections, or asset sales.

It’s a sign the business has been funding operations or distributions not from performance, but from external sources. That raises your leverage, weakens equity, and limits flexibility.

Every dollar of retained loss increases your dependency on outside capital. It also means your balance sheet isn’t funding growth—debt is.

Worse, if retained earnings stay negative while debt increases, your debt-to-equity ratio climbs for the wrong reasons. Not because you’re scaling profitably—but because you're plugging holes with borrowed money.

This isn’t just about optics. It’s about solvency, investor confidence, and long-term viability.

Fix the engine. Not the fuel tank.

Join the CEO Financial Intelligence Program

The next cohort of the CEO Financial Intelligence Program is now open.

This is an exclusive 6-week program I designed specifically for CEOs and C-suite executives who want to lead with sharper financial insight and confident strategic decisions.

It’s your opportunity to accelerate a transformation that normally takes decades—gaining the practical knowledge, insight, and financial leadership skills that set great leaders apart.

You’ll leverage my expertise as a CPA and MBA, backed by nearly two decades of hands-on experience advising hundreds of companies—and dive deeper into the strategies and frameworks that have shaped decisions for over 149 million business leaders worldwide.

In just 6 weeks, you'll build the financial intelligence to:

• Make faster, better strategic decisions
• Spot risks and value levers others miss
• Align your team and resources to drive long-term growth

The program includes 18 hours of live instruction delivered in 2 weekly 90-minute sessions. You’ll learn the concepts, apply them with real scenarios, and get personalized guidance for your company’s specific challenges and goals.

You’ll gain the tools and frameworks to engage confidently with your CFO, investors, and lenders—ask the right questions, challenge assumptions, and ensure every financial decision supports your strategic objectives and long-term value creation.

And until July 15th, you can join with the Early Bird offer, saving you $500. Prices increase after July 15 and program seats are limited, so be sure to secure your spot early.

Got a question? Just reply and let me know. I’m always happy to help.

Until next week! 

Oana

PS. Just a reminder that I’m recruiting for several positions in content management, design, newsletter management, brand and partnership marketing, AI automation, advanced Excel/Python/Power BI, and operations management. To apply, submit a 2-minute video introduction and your CV / portfolio.