Cash Flow Consultant | The Secret to Sustainable Growth

Leadership

Greg owns a construction business in Seattle, built from the ground up with sweat, late nights, and a whole lot of coffee. Despite the steady stream of projects and increasing revenue, Greg found himself constantly struggling with cash flow. If this hits close to home, you’re not alone. 

Greg decided to hire a cash flow consultant to try and make the most of his revenue. It really changed the way he thought about his finances.

 

Revenue is Vanity

One day, after closing a big deal, Greg sat down with his numbers. He was excited and had reached a new level.  He was officially a $10 million dollar business!  

He could just see it now, his official welcome to the $10 million club.  He wasn’t running a small business anymore.  

 

Profit is Sanity

Greg continued to review his numbers. Yes, revenue was up, but what about the bottom line? Huh.  His profit margin stayed flat. So they were doing more work, but not actually making any more money. That didn’t seem right. 

After digging a little deeper, he saw why. His cost of goods sold and labour increased more than the revenue increase.  

Perhaps this growth wasn’t a good thing?

 

Cash Flow is King

The biggest scare came when Greg started looking at his cash flow forecast.  

This big deal just created a massive deficit in cash flow. As with many construction-related businesses, Greg’s projects had paid slowly.  Sure, they were profitable in the long run, but he had to pay for labour today and materials on terms.  

 

How could he get through this?  

 

Focus on Cash Flow with The Power of 1%

We love to look at the top line.  It serves our ego so well. The bottom line shows what ends up in the bank .. eventually.  But most important is cash flow. It’s the fuel that keeps your business alive.  

One of the strategic tools we use to strengthen a business’ financials is called the Power of 1%.  The idea is simple – to improve one (or more) of 7 levers by at least 1% each quarter. The impact to cash flow can be massive.  

Some of the major factors that impact cash flow on a construction business include labour, the cost of materials (and payment terms), how soon they get paid for the work (accounts receivable), and direct overhead costs.  

 

Here’s some strategies that Greg could look at: 

 

Get Slightly Better Rates From Vendors

In his next deal, Greg decided to call his supplier and negotiate a small discount. Just 1-3% lower. His pitch? “I’ve been bringing consistent business to you; a little discount will help both of us in the long run.” To his surprise, it worked. That small percentage translated into substantial savings over the year.

 

How Can We Reduce Overhead Expenses by 1%?

Greg gathered his team and posed a challenge: reduce expenses by 1% this quarter. They scrutinized everything—from office supplies to utility bills, and even those pesky, monthly software subscriptions. A slight change here, a minor tweak there, and soon they were saving more than expected. It seemed minor, but the cumulative effect was powerful.

 

Labor Efficiency Ratio

Labor costs were a significant expense. Greg started calculating the labor efficiency ratio—gross revenue divided by direct labor costs. For every dollar paid to an employee, he aimed to make at least $2. This ensured his labor costs were always justified by the revenue they generated.

 

Overhead Labor Efficiency Ratio

Similarly, Greg evaluated his overhead labor efficiency ratio. For every dollar spent on staff and management, he aimed to generate $3 in revenue. This focus on efficiency helped keep his business lean and profitable.

 

Reduce Accounts Receivable

Reducing Accounts Receivable is a direct injection of cash into a business.  He implemented a system to make 2-5 additional collection calls each week and adjusted his payment terms to NET30 or even NET15. This ensured that his clients paid faster, bringing in much-needed cash more quickly.

 

Accounts Payable Increase Cash Flow

On the flip side, Greg managed his accounts payable to spread out cash outlays over a longer period. By negotiating better payment terms with suppliers, he could hold onto his cash longer. This approach gave him more flexibility and improved his overall cash flow management.

 

Hire a Cash Flow Consultant

At Incrementa, we run into challenges that business owners like Greg face all the time. That’s why we focus on more than just “creating a strategic plan”.  Instead, we guide business owners to build a great business.  That includes not only its strategy, but systems, people & culture, strong financials and more.  

Along the way, your team grows like a sports team, becoming more disciplined and focused, understanding the plays better, and becoming aligned on your goals.  It’s a powerful transformation.  

 

Mike Knapp

STRATEGIC PLANNING & EXECUTION

Mike has been helping businesses achieve their goals for more than 20 years. He believes there is a better way for business owners and leaders to build their businesses and achieve their big goals. As a Gravitas Impact Premium coach, he leverages the 7 Attributes of Agile Growth™ to simplify the art of strategy and discipline of execution.

Related posts

VIEW ALL
https://www.incrementa.ca/wp-content/uploads/2024/06/eos-implementer-vs-coach-600x293.jpg

EOS Implementer Vs Coach | Which is Right For Your Business?

Leadership
Roger is a business consultant who has seen some success over the years. He started his career working in the IT de
https://www.incrementa.ca/wp-content/uploads/2024/05/how-to-stop-micromanaging-and-start-empowering-600x343.jpg

How to Stop Micromanaging and Start Empowering | 10X Growth

Leadership
Roger is a tech genius who’s created some amazing software applications and solutions for some big-name clients o

Let’s talk

The incrementa insider

Subscribe to our mailing list for practical ideas to improve your business.
  • We promise to never share your private information! Privacy Policy.