Get SERIOUS About Improving Profitability and Cashflow!Mar 16, 2023
One of the most common questions new clients have for me right from the start is What can I do to help with profitability and cashflow? Before sharing my thoughts, I’d like to give you a little background so you know more about me and what I’ve done. I started in the industry in 2005 as a franchisee of a national system. In 2013, I went through the process of buying out my agreement and rebranding as an independent. I’ve been coaching business owners and their teams since 2008 - part-time while owning my own restoration business and then full-time since 2017, when I sold it. I’m doing this kind of work because I’m passionate about helping owners get more profitable, reduce the chaos in their businesses and build something they can sell someday when the time is right.
My initial profitability and cashflow journey . . .
- I got off to a great start with my business, but I soon realized that I was flying by the seat of my pants.
- After about two years, I found that my business had gone off track. I realized that I didn't have any systems in place to manage my finances or my team.
- I knew I needed to make a change if I wanted to get my business back on track. So, I made a concerted effort to implement systems to manage my finances and my team, and it made a huge difference.
- Once I made the changes, our profitability and cashflow improved tremendously.
Here’s a snapshot of what I went through - what my struggles were and how I overcame them.
I started my business from zero in 2005 and got off to a great start. I was fortunate enough to build a great group of referral sources early on and got out there and produced a lot of work starting in week five. I was the technician, production manager, salesman, estimator, and bookkeeper. Like many new owners, I wore all of the hats, and because of that, I knew every job inside and out and knew where every dollar was.
Fast forward two years and things were different. I had a team and wasn’t on jobs like I was in the past - guess what happened? Profitability and cash flow were much different than when I was running everything. I knew I didn’t want to go backward, so I needed to figure out how to get a handle on the business. That was the time when I decided I had to get really good at knowing my numbers - not in my head but in Quickbooks. So what did I learn and implement?
- Job costing - I implemented a job costing system where we tracked all of our labor hours and allocated them to specific jobs. This allowed me to see which jobs were profitable and which weren't. With this information, we were able to focus on what was working great and what we needed to improve.
- Invoicing with urgency - One of the key changes I made in my business was to implement a system for timely invoicing. I realized that invoicing as soon as the job is completed improved our cash flow significantly. I set a goal to invoice within 24 hours of job completion, and I trained my team to make it a priority. We set up processes and checks and balances to ensure all invoices were sent out promptly. As a result, we were able to reduce the time it took for payment to come in, which helped improve our overall cash flow.
- Collections system - Another important step I took to improve my business's cash flow was implementing a collection management system. I realized that many of our invoices were being paid late, which was hurting our cash flow. I set up a system to track outstanding invoices, set up reminders and follow-up procedures, and trained my team to make collections a priority. As a result, we were able to reduce our “days of sales outstanding” (DSO) and improve our overall cash flow.
- Performance-based compensation plan - We implemented a performance-based compensation plan to align our team's goals with the financial success of our business. We set specific targets for revenue, profitability, and days to collect, and we tied a portion of our team's compensation to meeting or exceeding those targets. This helped ensure that everyone was working together to improve our cash flow and overall financial performance. Additionally, we provided regular training and support to help our team members develop the skills and knowledge they needed to excel in their roles and contribute to the overall success of the business.
With those changes in place, my business took a significant turn for the better. Profitability and cash flow improved, and I was able to focus on growing the business rather than just keeping it afloat. It was a tough road to get there, but it was worth it in the end.
I can’t stress enough the importance of knowing your numbers and having systems in place to manage them. You can't run a profitable business if you don't have a handle on your finances . . . if you don’t know your numbers. It's also essential to have a team aligned with your financial goals and incentivized to help you achieve them.
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