Cowboy Math – Real Time Cash Flow

Every entrepreneur needs to realize he is primarily in the cash flow business.  Successful people always watch the numbers like a dog with a bone.  A problem exists today because the rules have become so complicated that the accounting world is focused on monthly and annual financial statements that follow GAAP rules where the numbers are perhaps too old and riddled with accounting adjustments that make it hard for an executive to sift through it all to get numbers he can run the company with.  The importance of running a business with real time data is much more important than insuring proper cutoff dates.  There are in every type of business 4-6 key operating indicators that every entrepreneur should know and understand.  These become his report card that the monthly financials “fall out” from.  A well informed executive is never surprised by the month end numbers.

I want to propose a very simple concept that can be easily understood by all managers to run their cash flow business.  A weekly report that helps the manager understand his high level 4-6 KRA (key result area) goals but allows him to drill down and ask questions or view irregularities that exist while they are happening.  By monitoring and understanding the cash inflows and outflows it becomes easy for the manager to rectify their ongoing operations.

I am going to use ABC Construction Company as an example.  The key factors for the success of a contractor are 1) Passion for Job Margin 2) No Prisoners Accounts Receivable Collections 3) The Coffin of Overhead Costs 4) Precious Cash position

1) Passion for Job Margin:

A dashboard report might start with weekly job results like this:


A1 Jobs

Notice at one look you can see 1-What jobs are we behind  billing the client, an indication that billings are getting to old, or that the costs are running over the revenue and we better be finding some change orders. 2-You can judge the costs per week and the remaining estimated weeks to complete the project to project costs to complete. 3-You can trend cost per man hour, while some jobs will have more subcontractors than others this may be a distortion.  4-Are you behind billing, this is critical not only for cash flow but to keep your client abreast of the progress, often times they need to request money from a lender or others.  To be a successful contractor you need to learn to predict jobs and be passionate about making them go according to plan.

2) No Prisoners Accounts Receivable Collections:



Always have a weekly review of receivables money by project. Who is getting late? Who has unbilled retention? Do punch lists need addressed? Do we need to secure a lien? If you cannot address these issues weekly they will get away from you and become a “cold biscuit” that nobody wants to deal with.

3) The Coffin of Overhead Costs:

Overhead is the only swear word for a contractor.  Detail the line items each week and look for odd increases or decreases to pinpoint surprises as they occur rather than when the monthly financial comes out.  If you learn to look at your overhead like a job cost you can begin to predict and monitor performance and manage what you can.

Lastly, or maybe this should be first because this is the goal, can you answer each week where the cash flow went?  Each week you billed, collected, spent costs, spent overhead, paid for capital costs, and paid down debt.  Reconcile in your mind where the cash is going every week. B2B CFO says “cash, we help you get it”.  I say “It’s all trash until it turns to cash”. Either way, teach the type A personality that is running the construction company that he can manage his cash flow with the same passion and goal seeking aspiration that he has building the building or the bridge or whatever reason he got into the business to begin with.  Compare his cash position with last year end, last week, don’t confuse him with fixed assets because those things have nothing to do with his cash flow.

4) Precious Cash position:

CowBoy2015 2-001


Finally, please don’t confuse me with GAAP:

Strip away all the accruals, depreciation and amortization, inventory shrinkage, warranty accruals, percent complete, and other things accountants use to confuse the person who simply wants numbers to manage his business.  Let him manage his business and the financials will “fall out” of the weekly progress reports.  Nobody will be surprised, and if they are the answers will be simple enough to address by stating the accruals or non-cash adjustments.

This is not complex; this is for the most part simple and straight forward.  Most construction personalities will appreciate a straight shooter with the numbers rather than someone that confuses financial statement adjustments they barely understand. Usually the number on a financial statement are too late to manage, to surprising to analyze, and hopefully more accurate as there is more history to view.

If you would like to know how I can bring greater financial clarity for your business, then contact me today for a Free Discovery Analysis

By David Wilkins, Partner B2B CFO

photo credit: Double Shootin Cowboy via photopin (license)

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