The Fastest Fix To The Cash Flow Problems In Your Business

Cash Flow Problems

Cash flow problems show up in home service companies that look like they have it all figured out. Recently I’ve been talking with home service owners doing $5 to $8 million a year. Their trucks are wrapped. Their crews are busy. Jobs keep selling. Then they tell me they’re worried they can’t make payroll next week, and the next question is always,
Where did the money go?”.

In this episode, I share what I found when I dug into the books of one home service business owner. In about two weeks, we identified a reduction in cash flow needs of about $65,000 a month. Keep reading to see where that cash was hiding and what I’d look at first in your own business.

The Fastest Fix To The Cash Flow Problems In Your Business

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What You’ll Learn

Why more revenue will not fix cash flow problems in a busy home service company
How one coaching client identified about $65,000 a month in lower cash flow needs
The hidden cost of keeping the wrong person in a key position
How better job costing can move your gross profit margin by about 15 points
Why a 30% Cost of Goods Sold can really be 45 to 50%
Where business cash flow issues hide inside your QuickBooks file
Why a business losing money can still look busy and successful

Key Moments…

[1:00] When Busy Home Service Owners Fear Payroll

[7:02] How One Customer Freed Up $65,000 A Month

[8:58] The Real Cost Of The Wrong Person In The Position

[11:54] Raising Gross Profit Margin With Job Costing Analysis

[13:42] Why Cost Of Goods Sold Looks Lower Than It Is

[17:27] Subscriptions And Personal Expenses Draining Cash

[19:04] Why More Revenue Will Not Fix Cash Flow Problems

[23:24] This Week’s Hidden Profit Leak

[25:36] How The Profit Pulse Diagnostic Report Finds Leaks

Why Do Busy Home Service Companies Run Short On Cash?

Short answer: growth adds costs faster than most owners add systems to track them. In the owners I talk with, those costs pile up in payroll, vendor bills, and debt payments. A slow season then shows the gap. This is what I see in companies around $5 to $8 million. This is a pattern I see, but you have to check your own books to see where your money goes.

As a company grows, I see more crews, more trucks and vans, and more equipment. Each one comes with its own bill. Payroll hits every week or twice a month. Vendors and subcontractors keep asking for payment, and some even have a card on file. Truck and van payments add debt. Job materials land on credit cards, and that creates another large payment.

Home service business cash flow gets squeezed from every side at once. While money keeps turning during the busy season, the squeeze stays hidden. Then the shoulder season arrives and the money stops turning the way it did. That’s when cash flow problems become obvious, even though the company still looks successful from the outside.

How One Home Service Business Freed Up $65,000 A Month In Cash Flow

One home service owner I coach came to me with the same comments I hear all the time. He was busy and had a great reputation in the community. He also wasn’t sure he could make payroll and had taken on loans to keep bills paid. During the first two weeks of working together, we freed up about $65,000 a month by identifying and eliminating excess staffing, lack of job costing, and decreasing personal items that had been running through the business. [Add proof: a customer quote, permission to share the customer’s first name, or a before and after cash flow summary, if available.]

Some of that cash is a quick fix while other pieces recur monthly. Every home service business is different. Think about what an extra $10,000 or $20,000 a month could do for your business. It could carry you through the shoulder season. It could pay down debt, or it could fund an emergency account so a slow winter doesn’t catch you off guard.

What Does The Wrong Person In A Key Position Really Cost?

This home service owner had grown to the point where he had quite a few people at the management level. He felt he had lost touch with what was going on in the company. Winter was coming, so we asked who he really needed, and he made some personnel decisions. A couple of people were the wrong fit for their positions. That was not an easy call, but it was a necessary one.

A wrong fit creates a ripple. The person isn’t fulfilled. The owner is frustrated. The team members who work with that person feel the stress, and things don’t get done the way they should. Many owners hire quickly and fire slowly, and six months of coaching later, nothing has changed.

When the wrong person leaves a position, you recoup more than a paycheck. You get back the payroll, the benefits such as health insurance, 401(k) contributions, and the payroll taxes. You also get back wasted time, jobs that weren’t done right, and the unhappy customers that came with them. You recoup management oversight too, because you stop acting as the referee on the job.

This is the hidden profit leak for this episode. Look at the people managing your jobs, crews, and production. Ask whether they protect your profits, or whether money leaks out because the right person isn’t in the right seat. The most expensive employee isn’t always the one with the highest salary.

How Do Job Costs And Messy Books Hide Your True Margins?

For this client, gross profit on jobs was running around 25 to 30%. I knew that wasn’t enough to cover the rest of the operating expenses. After we dug into job efficiency and ran job costing analysis on some jobs, his gross profit margin moved to about 40 to 45%. That matters most on bigger jobs.

Here is a simple example, not a real client result. On a $100,000 job, an extra 10 to 15% of profit is $10,000 to $15,000 back in the bank. Crews that aren’t efficient and materials that aren’t controlled can make that profit disappear.

Messy books hide the same problem. When I open a QuickBooks file, I often see direct labor and job costs sitting in overhead. Permits end up there too. That makes Cost of Goods Sold look like 30%, when it may be 45 to 50% after cleanup. The only cash you have to spend is your gross profit, so you need that number to be accurate before you can improve business profitability.

The cleanup usually turns up a few other items:

Truck and equipment payments posted as overhead instead of against the note payable
Old receivables and payables, some two or three years old
Subscriptions and software nobody uses anymore
Personal expenses paid by the business

On that last one, paying personal items through the business can pierce the corporate veil. In a lawsuit, that may let creditors reach your personal assets.

Three Ideas That Help You Stop Profit Leaks:

More revenue will not fix cash flow problems. It adds people, layers of management, and complexity, so it grows the mess.
Profit leaks hide in plain sight. They sit in payroll, job costs, financing, and vendor payments, and no line on your Profit & Loss report says “Profit Leak.” You may need someone else’s eyes to find them.
Plugging profit leaks takes action, not just information. A report won’t improve cash flow by being read. The home service owner I’m coaching gets a list of homework every week and gets it done, and that is how we are putting cash back into his business.

Sometimes home service business profitability doesn’t need another million in sales. It just needs you to keep more of what you already earn. Fix that foundation first, then scale. What counts is how much of your top line revenue you actually keep.

Frequently Asked Questions

How do I know if my Cost of Goods Sold is wrong?

Check whether direct labor, job materials, subcontractors, and permits are sitting in overhead. In the books I review, moving them can turn a 30% Cost of Goods Sold into 45 to 50%.

How fast can a business free up cash?

In this episode, we identified about $65,000 a month in reduced cash flow needs in about two weeks. Results vary by business, and some fixes are one-time while others recur.

What is the Profit Pulse Diagnostic Report?

It is a diagnostic report that looks at where profit and cash flow may be leaking out of your business. It starts with a 30-minute call to gather basic information and see if you qualify.

How can I tell if I have the wrong person in a key position?

Look at the people managing your jobs, crews, and production. Ask whether they protect your profits, or whether money is leaking because they aren’t in the right seat.

Next step: Email diane@profitcoach4you.com to set up a 30-minute Profit Pulse Diagnostic call.

Diane’s Resources:

🤑Add $200k in Profits Without Chasing Leads

Sales are rolling in, so why does your business still feel broke? Here are 15 ways to add profit back into your Home Service Business without more leads & sales. https://profitcoach4you.com/profitleaks

Profit Impact Call
☎️ Let me find $45k in hidden profit leaks in your home service business in 45 minutes during a Profit Impact Call. https://taxcoach4you.com/profitimpactcall/