Cash flow is the oxygen of a business, and improving it can resolve a wide range of financial challenges. But how can you tackle a complex issue like debt effectively? One of the key steps is to reduce monthly debt payments, which, once managed, can have a profound impact on your business’s overall health.
This was the case with one of our clients, who was operating primarily on debt without a clear way forward. By focusing on creating consistent monthly income, enhancing cash flow, and systematically paying down debt, we helped them cut their debt ratio in half within six months.
To see how we help businesses achieve financial freedom, visit How We Work to explore our unique approach.
Before Partnering with Fox & Partners
When we started working with this company, they were struggling with a negative cash flow and a debt ratio of 1.03, meaning their assets were entirely financed by debt. This led to high interest expenses and uncertainty for the owner, who was unable to pay himself consistently due to cash constraints.
The financial statements were also cluttered and unclear, making it difficult to gain an accurate understanding of the business’s financial standing. For business owners dealing with similar stress, our solutions for Financially Caused Stress provide a solid foundation for improvement.
The Actions We Took
Our primary goals were to increase monthly net income, improve cash flow, and enable the owner to pay himself regularly, all of which would alleviate the high stress levels caused by financial instability. Here’s how we did it:
1. Ensuring Accurate Financials
Our first step was to clean up the financial statements and bookkeeping processes. This is a critical foundation, as accurate financial records are the basis for all other financial improvements. At Fox & Partners, we believe in strong accounting practices, which are essential for identifying the root causes of financial issues and uncovering effective solutions.
We thoroughly reviewed tax returns from the past two years, ensuring consistency with the books. This process involved breaking out loans into principal and interest, documenting liabilities and assets accurately, and eliminating obsolete accounts. If you need help with reliable bookkeeping, explore our Better Bookkeeper Services.
2. Making Strategic Adjustments
Once the financials were clean, we restructured the chart of accounts to make financial statements clearer and more meaningful. For example, we moved commission expenses from Operating Expenses to Cost of Goods Sold (COGS), aligning expenses with revenue generation. This allowed us to calculate the true gross margin and monthly operating expenses more accurately.
Simplifying the equity section of the balance sheet by consolidating similar accounts also helped make reports easier to understand. To learn more about our approach to financial clarity, see our High-Level Customized Financial Reports.
3. Cutting Unnecessary Expenses
One of the simplest and most impactful ways to improve cash flow is to reduce unnecessary expenses. In this case, we identified several areas for cost-cutting, such as software and office supplies, reducing expenses by $4.5k per month on computer expenses alone.
Additionally, we restructured payroll by working with the management team to reduce overtime and make payroll costs more consistent. These adjustments decreased the company’s monthly spending from $80k to $50k. You can read about similar successful approaches in our Case Studies.
4. Systematic Debt Repayment
Addressing the company’s debt was another essential step. We developed a plan that allowed the owner to pay down debt strategically, reducing liabilities from $100k to just over $50k. This reduced interest expenses, enabling further debt payments and enhancing cash flow.
For businesses in need of debt reduction strategies, our experience with Business Plan Development can set the right path toward financial stability.
5. Creating Financial Freedom and Reduced Stress
Through these efforts, we reduced the company’s monthly spending and created room for the owner to pay himself a regular salary. This newfound consistency brought significant relief, allowing him to make business decisions with confidence rather than fear.
Our focus at Fox & Partners is always on achieving greater financial freedom and peace of mind for our clients. For those interested in working toward similar goals, our Financial Problems We Solve page provides insights into how we address diverse financial challenges.
After Six Months with Fox & Partners
After six months, our client’s financial position improved dramatically. They went from a negative monthly cash flow of over $17k to a positive cash flow of nearly $37k, a positive swing of over $50k. Their average monthly net income increased from just over $12k to more than $53k, and their debt ratio improved from 1.03 to 0.43.
With this newfound stability, the business is now able to make proactive financial plans. They are considering higher ownership distributions, additional management support, and the eventual purchase of assets that will further increase revenue.
If you’re ready to take the next steps toward financial freedom, contact us to set up an introductory call with our founder, Hurley Fox, and learn how Fox & Partners can help you achieve similar success.
