High Profits, but Low Cash Flow

How We Solve This Problem for Small Businesses

At a Glance

Plenty of successful business owners find that they don’t have as much money in their accounts as they believe they should. Despite significant profits, they may find themselves asking where all their cash went.

Fox & Partners can not only answer that question but can also solve the business’s cash flow problem. We did exactly this with a blue-collar company that had excellent profits, but not enough cash available to them.

We helped this company and its owner by:

  • Getting their financial reporting in order so we had accurate, clean information to work from.
  • Creating a plan to repay their significant outstanding debt.
  • Introducing an effective accounts receivable (AR) process so that cash was brought in the door more quickly.
  • Optimizing their payroll and personnel approach to keep budgets consistent and lower the overall expense.
  • Providing other small suggestions to eliminate expenses that added up over time.
  • Helping the business owner with his budget and spending.

Keep reading for all of the details.

What the Client Needed: Grow Net Worth

This particular business was a landscaping company with a young owner who was seeing success but did not have the cash he expected. The business was bringing in good money — an annual profit of $240k — but the owner didn’t have excess cash flow and didn’t know where that cash was going. As a result, the business owner was not able to grow his net worth.

Both the company and its owner needed some financial guidance, so we offered both business and personal financial solutions. On the organizational side, the areas to focus on were debt repayment, improving the accounts receivable (AR) process, and optimizing payroll and personnel management.

How We Got it Done

As always, we started by ensuring that the company’s financials were current and clean. This is our first step with all of our clients, as we need to make sure we’re looking at accurate info in order to make a solid plan going forward.

So, once we had a handle on the landscaping company’s financial reporting, we moved on to the most pressing issue – debt repayment.

Group of young business people in a meeting

Debt Repayment

We knew that the company was losing a significant amount of cash in debt payments every month, but we needed to find out exactly how much that was.

This is significant because debt is paid after profit. In this case, the company had $240k in annual profit and was paying down about $70k in debt. But even though they now had $170k in their account, they were still paying taxes on $240k. If you estimate that your taxes are about 30% (just as an example), that is another $70k. At the end of the year, that $240k in profits had become $100k in cash very quickly, which means that those profits didn’t take our clients as far as they should have. So, paying down that debt was going to be essential to improving cash flow.

We got a debt list together, outlining the timeline for each loan – what was paid, the balance still owed, and when the loan ended. This way, we could identify the best places to start paying down debt. A good starting place is to identify if any assets aren’t bringing in a solid return, and plan to sell those.

Once all of the remaining debt is “good debt” (bringing in a decent return) there are a couple of ways to do this: the snowball method or the highest interest first. We decided to go with the interest-based approach and used the owner’s cash, cash from the collected AR, and cash from the sale of poor assets to reduce the company’s debt by 50%. So, even if profits stayed the same (and therefore taxes) the overall cash to the owner significantly increased.

Either way, with this process, a company’s profits can stay the same and they will still have more cash.

This work resulted in a 50% reduction in the client’s debt.

Improved Accounts Receivables

The next pressing item for this client was tackling the significant amount of money left on the table because of outstanding accounts receivable (AR). The company had customers with unpaid bills and no one following up to collect what was owed. What made this problem even more impactful was the fact that the landscaping company continued to provide services to these customers despite the outstanding balances.

First, we changed the invoicing process so that after a certain amount of time, unpaid bills would result in paused services. For example, if the company provided lawn mowing services in June, but their bill was not paid in July, the lawn would not be mowed again until payment was received.

Additionally, we appointed someone to verify any outstanding balances with their clients and then follow up with their customers to ensure that those accounts were made current.

Putting this process in place meant that more money was coming in more regularly, and that very little money was left on the table, increasing the cash flow of the business overall.

Optimizing Payroll and Personnel Management

Of course, landscaping is a seasonal business in the northeast U.S., and because of this, the business owner found himself letting his employees go for a couple of the slower months. So, each year, he would have to eliminate his workforce and hope they would come back when things started ramping up again. Then in the busy season, he was paying a significant amount of overtime. This meant that not only were his payroll expenses unpredictable and very uneven, but he would often have to replace half (or more) of his staff. This was both stressful and time-consuming.

We found that a great solution for everyone was to make his core workforce salaried instead of hourly. (There would always be some part-time and seasonal hires, but the key employees were kept full-time.) This not only kept his expenses steady and predictable, it lowered the overall annual payroll expense. And it worked out for the employees, as well, because they had steadier income.

This consistency on both ends led to lower hiring and recruitment costs, as well as lower turnover.

Other Contributions

In addition to these three key changes, we suggested smaller efforts that may not have moved the needle individually, but made a difference when tackled all at once:

  • Provided the business owner with some financial education so that he had the baseline knowledge to keep everything on track going forward.
  • Ensured the business was properly insured and cleaned up the bidding process so that he could bid on bigger projects with higher profit margins.
  • Introduced a process for locking up the yard each night to eliminate small theft of tools and other property.
  • Increased the company’s landscaping fees, particularly for new clients.
  • Identified lower profit margin clients and prioritized work so that the company would focus on work that yielded higher profits.
  • Met with the business owner consistently to ensure that everything moved efficiently and that the finances continued to improve.

Helping to Manage Personal Finances

We also did a lot of this same work for the business owner on the personal side. We found that he had a significant amount of personal debt and that his spending was high, so we helped him generate a plan to pay that down. We also helped him to track his finances and set him up with a budget. This leveled out his spending and kept his lifestyle more consistent throughout the year.

We also guided him as he set up his own goals, which helped motivate him in the work he was doing for both his business and himself, setting himself up for overall success. Fox & Partners takes these steps to help businesses like this one every day. We take pride in doing great work for great people and becoming true partners for all of the organizations we collaborate with.

The Results

  • Updated Financials

    Business had clean, accurate, and current financials.

  • Dramatically Reduced Debt

    We used the owner’s cash, cash from the collected AR, and cash from the sale of poor assets to reduce the company’s debt by 50%.

  • Less Stress

    Business owner became less stressed about the financial situation of both the business and himself.

Key Metrics

  • Predictable Payroll

    Lower Overall Costs and Less Turnover

  • 50% Less Debt

    Same Profits, Same Taxes, More Cash

  • Higher Profit Margin

    Refocused Priorities for Revenue

Achieve the Financial Success You Deserve

If you’d like to hear about our services directly from our clients, please read the testimonials we have on our site. We’d also be happy to connect with you and see how we can help support the growth of your own business.

Let’s Work Together

You can also set up a call with us so that we can discuss your business’s specific needs and how we can help you improve cash flow and achieve the success you deserve.

Let’s Work Together

With a wide range of knowledge, including finance, marketing and vision building and an ability to bring-in and communicate with various specialists to ensure optimal care, Fox and Partners is uniquely suited to bring to the business world what the medical world has had for decades – a warm first point of contact, a professional with a breadth of knowledge and coordination for all of your business and financial needs.