Fred is sitting at his desk, feeling very overwhelmed. On paper his company is growing, jobs are closing, and the profit looks better than ever; but every day when he checks the bank account, it seems to stay the same. He decides to review the last quarter's financial reports, job quotes, and individual job profits. His analysis showed him that he'd made reactive decisions based on current circumstances. For example, during an especially busy period he had hired an additional tech; a move that eased his stress about completing jobs on time, but strained the cashflow; or he had impulsively taken on jobs to keep cash flowing rather than ensuring that they would positively impact his cash flow. In a vacuum, none of these decisions are catastrophic, but stress has a way of compounding bad decision after bad decision. Let's take a deeper dive into three common reactive decisions that business owners make, and how to be proactive in the future.

Hiring: Overwhelming Versus Planning from the Forecast

Three months ago, Fred was overwhelmed by all the work he had scheduled on the calendar. To him, this much work meant long days back and forth across town, and evenings and weekends working on owner things instead of being present for his family. So he decided to hire another technician to take on some of the burden. However, he did not calculate the long term cost of an additional technician.

Today, however, he's looking through the company's financial documents, and he gets smacked in the face with a harsh reality: he can't afford to pay this technician.

Now that he's aware of this, he lays out the impact on his cashflow forecast to see what shape his company will be in financially. Once he's done, he realizes that unless he makes some changes, the company's finances will be in worse shape than they are right now.

Material: "Feels Strong" Versus Forecasting

Fred looks at job quotes and individual job profits for the last quarter. After looking through all the documents, he realizes that his company had taken on many jobs that had a negative effect on his cashflow. For example, he'd taken on a $10,000 job that he'd only made a 10% profit on. 75% of the total job cost alone was spent on materials.

Now that he knows this, he decides to dig in and determine the true cost of materials based on how much money he spent. Then he divided that into weekly payments over the next 13 weeks. Now that he has an idea of how much equipment and materials will cost, he may be able to eliminate unexpected hardware store runs.

Pricing: Guessing Rather Than Building to Sustain

When Fred first set prices for all the jobs his company offers, he didn't sit down with a calculator in hand. Instead, he "estimated," or, more accurately, guessed. However, three months later, he's discovered that his business is actually losing money instead of making money instead. He maps out what this will look like over the next 13 weeks, and he realizes that he will lose more money and be in bad shape for the slow season.

To fix this moving forward, he could adjust his prices so they account for the true costs of materials, labor, and the profit margins he wants.

Bringing It All Together

He realizes that in order to be able to pay another technician, he will need to adjust his prices to cover the increased cost of labor. He will also have to adjust for the true cost of equipment and materials. With these changes planned, he maps out how the changes will impact his cash flow in the next 13 weeks.

Call to Action

Identify one decision coming up in the next 60 days; a hire, a purchase, a pricing change. Map the cash impact on your 13-week window before deciding.

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Disclaimer: The information in this post is intended for general guidance purposes. For advice specific to your business finances or taxes, consult a licensed accountant or financial advisor.