A client of mine in the contracting field is having a strong year and aiming for 25% growth. They have a year-end in the summer during their busy season.
In order to finish strong, just like a 100 meter dash, they need to run through the tape, and not just let up when they see the finish line.
Here are the actions I’ve recommended and that they are implementing to create a record year:
- Wake people up! Tell them the race is on and you need to generate as much business as possible before the year end date. Shake them out of their routines and complacency.
- Proactively manage all projects, ranking them by size, to ensure you can complete as much work as possible before year end, and before your invoicing cut-off dates. Communicate with all project managers. Explain the importance.
- Issue invoices as ruthlessly as possible. If you’re waiting for a supplier invoice, stop waiting, make an estimate based on the purchase order, and send the invoice. The bookkeepers get too excited about accuracy and balancing to the penny. You need speed and balancing to the thousands. The external accountant’s concept of materiality allows for this estimating to occur.
- Issue invoices as quickly as possible. One of my clients has a goal to reduce invoicing speed down to a day or two. When I had a start-up drywall company, we could issue an invoice in ten minutes. We had to because we didn’t have any cash! (We also banked where our largest customer banked so the bank didn’t put a hold on the cheque. Phew. We had cash flow down to the minute.)
- Issue an invoice for everything that you can invoice. If a small project is half done, issue an invoice for half the total. Make sure to invoice for any and all materials installed or shipped to site.
- Aggressively collect all outstanding accounts receivable, and especially everything over 60 days, in order to improve working capital and covenant performance.
- Test your covenants mid-month to see what you might need to improve by year end. You may need to balance the working capital or current ratio with the debt to equity ratio by using cash to reduce payables…or not.
Once we communicated the plan to everyone and followed up so they knew we were serious, we started identifying opportunities to get work done and getting invoices out the door. That will help the company to cross the finish line at full speed.
Now, repeat that process for every month end. That’s right, do the year-end sprint every month!
This will help you to become faster and stronger. You will probably generate and additional 10% to 15% of revenue and profit without any extra expense on capital expenditures, capacity, or training. That’s the benefit of management discipline.
If you’d like help to grow your revenues, profits, and valuation, give me a call.
Full speed ahead!!
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