how to uncover cash flow killers

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EXECUTIVE AWARENESS GUIDE

HOW TO UNCOVER THE CASH FLOW

KILLERS Crippling Your Company...

and Fix Them Before It’s Too Late

JEFF HAYDOCKecoCFO, LLC

(844) 770-1300 [email protected]



“In 2008, our company had no direction, goals or experience. Under Jeff ’s leadership that all changed and we went from $0 in sales to $5M in 3 years. In 2009 he brought an outrageous idea to finance and own a solar array on town land, selling

the power to the town. He presented a cash flow analysis and ROI that proved worthwhile. Jeff built relationships with

bankers and, despite my serious doubts, got the deal done. He is never afraid to take on challenges or limitations to

achieve his goals.”

Maria DumkePresident, Waterline Alternative Energies

“Jeff is the rare find that brings intellect, creativity and a superb work ethic to any situation he’s involved in. His

ability to determine the right course of action for the most successful outcome is a true gift. I have been lucky to have

worked with him on several innovative efforts and truly look forward to the next great idea we can work on together.”

Michael Behrmann Principal, Revolution Energy

“Jeff ’s professional leadership on our project ensured its timely completion as he expertly navigated the complexities

of large-project work within an institution. His creative financial solution met our specific needs as he found a way to generate annual savings on our utilities. Jeff ’s work ethic, quick responses to questions and execution of details made

for a perfect partnership.”

Brian PalmDirector of Environmental Stewardship, Brooks School

“We’ve worked with Jeff on a variety of research and analysis assignments. He is excellent at scoping the work to be done

and raising the upfront questions to be answered. After kick-off, Jeff provides concise updates to assure us of progress,

and delivers findings that are fact-based, thoughtful and relevant. Most recently, we asked Jeff to analyze the

market for a potential acquisition in the energy space and assess various paths for deployment and growth. Given

his background in renewable energy, Jeff had no problem coming up to speed on a different distributed generation

technology. He provided a clear report illustrating a mastery of standard finance and contract concepts, as well as a clear understanding of the nuances of different regulatory issues and industry trends. Simply put, Jeff is diligent, competent

and results oriented.”

C. Trevor Childs Business Development, Cashman



If you’re open to a little “tough love,” you’ll get great benefit from the ideas shared in this executive guide.But let me first warn you ...

When giving energy and environmental companies strategies for uncovering hidden profit and increasing cash flow, I tend to be very direct.

The reason is simple:

Time is your enemy when you have money falling through the cracks in your business.

The longer you wait, the more you allow revenue to disappear. So why waste even a second with unnecessary conversation that doesn’t impact your bottom line?

Let’s get right to the tips ...

One of the biggest problems affecting cash flow today is executives who baby their businesses.

What do I mean?

Well, they avoid making decisions in the best interest of operations because they can’t separate emotions from business.

Maybe they have employees who’ve been around three, five, 10, 20, 30 years ... from the beginning. These employees have seen good and bad times. They work 60 hours a week and only get paid for 40.

Simply put, they make all types of sacrifices.

In some cases, though, businesses go through times when staff cuts are a necessary evil – but that decision never gets made, or it gets made after it’s too late. Again, the emotional connection is too strong to let a long-time employee go.

The fact is, these people are often the highest-paid employees ... and can immediately result in significant cost savings.

You see, when you’re in the trenches every day, it can be difficult to recognize problems like these.

On the other hand, sometimes the problem isn’t an employee. You may have a procedure in place that at one time worked well, but ran its course.

If you’re hesitant to change for fear of

response from other people, then you’re again letting emotions override business basics. And here’s the thing ...

Sometimes a new set of eyes on your operations makes a big difference.

Others can often better recognize existing problems because they don’t feel the same emotional connection.

How Much Do You Understand Your True Costs?

Let’s switch gears for a second and talk about a pure financial issue ...

Imagine you run a construction company and you’re building a solar project. If you have a basic accounting system, you can easily figure out what you paid for the solar panels ... the inverter ... all the electrical equipment ... and direct labor.

But what about your indirect costs?

This includes overhead such as your building, as well the people in accounting ... marketing... and human resources. Everything else associated with running a business …

You see, if you don’t know the costs associated with your day-to-day operations, you’ll always be disappointed and surprised by how poorly your company performs financially.

The good news is, you can easily fix this problem.

The fact is, these people are often the highest-paid employees ... and can immediately result in significant cost savings.



You simply need access to accurate data and the willingness to act quickly. This is where a new or up-to-date accounting system, bookkeeper or CFO comes into play.

Within the first six months of starting your business, you should have an accounting system in place. You need to know your numbers for several reasons, whether it’s for tax purposes, putting together financial statements or getting a line of credit from your bank.

Of course, as you grow and needs change, this system evolves.

Keep in mind, if your cost challenges are more in-depth – where spending occurs without budget concerns because you think you’re collecting enough receivables this month to pay bills, your problem is behavior.

This conduct gets companies in trouble fast.

The Right Way to Accurately Forecast Cash Flow

Most entrepreneurs, executives and business owners – just by their nature – believe they will be extremely successful. And it’s both positive and necessary they think this way.

But this optimism often leads to sales projections that are more aggressive than what’s realistic.

A more practical approach is to build three scenarios for sales projections: conservative, realistic, and aggressive. I typically take the conservative number and cut it by 20%. This is where I start the year’s budget and forecast expenses, especially related to hires (e.g., someone like a structural engineer or financial analyst).

So, based on projections, you might determine in order to generate a million in revenue, you need four sales guys selling X units a month at a given price. If you project higher units per month than what’s realistic (because of a sales cycle, lead time or other external forces), you’ll immediately find yourself in trouble by the end of Q1.

All because you didn’t take into account things you should have considered.

You’re better off projecting low and being happy than projecting high and cutting staff.

Can you now see why using three scenarios is so beneficial?

And here’s an often overlooked truth ...

If you’re a start-up trying to raise money and you present a potential investor with a 3-5 year financial projection, these investors don’t pay as much attention to the numbers as you think.

They don’t count on your projections to be accurate. Instead, they view them as a way to get an understanding of how you envision your business growing.

So if you have sky-high financial projections, then your market better be huge.

You better also have a major advantage on price, provide all kinds of value-added benefits and be able to justify your aggressive forecasting.

Make sense?

Another potential problem is miscalculation in lead times, especially with environmental businesses.

For instance, the water and wastewater treatment industry is heavily driven by regulations enforced by the Environmental Protection Agency and state-level environmental protection agencies.

If your state or the EPA doesn’t enforce a regulation and you have a business in the water and wastewater industry built around solving a problem created by that regulation, then you’re set up for disaster.

After all, most people in the water and wastewater space who must comply with these regulations don’t do anything unless they’re forced to.

If you’re a start-up trying to raise money and you present a potential investor with a 3-5 year financial projection, these investors don’t pay as much attention to the numbers as you think.



If you rely, as a business owner, on a regulatory agency to enforce their policies, you’re taking a miscalculated risk.

Sure, you might say, “I can sell 20 water treatment systems this year that will solve this regulatory problem.” But if the policy changes or isn’t enforced, can you really expect your customers to buy?

This problem is true in other industries, too. The solar industry, in some states, is supported because the utility companies are required by law to buy Solar Renewable Energy Certificates (SRECs) produced by solar arrays.

So if for some reason, the regulations are modified in some way, or worst case, the utility companies are no longer required to buy SRECs, you’re the owner of an asset with a volatile and unpredictable revenue source.

A Common Problem That Prevents Predictable Financial Results

Now let’s move our attention to capital and explain a problematic scenario I see far too often ...

Let’s say you’re starting a business and know you’ll need regional sales managers across the country. In addition, you need an engineering team to support your sales staff, as well as accounting functions.

Unfortunately, you don’t have any money.

The reality is, you have no way to invest in your business’ expansion. So you lack any level of predictability because you spend the first couple years chasing money, just to get your business started.

On the flip side, you could be an established company and still experience a similar scenario.

Let’s say you’re a manufacturing company that farms out some part of production. But now you want greater quality control, so you decide to invest in your own factory.

You need property, equipment and people – a multimillion-dollar investment.

Chances are, it’s too risky to take cash off your balance sheet. So you need money from your bank or a private investor.

The point is, if you don’t have access to affordable money to fuel growth in your business, then the predictability of your financial results and/or your growth suffers.

Predictable financial results start at the top. You need a sales pipeline that feeds your business. If you don’t have a fine-tuned and effective sales and marketing plan, that’s a problem.

Also, if you don’t have staff to execute your plan, that’s another problem.

Unpredictable revenue means unpredictable financial results.

So start by creating any type of plan you want – a marketing plan, a financial plan, whatever. Just realize it will evolve.

If you make a one- or three-year plan and six months from now you don’t review and modify it, then you set yourself up for failure.

These things change on a daily, weekly and monthly basis. Your ability to adjust ensures a greater likelihood of success or predictability.

Don’t Become a Victim of the Profit Myth

Many entrepreneurs, executives and small business owners get blinded by profit.

It’s understandable. After all, profit is the reason you take on all this risk and work so hard.

But, please understand, you can be profitable and still have cash flow trouble. If you have profit and can’t make payroll or cover your electric bill, what good is your revenue?

Cash flow is more important in the short term than being profitable. So learn how to manage your cash flow in a way that enables you to become profitable and achieve long-term sustainable growth. Becoming profitable is a byproduct of

proper cash flow management.

And don’t overlook cash burn. If you spend $5,000 a month but you only bring in $4,000 a month in revenue, then your cash burn is not in line with what your sales can afford.

Your monthly cash flow (or inflows) should always be in excess of your burn to ensure your business remains healthy. The degree of which this is occurring is dependent on your business and industry. This is, of course, assuming you are past the start-up stage and further along the growth curve.

Typically, few companies have just one source of cash flow. If you do, you’re in an extremely risky position.

Furthermore, if you have three sources of cash flow, but the distribution is 85% from one client or customer and then the balance from the other two, you’re also in a dangerous situation.

That being said ... acquiring as many sources of cash flow isn’t the only objective. What’s important is a diversified distribution of your cash flow sources.

Yes, having a huge client or customer is great. But if they terminate your agreement and you’re left with 15%, your problems will escalate fast.

The point is, if you don’t have access to affordable money to fuel growth in your business, then the predictability of your financial results and/or your growth suffers.



Everybody enjoys chasing the big elephants, but sometimes the smaller animals are more valuable.

Sure Signs You’re on the Verge of Financial Hardship

Let’s face it ...

You can’t always predict financial

problems. Fortunately, your sales and revenue are two places that often show early signs of trouble.

If you’re losing sales because you’re overpriced, this may be something you can’t control. Your competitors could be undercutting you and trying to earn work.

Or you might have too much overhead to competitively price your products and services to actually win business.

Yes, you have a strong handle on expenses. Yes, you price your offerings in line with what’s needed to pay bills and take some money home at the end of the day. But the problem might be you have too much overhead and you need to cut costs.

Secondly, remember, sometimes the best deals are the ones you don’t do.

For example, let’s say you win a million-

dollar project that you expect to make 10% net profit on – but it ends up costing $1.2 million. Sure, the million-dollar project is a cool feather in your cap. However, when it’s over and you’re out $200,000, how does that benefit you?

Winning projects or earning sales because you’re underpriced is an indication of certain trouble ahead.

Another sign ...

If you’re accustomed to collecting receivables in 30 days or your customers suddenly go out 45 ... 60 ... 90 days, then you need to do three things:

1. Start minimizing non-essential expenses 2. Get more aggressive on your collections3. Consider reworking your payment

terms with vendors to better line up with your average collection period

When receivables start going longer than you’re used to, this indicates trouble.

After all, it is possible that your customers will go delinquent on their bills or even stop buying altogether.

So if your target market is in financial hardship, trouble is on the horizon. And the last one ...

Growth within your business is great, as is a revenue increase – so get excited and celebrate. But still understand that some companies grow too fast.

You may hire many people and move into a new office. With these advancements comes new expenses. So if it turns out your growth isn’t sustainable or just a spurt, you’re in trouble.

Make sure, if you sense high growth coming, plan accordingly, as opposed to just hiring or making financial decisions on a whim.

Now, the final fact that leads to increased cash flow ...

In many small businesses, the CFO is one of the last people hired. It’s likely you either keep your eyes on your finances yourself or have an accountant.

The truth is, if you want to grow your cash flow, you need someone who understands your business and industry to create accurate sales projections based on what the market offers. Then, around those projections, you can build budgets for the year that drive your hiring and other expenses.

These tasks also involve building key performance indicators (KPIs) to spot trends so you can revise your plan and projections. That way you identify weaknesses before they become a nail in your business’ coffin.

Growth within your business is great, as is a revenue increase – so get excited and celebrate.



Of course, a full-time CFO might cost you $150,000 in salary, plus bonus and benefits. A part-time CFO, however, provides these same benefits for a fraction of that cost. And this is what I do ...

I serve as a financial bridge until you can afford a full-time CFO. I also act as an interim CFO for larger, established businesses in transition.

Additionally, I work on a project-to-project basis for specific scopes of work, such as evaluating a potential acquisition target, performing competitive analysis, and developing financial pro-formas or performing third-party review on them. It’s these issues where having a deep understanding of the industry is really important.

Listen, I’m entirely confident you can boost your cash flow with the tips in this guide. You’ve discovered the dangers of emotionally driven decision making ... why it’s critical you understand your direct and indirect costs ... what causes poor forecasting … how relying on environmental regulations as a revenue driver can be risky … how top companies create sound financial plans ... and several signs of businesses on the verge of financial hardship.

However, there are more hidden mistakes costing you money than we have time to go over here.That’s why I invite you to have a FREE Cash Flow Analysis with me to help you gain an even greater grasp on your company’s finances.

And don’t worry, you won’t get pressured with an aggressive sales pitch that only wastes your time. You see, plenty of people provide CFO services part time. But few – if any (besides me) – focus only on the energy and environmental industry.

The reason I do is simple ...

The role of today’s CFO is strategic and operational.

If you rely on someone to help you build a revenue forecast, and they don’t understand the key revenue drivers, then how could you possibly get an accurate forecast?

That same goes for evaluating an acquisition target. An understanding of regulations and industry drivers is critical.

It’s one thing to build beautiful, functional spreadsheets and be a number wizard.

It’s another to understand the mechanics of a business and its industry – especially one driven by regulations at the local, state and federal level.

The advice I’m offering you today costs you nothing. You’re under no obligation to move forward with any services and anything discussed remains confidential. Simply call (844) 770-1300 x701 or my cell phone at 603-553-9147 today to schedule your private, no-obligation session.

Sincerely,

Jeff HaydockecoCFO, LLC

P.S. I hope I opened your eyes to potential problems affecting your company’s cash flow. Please don’t hesitate to use me as your resource to get your financial questions or concerns answered. Call me anytime at (844) 770-1300 or email [email protected].

The advice I’m offering you today costs you nothing. You’re under no obligation to move forward with any services and anything discussed remains confidential.



JEFF HAYDOCKecoCFO, LLC

(844) 770-1300 [email protected]

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