Cash Flow Myth 1 - Profitability Does Not Equal Cash Flow

Cash flow does not equal profitability.

D. Brown Management Profile Picture
Share

While in theory these two critical scoreboard metrics are disconnected in reality cash flow is a pretty reliable predictor of profitability both good and bad.  

Cash Flow: Myth 1 - Cash Flow is not equal to Profitability.
  1. It is impossible to have good cash flow for the whole duration of a project if you are going to ultimately lose money.  With great cash flow management practices it is entirely possible to keep a “loser job” cash flow positive throughout the duration until the last few months but ultimately it will end negative.  Therefore great profitability is a prerequisite for great cash flow.  
  2. The reason banks and especially sureties watch under-billings like hawks is because chronic under-billings unless specifically built into the contractual terms are almost always an indicator of margin-fade.  The same goes for slow receivable collections and change order processing all of which contribute to poor cash flow.  

During a 10 year project analysis looking at jobs over $1M for a well-run MEP contractor there was exactly 1 project that had poor cash flow throughout the project and margin gain.  And that was due to a single $2M change order that was slowly processed due to contractual terms!  

What if you engaged your project teams to pay as much attention to cash flow as they are taught to pay to gross margin and labor hours?

We are revamping our publicly available cash flow workshop that includes 18 techniques that contractors can use to accelerate cash flow. Stay informed of updates on release. 


Cash Flow Myth 1 - Profitability Does Not Equal Cash Flow
Great cash flow is a key driver of valuation and successful successions. Running out of cash is is the #1 reason contractors fail. Improving cash flow improves your Return on Equity. Protect yourself and never let cash flow be the limitation to your profitable growth....

Cash Flow Myth 1 - Profitability Does Not Equal Cash Flow
Great cash flow is a key driver of valuation and successful successions. Running out of cash is is the #1 reason contractors fail. Improving cash flow improves your Return on Equity. Protect yourself and never let cash flow be the limitation to your profitable growth....

Prioritize and Execute
You are simultaneously building a construction project, a construction company and a career in construction. There will always be more problems to solve and potential opportunities to explore than you have the resources for.
RFI Quality - The Foundation of a Good Project
Whoever said there is no such thing as a “Dumb Question” has never had their RFI quality dissected in excruciating detail during a construction claim. How effective are all the RFIs written by your company? How do you know?
The Teacher and the Student in All of Us
The rate a contractor can grow is the average speed the team learns and teaches at. We are all teachers and we are all students. There are many things that we can do to improve ourselves on both sides of that equation.