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....

My Talent Promise - To Everyone
Talent is the biggest constraint that most contractors will face over the next decade. Every manager needs to get exceptionally clear on the promises they will make to those around them.
Inspiring Communication as a Leader
JFK used words effectively to reframe mindsets to great effect with lessons all leaders can use. What can you take away from this for your next communication with your team?
Premature Optimization
Construction technology innovation has exploded and is continuing to accelerate. The quantity of experienced talent is at a low point and will continue to decline throughout the next 10+ years. There are probably more unknowns than knowns.