0:00 Wow. How many of you have listened to the Head, Heart & Boots podcast? I can't tell you that reaction, how much that means to us. Welcome back to the Head, Heart & Boots podcast. I'm Chris. And I'm Brandon. Join us as we wrestle with what it takes to transform ourselves and the businesses we lead. This new camera angle makes my arms look smaller than yours. I'm noticing that and I really appreciate it. I thought you did that on purpose. No, I don't. I didn't. And I am not happy with it. I just need a seltzer. Oh, okay. Of course you do. I was like, well, I pushed record and then our guest left. So they were like, well, this is going to be a short show. Welcome back to the Hill Heart and Boots podcast. Welcome back. Hey, everybody. If you're seeing this on YouTube, you're going to recognize the guy's mug.

0:42 Been all over the social media channels right now. Backbone, fractional, CFO consultants, they are just rocking and rolling. We've grown to become pretty damn close with Jim, the founder, Jim Emmerich. And we just trust and respect the heck out of him and his team. And Chris and I were toying with this idea of, hey, I think our listeners need to have some consistent support around the topic of money and finance in our business. I mean, it's a central piece. People are accustomed to hearing us talk about just the primary growth levers in a business and how sales first, sales first, sales first. And... sales without financial controls is often a mess.

1:28 And sales allows us to die another day. But if we don't hopefully get financial control over our business, it doesn't matter how much runway we build, we're going to be leaking cash and we're going to find ourselves in a tough situation. So yeah, this is so needed by everybody. And timely. And timely. we're now kind of starting. I think we're going to call it something like our monthly money talk with Jim Emmerich. So he's going to be a consistent staple. We've got you locked in for the rest of the year, once a month, except for December. We're all going to take a break in December and we're excited about it. So enough jibber jabber. Brother, what are you bringing to us today? Let's go. Well, it's funny, the way you even teed that up, how we're going to talk about this on a monthly basis.

2:09 In a pre-show, we were just talking about systems. And it's been the thing that in my business and where I'm at in our business, I have the privilege of seeing themes and patterns. Themes and patterns. And what I can say with a lot of confidence is... is that the theme and pattern that I'm seeing recently is that with systems in your business, a lot of good things happen. Without systems in your business, a lot of bad things tend to happen. And we can go off on tangents in this. If I were to set the stage for this conversation, especially if we're going to talk about money, cash flow, profitability, things like that, those are fantastic things. hooks and keywords.

2:50 But the reality is, in order to get more of those things more consistently, we need systems in our business to facilitate that outcome. So love it. There we go. Love it, man. I love it. One of the things that came up, it has come up a lot, is this, I can't even remember who I heard it from. It was probably an investor, but consistency compounds, right? Just like, man, and I just know personally, I can look back and I'm doing a lot of this right now at almost 50. It's like looking back and saying, gosh, look how many times I essentially started over because of decisions I was making, because I lacked that consistency. And part of what we didn't get on record yet was you just talking about some examples where it's, because the system isn't in place and we're not consistent, we do all of this energy spending, but we're not necessarily getting the compound effect of all that energy that we've been deploying or investing in the business.

3:43 And so I think timeliness, I think you're spot on. I think it's an awesome topic. And I'm really excited to hear and see what you engage in. Just really quickly for those that don't know, so Jim's business serves... Trades, home services, white collar, blue collar, I mean, they're across the mix, but a healthy portion of your client roster is made up very clearly of our listeners, of those folks that fix it, build it, maintain it, get their hands dirty. And really, from what we see, we believe they're essentially the backbone to the American economy. So if there was any question mark going into this, if Jim's worth listening to, please buy that. And then once you start hearing them, it'll be real self-explanatory.

4:23 Yeah. Where do you want to launch this, man? Got a good story to get us kicked off. Well, so we all enjoy, the three of us at least, and maybe a lot of your listeners enjoy being healthy, living a healthy lifestyle. So I live in South Jersey. I come from a rural farming area, right? So I have a tractor. Nice. Just so you know, I have a Kubota. And it's not a massive Kubota, but it's also not like your standard, like, let me cut the lawn Kubota. It's not the yard maintenance guy. No, no. So I was planting some trees back in April. And so I'm 36 also, right? So I'm not, I don't think I'm like super young, but I'm definitely like, I would never call myself old either. So I'm like, you know, but anyway, so I'm on my Kubota, which is maybe three or four feet off the ground, planting trees with a bucket and my bucket got jacked up or something.

5:10 So I'm like, let me step off my Kubota and fix the bucket. So I do like a little hop. I'm sitting down right now. But if I did like a little hop, like a three foot hop, that's the extent of this jump. And I rolled my left ankle. Like sack of potatoes fall to the ground roll. Like it was bad. But in my mind, I'm like, but I'm 36. I'm pushing through this. So I get up, excruciating pain lasts maybe five minutes. So I get up, I'm like, let me see if I can walk. And I realized as long as I was walking straight, I'm good. But as soon as I turn in any way, like where my ankle and my knee are going opposite directions or whatever, massive pain.

5:51 But then I was like, I'm smart, right? So I'm like, but I just won't turn that way. I will turn like a robot very slowly whenever I have to turn. And I'm just going to push through this. Now, I lift like three to five times a week. So my first thing in my mind is like, oh crap, can I squat or deadlift? And I took like three or four days off. I got to the point of a pain level of like three or four, right? Because I'm like, I'm actively managing this pain by not doing anything stupid. And I just pushed through. And my wife's like, you should go to PT for that. I'm like, nah, my ankle's fine. I'll fix it. I'll figure it out. So I pushed through and a month or so goes by and my ankle gets to a point where it's like, as long as I don't sprint or like jump like I'm 18...

6:35 I'm good. I can do basic things. I can even squat and deadlift because none of that's like fast twitch. Fast forward a month. All of a sudden, my knee starts hurting really, really badly. And then my freaking hip, I'm this old man. I'm like, what is happening right now? And my body's literally just falling apart. Long story short, I just didn't address it. So I bit the bullet. I went to PT. And you guys probably know the end of the story. It's like, oh, you got to release these five things because you jacked up your ankle and it basically worked its way up your left side. Why does all that matter? It's like the systems we put in our life to check ourselves, to have checks and balances. Like if we just push through the pain, I think a lot of times entrepreneurs have this innate ability to do that.

7:16 Ah, sorry. It's broken. But if we just go another six months, if we land seven more jobs, if we just push through this far and long enough, that problem is going to subside. Mm-hmm. That problem is going to subside. And I could tell a whole too many stories about this. And I love sales, by the way. But I will say one fallacy I hear too often. It's like, it's a terrible repeating dream at this point that I get on a sales call or discovery call with someone and they just say something like, Listen, if we go from $7 to $9 million, I think this problem goes away. And I want it to be true because I'm like, you're probably good at sales and you could probably do that. And if that problem goes away, your life has changed.

7:59 But the unfortunate reality is when it comes to cash flow management, when it comes to profitability, that is just not true. Man, the crazy thing about that story is as soon as you started telling it, my mind went, oh shit, he's going to call me. This feels exactly like the mentality I've had, not only physically, but in the business as well. That was perfect launch. That was a perfect stage setter. So again, I knew you were going to ask me, hey, what do you want to talk about today? And I'm still overcoming this. I'm now lifting for real, for real again for the first time since. probably like mid-June, which for me is an absurd amount of time.

8:42 And I'm so frustrated by my lack of awareness back in April when I freaking, I should have just went to PT that day. Like it should have just been that simple, but I didn't. And I sacrificed two months of pain and whatever. But you asked, I knew you'd ask me that. I kind of see this theme of systems and business. And I also look at my own stupid life and I'm like, I make this mistake, man. I'm like, In so many aspects of life, I make this mistake as well. But I see our clients making this mistake in prospects all the time. And I'll start off with a really, because I think this will touch your audience. I was talking with these clients in the waterproofing and fireproofing business. Oh, fireproofing. Okay.

9:22 So interesting, I'm sorry, prospect, not a client yet. So on a discovery call, the people, two owners talking to them, and they kind of give me the trajectory of their business. And this is going to touch home so hard. Multi-generational, I think this is the second or third generation of this business in terms of ownership. They were always like hovering in that $4 to $5 million range. Fairly profitable, about 45% gross profit, like it. Through a couple different acquisition channels, they scaled up about three years ago. They went from $5 to $10 million in about a three-year period. Wow, nice. Awesome. Yeah. Yeah. In so doing, because they could not figure out their pricing and they couldn't scale because all of a sudden going from $5 to $10 million, they had to add a couple layers of overhead.

10:06 They had to add some project managers and supers. They had to extend the sales team. All of that to say, their margins got squeezed. They went from averaging about 45% gross profit all the way down to about 35% gross profit. Now, you're like, well, it's only 10% what they raised, but they added $5 million in top line. Yeah, but when you do that, that's gross profit. Yeah. And you add all the overhead on top of it. Yeah. All of a sudden, this business is quite literally losing money every single year. Not losing gross profit dollars. They're losing bottom money. Negative. They're in big trouble. Yeah. like we're talking, hey, we're kind of at risk at the banking side, right? They're on the wrong desk at the bank, if you know what I mean.

10:47 Do you mind explaining that really quick? Just because not all of our listeners, especially, I mean, we're all learning as we go. What does that mean, actually? So you have a, and many of your listeners probably have something like a line of credit with your local bank. Again, good thing, not a bad thing. With that line of credit, In many cases, especially if it's probably a million dollars plus, your line of credit, I mean, your bank's going to require a couple basic things. Number one, maybe twice a year, four times a year, quarterly, hey, submit your financials to the bank. We just want to see them. Yep. we might want you to pay your line of credit off once a year and hold it for 30 days. It's a pay down covenant. And a few other things, maybe a debt to equity ratio.

11:29 Those are maybe even a little bit more advanced. But typically, financial reporting four times a year. And a lot of times, you're going to have a pay down period. Meaning you can't just extend your line in a million dollars and keep it sitting there forever. The bank doesn't like to see that. Well, in this case, because the client was losing money, they of course were on their line of credit. They had no margin to pay it down. It was like the worst of the worst. They got there and they couldn't pay it back. So all of a sudden, what the bank does after, and they're checking quarterly now, so they're seeing it. They're not just seeing the extension, but they're also seeing the losses. So they're seeing the line that you can't pay back and now you're giving them your financials every three months. They look like a bloodbath. It's not hard to, we see the story, especially when we're talking multi-years in a row.

12:14 So all of a sudden, this line of credit, like most are, they don't last forever. They renew once a year, once every two years. Well, it's up for renewal. And without this line of credit, this business is sunk. Meaning like if the bank calls it, what do you do? Because if you are losing money every month, you certainly don't have a million dollars sitting around in cash. Or the owner is going to be putting personal guarantees and collateral up and all the things you don't want to do. My point in saying this or kind of bringing up this story is that the assumption was if we're at $5 million and healthy, that we'll just go to $10 million and also be healthy. We're just going to double our sales. Well, no one looked at pricing. you all know what happened from post-COVID to now.

12:55 Labor has gone through the roof. Exploded. Right? So if you're in the trades business, it's likely that a massive component of your cost structure in delivering and fulfilling whatever product or service you have is going to be labor. So in this case, if you're not evaluating your cost of goods sold and you're estimating practices every three to six months, you're crazy. I mean... I can't even go to Home Depot and buy a two by four for the same amount of money that I did six months ago. It's not possible. Sometimes it changes by the week. Right. Exactly. I mean, quite literally, and the labor is exactly the same. And I say that story just to say, hey, scaling the top line only is a very poor strategy.

13:40 As you go to scale the top line, which I'm a big proponent of for sure, you have to be looking at your cost structure, your pricing, your overhead, your... your distribution model, right? All of these things matter and they change at scale. For sure. Well, so I imagine we have a lot of listeners at this point that are feeling this in their guts. So talk us through, like you've given a couple examples of cashflow problems. What is a system that you recommend? And maybe it's tiered based on the size of business. I don't know. But what would you say is the first kind of, action that somebody should take if they're listening to this and like, oh shit, this is, this is a version of us, right?

14:24 Like what kind of discipline or system need, do they need to put in place? Yeah. So two come to mind, especially given light of the scenario I just painted. And that's an extreme example. Maybe you're not at the at-risk desk in your bank, right? Maybe you're just floating. And you're still not, you're not thriving though, right? Like you had this idea that I was a six, $7 million contractor. I would put three to four grand a month into meta ads and scale up and become this massive business. And it's not happening. One thing that will, I think, institute a discipline in your business that will change the course of how you grow and scale is going to be looking at cash flow forecasting.

15:05 And that is just the simple act of every single week forever looking at the next 13 weeks. And we like 13 weeks just because it kind of gives you a meaty chunk to a discipline where you're like, hey, next Friday's payroll. So I should probably know if I can make payroll or not. But also, nine weeks from now, I can't necessarily tell you exactly what's going to happen in my business, but I probably have a decent kind of... I have a gut check on that, or I should. It's that extension of time that we find is a really good sweet spot. And it forces the business owner, and let's call it a CFO or maybe a general manager or some other key leader in the business, to get together, huddle around.

15:46 It doesn't need to be a two-hour meeting, but it's like, hey, what's coming up next week? What can we do to accelerate our outstanding AR? For those of you who are listening who have retainage in your business where you have 5% to 10% of your contracts held back for 90 days because the GC is holding on to something because you're just a subcontractor in a big slew of mess. Yeah. Like, hey, what are you doing to collect on that, right? And these are just the things that we find really positive conversations. Doesn't mean they're easy. Yeah. But it's the constraint that the business needs to be facing. Yeah. Yeah. We call that a 13-week cash flow forecast. It's super, super simple. It doesn't have to be complicated. It's not a financial statement.

16:26 You can't get it in QuickBooks. But if you can put something like that together, ask Claude or some AI, if you're a smaller company and don't have the inside resource, you can do some pretty cool stuff these days. Big time. Or if you do have a CFO or something like that, and our recommendation is, hey, if you're at $10 million in sales and you're the CEO, doing a cash flow forecast, you're really just not leveraging your time to the highest and best use. Get yourself a resource. But if you're smaller than that, you might be listening, you're running a $2 or $3 million shop. That doesn't exclude you from this conversation. That just means that the way that you get to that end point might be a little bit different.

17:07 It might not be a fractional CFO. It totally does. I just want to really quick, just because it's hitting me in the chest, is... The importance of it. And I think you just said, this is a catalyst. So it's not that having that changes anything, actually. It's the fact that when you have it, it makes you more intentional. It's forced intentionality on decision-making. Not using company names, but these are things that I've spent a long time, last long time being engaged in on a regular basis. Even sitting in on Melissa doing this, you're a major part of Backbone, an impressive CFO.

17:47 It just causes you to slow down and ask yourself questions that unintentionally and indirectly often puts you into this proactive state. So like some of the examples in restoration stuff, it's just thinking about, well, insurance premiums are due, right? Or we've got several hires that are going to come on and maybe we hired a third-party recruiting company. So the signing bonus is going to be due. The fee to the recruiting company is going to be due. So there are these abnormal cash outlays that come in and can be... very, very cumbersome and extensive in terms of the impact on the business. But if you're constantly looking out eight, 12 weeks at a time and you can see on the horizon that those things are coming, it then changes the conversations like you said, even with collection efforts.

18:36 How inserious are we? How intentional have we been in our follow-up and our follow-through? How good of a job are we doing inspecting the cadence of our collection activity? And when you're kind of constantly just going with the flow, you never really slow down to edit or audit those things. But when you know a cash hit is coming and you're like, I don't want to be at zero when that cash hit comes, all of a sudden you just start having a completely different set of conversations with your staff. Dude, I think that's rad, actually, that that's the one you started with. And full transparency, we actually don't do it very consistently here at Floodlight because we're still so small, but we absolutely have to. You're just kind of crushing me right now, man.

19:18 It's a good reminder. So no shame there. And I think maybe the lesson is you called it out. It's not that this tool like, oh my gosh, I have this cash flow tool now. I'll never have cash flow problems. No, no, no. The point of the tool is it exposes when you do. And there might even be some listeners right now. And I know there are because I've talked to some of you. You have a lot of cash. Mm-hmm. And you're thinking to yourself, why would I do that? And I know I've talked to some of you and our best clients who have surplus, I'll call it. That money needs to be put to work. Amen.

19:58 That cash cannot be dormant. So that's the other side of this equation, right? You'll get to a point, we have some massive clients, right? I mean, we're talking millions and millions of dollars cash on hand at all times. I can promise you it's not sitting in a checking account. And that's when things get fun. But it doesn't mean that the game changes. It's still the discipline. And we have a client in Florida. They'll push $100 million this year. Phenomenal business owner. I've known him for multiple years. He's exited multiple businesses. And he's kind of like, in many ways, I would emulate this person. If I could, in business, if I could do what this person has done, I would just be like, I'm winning.

20:40 I won. I won the game. But even at that point, at that level of success, with that many repeated successes as he's had, he is so white on rice with cash flow. And you might think to yourself, how could a guy like that's had multiple exits, multiple multi-million dollar exits, multiple... multiple millions of dollar, eight-figure businesses running at the same time. How could someone like that really care that much? And the reality is, cash is the piece. It is the thing that is the fuel. And there's all these sayings out there, cash is king and all this stuff. But when you see the guys that are really doing it well, it's at play every day of the week.

21:21 Yeah. Every single day. So I'm not saying he's sitting there watching a 13-week cash flow spreadsheet every day. That's not my point. He's got somebody though. He's got somebody though. Yes, he does. Someone on our team who does. And again, it's where it all starts. So we can talk about all the fun, sexy things like acquisitions and exit value and all this other stuff. But if you can't manage cash, none of that's ever part of the equation for you. And it never will be. Are you a business that's under five million in sales and you're just now getting ready to try and scale your company up and hit some of those targets you've always wanted to hit but now you've gotta build a sales team? Or maybe you just hired your first sales rep but you don't really know how to manage them.

22:02 Like how do you manage, lead, train, develop a sales rep? Floodlight has a solution for you now. So we can actually assign your sales rep a turnkey VP of sales that will help them create a sales blueprint, their own personal sales plan for your market, They'll have weekly one-on-ones with that sales rep to coach, mentor them, hold them accountable to the plan. And they'll also have a monthly owner's meeting where they'll meet with you or your general manager and review the progress of that sales rep. Their plan to actual results, what kind of performance improvement they're working on with them. Also let them know, hey, you might, they're doing really well. Maybe we should think of hiring a second sales rep. They're going to have that one-to-one advice for you as an owner or senior leader on the team as well.

22:43 How great would that be to have a bolt-on sales manager for your one sales rep and it's only $2,500 a month? If you're interested in talking more about that, reach out. Let's grab some time and let's talk shop. Our floodlight clients this last year in 2024 generated over 250 million in revenue. Supported by, advised by, an industry expert who's owned and operated a business just like you. So take action. Don't kick the can down the road. Start with our business health and value assessment and let's unlock the next chapter of your success story. Jim, I got a question for you, man, because I think, you know, in the home services space, there's several different business models. You know, we were just talking with somebody yesterday about pest control and how awesome pest control has like a lot of subscription business to it.

23:29 Right. And so after you've been in business two, three years, this type of cashflow forecasting is fairly simple, cut and dry. It's like we have X number of customers that pay us X amount per month or per quarter on these, you know, subscription models. And then I know sometimes we talk with like in disaster restoration as an example, what would you say to the small restorer that maybe doesn't have 10 years of year over year, you know, financial tracking to kind of, kind of sort of forecast what the next 13 weeks is going to look like? How can they be thinking proactively about their cash flow when, when it feels like it's very unpredictable? Yeah, that's great. Yeah, yeah. So I would say use that to stand up a tool that's tracking it, even though you might not have a ton of history to base the forecast on.

24:17 But use that tool as a way to get your, I'll call it your leadership team if you have one, or core members of your team together to talk about your business. Because here's how I think about a cash flow forecasting tool. There's two components that are going to be. It's the simplest document of all time. Cash inflows, cash outflows. It is the core of your business. You receive money somehow, and then somehow money goes out the other side. It's two basic functions here. So let's just think of all the ways money could possibly come in And then all the ways money could possibly go out. And so I'm the owner and then maybe I have a GM or somebody like the two of us, or maybe there's a third person. We control all the answers here.

24:57 Like we're going to determine the answers to all of those questions, how money comes in and how money goes out. Now you might have a customer base, particularly in disaster restoration, where you have a lot of, there's a lot of hangups in how those receivables are collected, right? Yep. but that doesn't diminish or it doesn't alleviate you and your team having SOPs process around how that's going to get collected, how you're going to document your work. If you're doing TPA work, as an example, there's going to be SOPs that you have to follow in order to make sure that you're Doing everything you can, all the things in your power to make sure that you're collecting on your receivables as soon as you can.

25:39 And if you're in the trades business, again, I look at anyone that's involved in public work and municipal work, or they're just part of a larger controlled AIA project, you're going to have retainage. And that retainage is going to get released only on a few different things, right? You might have to, a lot of times it's like documentation. Did you send the COI to the admin lady at the GC, right? That's sitting at the desk 40 hours a week. You didn't. Why didn't you do that? Right. It's like, that's the thing that's going to release $25,000, you know, come on. But well, Sally said she was going to do it, but Sally didn't. Well, did Sally do it, Jack? Oh, she didn't. I didn't know that till right now. But I'd rather you know that on a Monday morning cash flow meeting once a week, then six months down the road, we're like, why is that $25,000 retainage bill still sitting out there?

26:29 Oh my gosh, we never did the admin work to get it released. How is that possible? Well, the other thing that I'm seeing too, man, is you talk about that for, it isn't necessarily small businesses, but... Just like you said, it really is as simple as over the next 13 weeks, what are the expenses that are going to come out and what income are we forecasting? And if we can't really think, if we can't see that far out in terms of signed jobs or contracts or committed work or work in progress that bleeds into those next 13 weeks, well, it gives us a very clear signal of what revenue we have to go find. Yeah. and make happen. Right. So I, I, I see that of course as the sales guy, right?

27:12 I see this as, this is a form of routine sales planning is a component of this, right? Right. So we would call that capacity planning. So it's like, and again, this depends on the business you're in. But if you're in a business where you have a backlog, you're working from a backlog, this is a killer opportunity for you. And the space, the last job I worked at before I started Backbone CFO, or one of the last jobs is CFO for a large manufacturing company. We constantly worked from the backlog of work. Sometimes there's multi-year contracts with multiple releases on different work orders. And we have the ability, now not every business has it to this extent, but some certainly do, especially in construction, where you have seven, eight jobs in backlog right now, you know that job A, B, and C, that job's a six-month job.

28:03 It's going to take a minute. But you have a couple of quick turns that you can pull up in the schedule and you know you can get paid next Friday. Well, that's a huge value add to the cash flow forecasting conversation, right? That's going to help us. That job might be small, but it's going to help us make payroll next week or two weeks from now. where it's going to help us make the line of credit payments so we're not going in default with the bank. So these are things that we can have a little bit more control over than we think. I'll give you a plus one on the cash flow forecasting conversation. If you're in construction and you have work in process, if you have a WIP schedule, this is a secondary component to this conversation, but if you're in this space, you need to know this. This is good. I was about to go here.

28:44 We see this all the time with contractors is that they're just constantly in a state of under billings. And for us, this is probably a deeper conversation, but I'll just leave it at if you're constantly in a state, we can go deeper if you want. But if you're in a constant state of under billings, and I'm also asterisked, you know that you're in a state of under billings, but let's assume you do. Well, what can we do from a project management standpoint to make sure that our project managers, whoever's responsible out in the field, is collecting all the job cost information by the 25th of the month. We're processing it through with our accounting department to make sure that we're getting on the billing schedule in time so that we don't have costs that we incurred back in May getting paid for now on July 29th as we're recording this.

29:28 So, and then the second layer is, do you really know that you're underbilled? And again, I'll... I don't know. This completely gut reaction. 50% of the contractors I talk to, maybe not even, really understand whether they are over or under billed. So again, we could go down some rabbit holes in that, but I would say if you're in the construction space, knowing you're under over billings is going to be a critical component to you managing cash well. I want to jump into the weeds for a moment because I think we could just keep going because this topic is big. But I think next month we might have an opportunity to jump hard into this whip piece. It's different, right? If you're in actual single trades, very common. When you start getting into some of the broader home services, they don't tend to necessarily have a true whip because a lot of projects are done in 24 hours, 48 hours.

30:15 But Chris, earlier when you launched this kind of topic, you had mentioned the idea of a lot of times in the restoration side, it just feels very unpredictable. Well, here's just a couple things tactically for people to keep in mind so that they can kind of wrap their head around this and actually make it less unpredictable than it really is, I guess. And then this is all stuff often, actually, dude, that we've learned in our conversations with Melissa working with you and your team. Yeah, but basically you guys have to analyze your average collection time. So one, it's like when we talk about DSO or we talk about how long your aging looks, the reason we need to know that as a business owner to understand our averages is that's part of what tells us what's going to happen with our cash.

30:56 And then for us restoration businesses specifically, you need to be, clear on TPA requirements versus not. Because TPAs are going to only allow you to bill at certain increments at certain phases and stages in the project. You don't get just to do it on your own contract terms. And so understanding those two things, that in and of itself is a major component or variable for you to take away the mystery of when money's coming in. The other thing that you would consider is how long on average it takes you to complete a job based on size. So for EMS, a lot of us will just chalk it up to seven days. You know, when you're on the construction side, well, depending on contract, it could be anywhere from four weeks on average to six months, right? And then you can identify in that, is this my contract terms where I'm building 33, 33, 33, or maybe some other increment?

31:40 Yeah. Or is this a TPA requirement where maybe I can get some kind of a draw up front, but then I got to wait until the job's completed to get it? And so it's like those three variables, how long it takes you to collect based on the source of the work, and then how long it takes you to complete the work based on scope of job, size of contract. If we understand that, that actually is and can become a very predictable map to cash flow based on our pipeline or WIP or whatever the case may be. Even if I bring it out, if I zoom out and I look at trades as a whole, and we see this a lot where if you're in a trades business where you, let's just say as an example, you exist primarily in the residential space.

32:21 And I'm thinking of, we have a few roofing clients. You can whip out a roofing job in a day, maybe two days. You're getting on-site and you're off-site and paid in two days. Yeah, sometimes 40, 50 grand. That's phenomenal. Yeah. Phenomenal cash flow cycle right there, right? So the cash to cash cycle is very short. Great. But then you take that same company, that same crew or crews, and now all of a sudden you deploy them on a commercial job. Okay, great. The dollars are big. But this job, I was talking with a contractor recently out in Arizona. Well, this, I think it was an apartment complex, had like 20 buildings in it. So this is a huge job for them.

33:03 But all of a sudden, that cash flow cycle changes dramatically because they're billing and milestones. And those milestones have some SLAs attached to them. And all of a sudden, and we won't even touch the profit conversation around that, but even just from a cash flow perspective, the game changes. So if you're listening to this and you're in both home service residential versus a commercial setting, right? And potentially like a commercial facility, hospitals, things like that. That changes your cash flow dynamic. And I think it's important, Brandon, what you just said there. When you start to look at your day sales outstanding or DSO, how fast you collect cash at the end of the day, that's all that means. If you're in a growing trades business, especially again, like call it 10 million plus, right?

33:48 And you're in multiple markets, multiple channels, you need to start breaking apart your cash collections because what the commercial market does to your cash flow versus a residential home service or maintenance type of business is wildly different. To look at them all blended is a mistake. Man, that's spot on. So this is awesome, actually. Perfect pivot because I was just thinking about the second tier of sophistication on this is this is when you start to actually design your strategy around what kind of work do you want? Because like you said, most of us kind of get in our mind, well, I've been residential and it's okay. I'm kind of bored of it. It feels like we've kind of landed the plane.

34:28 We're good. I'm going to get into commercial because commercial We've been very closely connected to the plumbing world for a while, kind of through a singular brand. And a lot of conversation behind the scenes is this difference in collection and cash position between the ones that right away leaned very hard into commercial contracts. And where you've got net 30 minimum, but a lot of times net 60, net 90 day payouts for those commercial contracts where in residential you get paid when the job's done. Yeah. And so what happened is these businesses get in their head that commercials the play. But because they're not running a cash flow report of any kind and they're not actually analyzing what the effect on that cash flow is based on making that business selection change...

35:17 they were on the brink of taking themselves into bankruptcy because they had this great idea and strategy that every dude at the bar was telling them like all the money's in fucking commercial. And then they realized like, I don't know how to collect that and what it did. And so, you know, one of the opportunities is, is if you're just thinking as a company that you're growing and then asking yourself, okay, in order to grow, I'm going to need cash because cash is the fuel for that growth. Cause I got a pre-spend into all these different elements. Um, Well, then you need to make a determination then as part of that growth channel, what business do you prioritize? And maybe you extend how long you sit in the residential space for a little longer, build those cash reserves, then deploy those into growth or control the growth where you don't just go all in on some big initiative, understanding that it's going to cost you cash and you may not collect it at the same speed that you have in prior experience.

36:10 And so just awesome piece of the conversation right there. To leverage that, because I think it's so critical. Here's the thing. Getting into commercial space for probably any trades business, and we should also talk about service and maintenance versus new construction, because that's another cash flow change. But all that to say, they are opportunities. What we can't do in pursuit of those opportunities is to deploy the same strategy that worked in residential single trade to, let's say, a commercial application. And here's the thing, you're not going to change the payment terms for, you know, a, and I'm just thinking of one contractor we work with, they went and worked, they did some like local government jobs.

36:56 You're not going to negotiate with them. but I can only do this if I get net 15. Like it doesn't work that way. It's not prevailing wage. Like at least something here, like these are things that are going to be, you've got no shot at negotiating. So it is what it is. So that 90 day payout term is something you got to reconcile with. But if you went in and said something like this, I'm going to go get a line of credit ahead of time. I'm going to go price that job with cost of capital in mind because I know that the line of credit at 7% interest that I'm about to get, I'm going to use it. And I'm going to price that cost into my job for the next whatever it is, 90 days that I have to carry this burden. And if you do things like that, you can now deploy an effective strategy to go attack the commercial opportunity.

37:39 You just can't attack it with the same mindset, with the same pricing strategy, with the same marketing, with the same execution strategy as you do in residential. I think that's where contractors fail, where we see it most often. But if you get the gap between where they think they are and where they need to be, it's not as big as you might think. But if you don't plan to close the gap, it's where you get in trouble. Dude, that was smart. I'm telling you, if this is what we're going to do on a monthly basis, I have zero doubt that this will be the best 30 or 40 minutes that a lot of business owners spend in their ride into the business on the next show. So, okay, I'm stopping you because here's the problem with us.

38:20 we could do this for about four or five hours pretty easily. Wow, yeah, I think that's good. Okay, so we just quick on this, guys, because these are a little bit more tactical. So Jim came guns a-blazing with systems, and the system that we hyper-focused on this time was a 12-week cash flow report. and leveraging that for better conversations, for more intentionality in our decision-making. And then, of course, we got into the weeds on some of the tactics and considerations that we can make in order to control that cash flow and make, ultimately, pivots and changes that we think are great for our business, which they may very well be. But at least with this, you can make that and be more certain of the outcome and remove some of the variables that often catch us and make that not a fun experience.

39:02 Jim, this is going to be super fun, and I'm really excited. Love it, guys. Yeah, I'm really excited. This has been so much fun, man. Cool, dude. Okay, man. Well, we're going to let you go now, but we'll be bringing you back next month. Really quick, where do people go if they need a fractional CFO partner to take their business to the next level? Love it. BackboneCFO.com. You'll find a whole lot of resource on there to help you in growing and scaling your business and all of our contact information, all that fun stuff. They're the shit, guys. For real. Thanks, Jim. Appreciate you, brother. Yep. Thanks, guys. Later. Until next time. All right, everybody. Hey, thanks for joining us for another episode of Head, Heart, and Boots. And if you're enjoying the show, but you love this episode, please hit follow, formerly known as subscribe, write us a review, or share this episode with a friend.

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