Your home service business can be profitable on paper and still run out of cash.
John Wilson sits down with Tyler Martin of Profit & Grit to break down where cash actually goes as a home service company grows and why strong EBITDA doesn’t always translate to money in the bank.
They cover the biggest cash drains, including trucks, inventory, accounts receivable, debt payments, and hiring ahead of demand. They also break down how much cash to keep in reserve, what owners should be watching every week, and how a 13-week cash flow forecast can help you stay ahead of a crunch.
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In This Episode
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• Why profitable businesses still run out of cash
• Profit vs. actual free cash flow
• How growth eats cash
• The hidden impact of AR, inventory, trucks, and debt
• How much cash to keep in reserve
• What financial numbers to review every week
• Building a 13-week cash flow forecast
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Connect
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John Wilson
https://www.linkedin.com/in/johnbwilson1/
Tyler Martin
Profit & Grit
https://profitandgrit.com/
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John Wilson, CEO of Wilson Companies
Jack Carr, CEO of Rapid HVAC
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Why growing home service companies run out of cash?
Cash planning, cash forecasting is what's kind of preventing them from getting them where they want to go.
And I think that it's a problem that never goes away.
I see some clients get into a never-ending thing where it gets really hard to get out if they don't pay attention to like don't take too much money out of the business. It's hard to catch up after a while.
We were a $30 million business, still struggling with like, where's it going?
Profit is opinion, cash is a fact. Profit's cool, and it but doesn't necessarily mean cash. Cash does a lot.
How much cash do you think companies should keep? The rule of thumb usually is welcome back to Owned and Operated, a top 150 business and entrepreneurship podcast. I'm your host, John Wilson. And on this show, we talk about the home service industry. We talk about my about my own home service business, and we talk about how to build inside uh home services, which is a lot of fun. Today I have a returning guest. Tyler, welcome back to the show.
Hey, John, what's going on? Uh love hearing every time we talk, the numbers get bigger for Wilson companies. It's a fun, fun journey for you, I'm sure.
It is uh it's pretty wild. Yeah, it's pretty wild. Um well, Tyler, Tyler Martin is from Profit and Grit, and it's CFO for the trades. Uh I went, I don't know when we had you on last.
I think this might be my first appearance. I was lucky enough, you guys invited me on. I did in your private. I went on your show.
Yeah, yeah, yeah, yeah.
Yeah, you went on my show. You do an awesome show, by the way. Uh, and we talked about things. So this is before you blew up, by the way, with all the unconditions. I don't you, I think, tell me if my data is wrong. When we met, I think you had either done three acquisitions, they you you called them all turnarounds, and you'd kind of work through it, and you said, Hey, maybe become an expert at turnarounds. And uh, although I didn't ask the questions, I really regret I could ask so many good questions in hindsight, but uh I didn't ask, like, hey, are you planning on doing more acquisitions? And then you've blown up in acquisitions since uh we talked. So I'd like to think I played a small part in maybe poking you a little bit to uh start back up.
Yeah, no, I think that's great. That is
funny. We yeah, we went through a couple years where we didn't acquire anything. Um really 24 and 25, we acquired nothing, which that was the first year I haven't acquired a business in like seven or eight years. And the reason was, which we've talked about on the show, the reason was we've been for for kind of a while, 2026 has been our North Star year of hey, we're gonna get to 2026 and we're gonna go multi-state and we're gonna go multi-location. I've said that probably like a hundred times on this show. And you can watch the evolution of that if you're if you go back to 2024. I'm interviewing everyone I can on multi-state operations and multi-location operations and trying to unpack it and understand how do they do this? How do they think about GMs or or like even like how do you who gets credit for revenue? Like really just trying to understand what it's like to run three, five, ten, twenty, thirty locations. Um so yeah, over the past few years, we like to kind of took a break from acquisitions and then just spent that time building the framework that we felt like we could build on top of. Um, which like worked. I mean, it worked. Uh, you know, we we will by the end of this year, we will do seven or eight total acquisitions this year, and we would have gone from around 30 million to like I don't actually know how much revenue we'll complete this year, uh, but like run rating 90 is like sort of like where we're gonna land. So it's a triple starting at 30, which is a hell of a thing. Yeah, it's pretty crazy.
John, what one of the things that stood out to me when we talked uh on my show, you had talked about one thing that got a little bit out of hand was the accounting as things were happening. Are you finding taking on this many companies? I mean, obviously you have the people are a big part of it, but what about the accounting side of it? Like, because are is everybody on Service Titan where it's kind of easy and it's coming over as one system? Or I mean, how are you how are you mitigating your risk and that just things don't go crazy?
I've wasted a lot of money on marketing agencies that made pretty reports but didn't make the phone ring. And that's why we use ServiceGalers at Wilson. They work exclusively with home service companies and focus on what actually drives leads PPC, local service ads, SEO, Google Business Profile, and everything you need to get in front of homeowners who are ready to book. The best part is that you know exactly where your money is going and what's producing real jobs. If you're ready to stop guessing and start getting better leads, head to the link below, book a free strategy call, and let them know that owned and operated sensu. We we keep a accounting is hard. So I think you know, in a lot of businesses, or sorry, when you're doing MA, um some stuff is like sort of easy to put together. Like, hey, we're gonna combine service heightens so that way we can take a sexy screenshot and put it on LinkedIn. Great, you can do that in 11 minutes. Uh, but accounting is where the a lot of the heavy weight of integration happens. Uh, accounting, or like depending on how broad the accounting team is, but are we set up with our bank accounts and how long did that take? Like sometimes it takes you, I mean, months to move your credit card processor from the old company to your company. Like, it's not like a day, like, oh yeah, you just call these guys up and they switch it. No, like months. Like, we have one, we just got one done that we bought in February. Like it's ridiculous. Um, financing companies is the same way. So, like merchant services, financing companies takes months. Um, and in the meantime, it's a lot of data. It's a lot of data. You have to mark all these, like, hey, was it actually received or was it not? Did it go into an old account? Did it not? How often are you truing that up? Um, so accounting bears the weight of MA, I think a lot more than other departments. You know, marketing can integrate a company and like their lead channels in like a couple of hours. Uh, but accounting might be six months to fully be done, like fully done, might even be longer. Um, so yeah, accounting is really easy to get out of whack, is it with acquisitions, is my point. So, today, the way we're protecting ourselves, uh, we built just a better accounting team, to be honest. We paid up, we brought in great people. Uh, we have a CFO that is awesome. We just added a senior accountant, which has been really great. We've beefed up the team, and now we're in the process of building out technology around that team so that we can, as we continue to add more acquisitions, we do not need to scale headcount in the same way. And it's also just like total transaction volume is increasing, right? Next Wednesday, um, we're bringing on like eight figures of revenue. And we're trying to be thoughtful on well, how how many invoices is that a year? Uh, I think it's like 20,000 or something like that. So, like we're bringing, okay, that's a lot of transactions. That's a lot of payments, that's a lot of everything. And, you know, how are you gonna add payroll and vendors and segregate them so you can get good reporting? Um, so yeah, it's there's a lot to it, and it's all inside accounting. So the way we solved it was hiring up, getting great people, and then we're at actively adding technology around them to like help uh scale that team even more.
Hey, Don, I got another question for you. I know you're supposed to be interviewing me, but I got one question. What uh what uh do you feel about? I'm hearing a little bit about this. There's a guy that's well known in the space, he's gonna open up an HVAC shop next year, and his goal is to have four or five people in the back office managers running the entire business, and the rest is technicians, and it's gonna be all through automation. What do you think of that? Like what do you what's when you think about your businesses of scaling and becoming more automated, more AI, when you hear someone with that goal starting in 2027, what are your thoughts?
I I don't think it's a question of whether or not it could be done. Um, I definitely think it can. Uh I just I don't know how good it would be. Because like it's to me, uh I mean Ishmael was just on here talking about that. I'm assuming that's who you're talking about. And I think uh like it'll probably work. I think the things that will be hard about it is how do you how do you manage a team like effectively, how do you drive performance? And then are there parts of the business that should be human that technology hasn't quite caught up to yet? And if technology has caught up to it, should you do it? I think there is a um just because something can doesn't just just because you can doesn't mean you should. And I think that that is what we are discovering as we deploy AI and automation, is like, yeah, sure, like all of that shit exists now. And if it doesn't, like you could build it yourself or you could find someone to build it for you, but like you could do that today, right now. I actually don't think that's the craziest thing in the world. I just don't know it would add a lot more problems than solutions, in my opinion. Um but I think in the coming years, I think that'll probably be resolved. I think you know, I I think a good way to think about AI is um can like can you get to five more points of Ebida? Yeah, can you can you get to ten? I do think what'll be really interesting is when AI was first deployed. Um so like I'm just I'm gonna take this example and say, hey, we only need four people. Well, if we're deploying AI at scale, and like maybe we want to still maximize all those same people. Uh like I I think that AI is going to start eating less of the employee budget, and I think it's gonna start eating a lot more of the infrastructure budget. Because I do think like you still have to manage people and customers still need help. And but you can automate a lot of other stuff. But what I'm starting to see, which is kind of interesting, is hey, my my uh my software budget is not small, like a million dollars a year, easy, right? Um, maybe even more. Uh and let's so let's say next year, like I'm budgeted to spend like uh 1.5, which I think is right, unlike just software. Well, I mean, that's a budget I can eat. Like, how much can I rip off of that with automation? Because I still think you still have to serve customers, you still have to serve your employees, you still have to take care of people when they have concerns, whether it's HR or whatever. Like some of that stuff potentially could be automated, but like will your employee satisfaction still be good? But like you can definitely rip some software out of your business, like in kind of an astonishing way. I'm starting to see people develop shit that like a year ago was crazy, that that it would even be possible. And they're like dropping meaningful sections of their budget.
Yeah, I think it's a fascinating discussion. I really do. I think the evolution, I like the way you think about it. Like five points of Ibadah um makes a lot of sense to me. Like it that's the gradual, uh, the gradual phase of more automation. Um I do think Ishmael's idea. He I I love the fact that he's being aggressive and ambitious in his thought process. I think it's cool. I think it's a little ahead of the curve, though, is my personal opinion.
Yeah, well, I mean, I think he's at the curve. I I mean, you literally you could do that right now. I I don't think there's a question of like, oh, could this be done or not be done? No, it can be done. Absolutely. 100%.
How effectively? Like how like are you gonna abandon customers? Are people gonna get a poor experience? Are that to me we're not ready for?
Yeah. That to me is the problem to solve. That that is the problem to solve. And he'll probably figure it out. But uh so yeah, that's not me saying you can't be done, like it definitely can. Uh it just adds a totally different set of problems. And I don't know if those problems are like of equal value. Yeah, I don't know if all the automation is worth the other problems you're gonna get. And I think that that's how you should be thinking about it. Is like just because something can be automated doesn't mean it's better automated. Like sometimes it's not better automated, sometimes it's better manual. Like, I think there's uh I mean we've discovered that we've we've unautomated a lot of shit. And we've also like done that and then gone back. So I you know, I think it's an evolving inside our own business, it's very evolving of like, hey, should this be automated, should it not? And we leaned hard on automation and AI, then we backed off, and then we leaned hard again. And now I think we're trying to find like what's our middle ground.
Yeah.
That's
good stuff.
Well, today we're talking why home service companies, why growing home service companies run out of cash. This is a good, this is a good one. We just had our um, we just had our uh breaking five workshop last week. And that was actually a it was kind of fun because it as we start off the workshop, every time it's the same start. It's like, hey everybody, what's one thing that you could take away from this that like would make this trip totally worth it? And for the first time ever, two people said cash flow, which like that has never happened. We're on our sixth one. Almost everyone always just says marketing. And this year we had some really like actually good shit, which was awesome. Marketing was not most people's problem, like, which was really interesting. Normally, in 30 people, 15 to 20 are like, we need more leads. In this case, it was like really insightful questions. Interesting. Um, but it was interesting, they were profitable, the business was growing. He couldn't understand cash, so we popped open his PL and balance sheet and we like worked through like here's where cash went. But it was uh it was uh it's not as obvious as people would think.
It's funny. Um, I get the benefit of a lot of prospects coming to me and sharing their books, opening up their books to me. And usually one of their biggest problems are cash flow. They might say it's marketing, they might say all these other things, but a lot of times cash flow is what's holding them back from being able to invest more in marketing or to be able to add more trucks or to be able to get more technicians or whatever the issue may be. It really does a lot of times revolve around uh cash planning, cash forecasting, managing cash is what's kind of preventing them from doing where they want or getting them where they want to go.
Which makes sense to me. I mean, at the end of the day, you need a good balance sheet and you need cash to continue to flow to build a business. And like no matter what the business is, that's it. Like that's the fundamentals. Like you can't really start much without that. And if you do, like you're still starting with a balance sheet, it's just negative. Like, oh yeah, I went and got a van and maxed out my credit cards. Well, great, you still have a balance sheet, you're just in the negative on that balance sheet. Um, but yeah, I think people get really lost on it. Um yeah, but I I agree with you, and I think that it's a problem that never goes away. Like ever. You will always be concerned about it. You will always be thinking about it. Public companies are thinking about it. Now they might have a lot of it, but they are thinking about it. And they have fucking a thousand analysts and like people just devoted to like figuring out their cash flow. So it is um, it's a never-ending concern. For sure, for sure. So the example that we had last week was we're profitable, but like, hey, where's the cash? So I would love it to just hear from your perspective how can a company show a million bucks in profit and still feel or be broke? Yeah.
Um, so got a couple different examples. So I recently have been working with a plumbing company, and they're doing about I think it was about a million and a half in in Ebida. And yet their cash account is pretty thin. And when you start to go through the numbers, what you see is they they do do some commercial work. So they have AR sitting out there that's probably running at about 45 to 60 days. So that means um for the folks in the audience, if you've got $200,000 AR, you're doing something that has a slower turn. Um you got it, you got, say, a 50% margin, you're having to advan advance 50% of that cost out of your own pocket to cover that AR until you collect the cash. So that's one drain. Um, the other big drain is if you've got a whole fleet of vehicles that are financed, um, the principle of paying down those vehicles is not on your PL. It's actually on your balance sheet. And so a lot of times people don't understand that and they're looking at a PL that says, hey, they're making X amount of money, but the money's actually going down to paying down debt. And that's where a lot of the cash goes. And then the biggest one, or one of the biggest ones, is draw or distributions, is a lot of owners will, you know, this plumbing company, he's going in a direction of starting another company. And so he's siphoning cash out of his main company and using it for this other venture. And this other venture is obviously a cash suck because it's very early in its its uh phase in terms of being profitable. And before you know it, you add up these few different variables and all your cash is going out the back door. And and then, and then, oh, by the way, if you're showing a million and a half of profit or a million, you're paying tax on that. And now you don't have any cash to pay the tax because you've used it for other things. And it just kind of all these things kind of snowball, and before you know it, you have no money in the bank, and uh you're you're talking about wanting to grow, and um, you're either gonna have to go get a loan, a credit line if you don't have one, hopefully you do, uh, but then you have to pay that credit line and you're using profit, future profit to pay the credit line. So it's kind of like a never-ending uh you kind of get I see some clients get into a never-ending thing where it gets really hard to get out of it if they if they don't pay attention to like keeping their tax, their estimates current, that don't take too much money out of the business. It's hard to catch up after a while.
Yeah, I think the only one I would add is inventory.
Oh, that's a huge one. Yeah.
But yeah, the uh it it is, I I remember a couple years ago. This was before like we got really like deep into this, maybe 24, 25. We so we went on this thing in 2024, and it was April of 2024, and we declared on the podcast, so you know you have to, you know, you gotta do it after that, that we will never have another loss month ever again. Putting that out there in the world and seeing what sticks. Um, anyways, it did stick. We're like 28 or nine or whatever months, and uh uh we haven't had a loss month since. But loss on paper and loss on cash are very different things. So we meant loss on paper, but uh, but cash is a funny thing because I remember, you know, when we first did for perspective, uh in 2025, I think EBITDA was like around five million bucks. Uh in 2026, EBITDA is gonna be call it 12. So last year we were like focused, and if you think about five million of EBITDA, it's like you know, depending on the month, you know, some some months bigger, some months uh less, but like $400,000 a month. So we're showing $400,000 a month, but like free cash was like $50,000. And we're like, well, what the hell is this? You know, like and uh well, so we started backing into it, and it actually became such a useful exercise that we still we do this monthly management meeting with all of our leaders and like, hey, here's the PL down to down to EBITDA, and then we realized that wasn't enough, so we went down to cash. Like, here's actually what's happening because those trucks are 80 grand a month. That's straight off of that. Um, we just invested in this building over here. Well, that's 50 grand a
month. We just bought inventory, that was 300, but that spread across a couple months. Um, and like no owners draws, like, because I don't I have never really drawn. Um, so we just like it was interesting to lay it out, and then we just started doing it from that that month on, and we started adding it to our breakeven, which I feel like might be generally helpful for people. But we said, okay, hey, like on paper, we're like a 17% business, but like 2% free cash. Well, how do we inch this? How do we inch free cash up like net by saying, hey, our breakeven is actually 25% EBITDA. So that way free cash is more like eight to ten percent. So, anyways, that's what we did over the course of like a year or so. Um, it took a long time, but like now EBITDA's in the low to mid 20s every month, which is really cool. Uh, and like free cash spits off, which is great. But it yeah, took it took a lot of like, where is this money going? And like we were a $30 million business at that point, still struggling with like, where's it going? One of the hardest transitions for any home service business owner is moving from running jobs to Running a business. At some point, the whiteboard or the spreadsheet or that group text that you guys are doing just stops working and things start falling through the cracks. The office is going to lose visibility into the field, and you become the bottleneck for basically everything. That's one of the reasons that I like Field Pulse a lot. Field Pulse gives growing home service companies one place to manage scheduling, dispatching, estimates, invoicing, job tracking, customer communication, and reporting. It has the tools you actually need to run and grow your business without the complexity of a bloated enterprise software that your team's just not going to use. It's powerful enough to scale with your business, but simple enough that your team will actually adopt it. If you've outgrown the whiteboard and you're ready to build some better systems, check out Field Pulse using the link below. For a limited time, they're offering 20% off your base subscription plus 50% off premium support for your first year.
I'll do that for clients. It's really cool you do this. I'll actually take the PL and you get you get down to the bottom line, and then I'll put those additional items that are going against the balance sheet just to show them where the cash is going. And just as a cheat, if you use QuickBooks Online, guys, go to the cash flow statement in QuickBooks Online, run a month over-month cash flow statement, and you can literally see where your cash is going. You'll see how much principal you're paying down. It'll show you each loan's principal going down on that cash flow statement. It'll show you the change in your AR, the change in your AP, inventory. And they just jump out at you when you can see it month over month where your money went. It's a really good tool. You know, one thing though that I found funny when you brought up inventory, you're 100% correct. That's where a lot of cash gets tied up. But what I see a lot of times, John, is clients will actually record their inventory, new clients. They have been recording their inventory to cost of goods sold. And so I'll be like racking my brain going, why is your GP 35%? It doesn't make any sense. Like something's not adding up here. And I'll have to keep asking questions and come to find out they've added 10 trucks or five trucks or whatever. They added a warehouse, and all of that's going straight into their cost of goods sold, where it's really supposed to be sitting on the balance sheet.
Yeah. I mean, inventory is hard to keep track of. It is. It is.
In the workaround for a small business, I'll tell you what I recommend. If you don't want to sit there and track your inventory, be careful on leakage if you're not going to track it. So just keep an eye on that. But put it, say that you figure out what your average is per truck, $4,000 for this size truck, $7,000 inventory, and then park that on the balance sheet. At least you've got something and then review it every three, six, nine months and true it up. But at least that's a workaround to having to do real counts and keep accurate until you're ready for that.
Yeah. That's what we actively do right now. Um, and then we don't do truck counts right now, but we do monthly true-ups of like physical inventory in warehouses. But like that, you know, we're about to have seven warehouses. Like it's definitely becoming more and more complicated. Um month end closed is be is taking it's more of a process than it used to be.
Yeah. Well, you have so many moving parts now, too. I mean, I don't even know how you bring that all together until it takes a while, I imagine, to get everybody on the same page.
Yeah. Yeah, it is kind of funny. Um but yeah, so I think, well, I think what your highlight is is it's a good growth consumes it um because of inventory. So that's sort of like an invisible in I'm gonna call it invisible, but just because it's not on the PL. Um, I definitely think that's a good example. I think a few other ways that growth can consume cash uh is like thinking through like your cash to revenue cycle. So if I put money into marketing, how long until I get that dollar into my bank account? Uh so like if I buy a lead today, I schedule it for two or three days out, I go there, I sell it, and I schedule that for two or three days out, I do the install, they finance it, I get paid two or three days later. We're 12 days past when I bought that lead. And when you go to apply that to like, hey, in your example, we just brought on 10 new trucks, that's a lot. Like you're investing a ton before you even get the dollars in the door, which I feel like you can you can apply that to uniforms, you can apply that to trucks, tools, inventory. It's sort of across the board. It's like a stair step, is what we always noticed. Expenses stair stepped and revenue is gradient. It's a ramp. But we, you know, the expenses are just like boop, you're up here now. Uh, but it takes a second for revenue to like follow behind.
Yeah, definitely. I agree with you on marking. Like you have to look at what your cycle is in terms of terms of when that's converting into revenue, because I, you know, that could definitely cause some cash pinch, or it's where growth eats cash. You know, I have a saying where I always say, or it's not my saying, but I've heard it, profit is opinion, cash is a fact. Um, you know, you know, profit's cool and it but doesn't necessarily mean cash. Cash does a lot. Um, so that's that's a fun one. But you know, the other thing too, on your point around growth eating cash that I run into a lot is around hiring ahead of demand. Because I find a lot of times, if you think about it, you got the truck, you got the payroll, you got the tools, you got the training. I mean, you're literally talking what? Are you talking 60 days, 90 days of losses before maybe you start to get some return on what you've invested, um depending on how your market is and what's going on. So that's one I see a lot where I think we're ambitious and we think, okay, we'll get, you know, we a couple good tacks fell my way and we're gonna add them, but we don't always have, you know, it takes a little time to get get it caught up.
Yeah. Yeah, no, I I completely agree. I feel like I see that one a lot. I see like downtime. Like instead of I always say, like, hey, you just need to figure out how to market and like figure out how to actually run the business. Because like having them paint the warehouse for the fifth time isn't it. Like, that's just gonna consume yeah, it's gonna consume a lot. But you just, you know, you gotta you gotta really like work on
that. How much cash do you think companies should keep?
Oh yeah, in terms of operating expenses. Like I would say, you know, there's a the rule of thumb usually is two to three months. So um it depends on the I would also say the size of the business. Sometimes it's two or three months, sometimes it's 15% of annual revenue.
So two to three months, let's just like quantify that real quick. Two to three months of operational expenses. So that means like your overhead.
So marketing, payroll, rent, office, overhead, rent, not materials, uh, nothing related to cost of goods sold, um, insurances, stuff like that. All that stuff. Should probably have two to three months set aside. So you're a three million dollar business, you're probably talking like three to four hundred K, five million dollar business, about five to seven hundred and fifty K. 10 million, probably a million to a half, a million and a half. I mean, I have a client right now that's about 11 million. He just recently signed on with me, and I was looking at what he was taking out of the business. He's all I'm not taking anything out of the business. And he's got like a million in the bank. And, you know, that's kind of his safety. That's the safety number of having operating in the bank and knowing if things go wrong, you lose a maybe a good big customer or um economy changes or something crazy happens, you got a little bit of protection. Um that that you're not gonna, you know, default or whatever.
I definitely ran way later than that. Uh on the way up. Oh, yeah, yeah, yeah, yeah. Yeah, I um probably flew close to the sun. But uh, but yeah, I feel like that makes sense. I think um I think I would factor in, uh, so for perspective, and this isn't me like giving ad uh uh not like hey, go do this, but yeah, I think you should factor in um how much of the business is residential service, how much of it is construction, how fast you get paid, how frequent are your payrolls, what are your vendor terms? Because there is um there's a lot going on there. You know, like if you're if 100% of your business is same-day service, same-day payment, cash requirements get uh reduced. Like you just need less cash to run that business versus you know, our restoration business, it's actually kind of funny. Our restoration business is two million dollars a year, but it gets paid by insurance companies on like 90-day terms. Our restoration business at $2 million a year has more AR than $50 million of residential service. Like it's crazy. And it like on a it obviously doesn't take more working capital, but that is a part of it. Like I had to fund that payroll and those materials and that equipment and all that stuff against like a company that has like 30% of revenue in AR. Like it's kind of wild. Um, but yeah, I mean all that like eats into cash. And that company is growing like crazy, but though all that means is like AR is growing like crazy.
More more cash deficit, yeah. You're more tied up in AR.
Yeah, yeah. So all the just so it changes working capital for Wilson. Um, but it but it yeah, it is it is kind of funny.
That is an interesting conversation though, because on your when you're on the way up, it's just you're constantly struggling with cash because you're tying more up into AR. The minute that flattens out, you're gonna be cash rich. I mean, you're gonna that's start gonna that's gonna start turning over into your bank account. But that is interesting while you're growing.
Yeah, I think the way to the way we think about it is like as long as the core of the business is has a very tight cash flow conversion cycle, which is like spending a dollar to getting a dollar, I can take risk with higher gross margin, like higher EBITDA departments that have a slower cash conversion cycle. So restoration is like call it 90 days or 95 days, very long, but it's a 70% gross margin business, like 50% EBITDA. So, like, fuck yeah. I like, yeah, I'm gonna do that. Um, or like we have a drain business, and that business is also like high 60% gross margin, but huge amount of AR on 30-day terms. But like, I mean, the core of our business can just sort of print off cash. So it it opens up some interesting opportunities as you start thinking about it, like in departments. Uh, like, hey, am I willing to take on this profit for this with all the baggage of this cash flow? And and like I think some people would say, oh, that means I want to take on new construction, but like new construction, you don't get the benefit of that margin. You don't get that exact 70%. You get like 25% and then maybe paid at 90 days.
Well, one other thing on that uh reserve, what why I say two or three months is shoulder season plays into this too. Because I think sometimes um you're you're real, you're having a great summer, you've got a ton of cash, feeling things are feeling really good. And so I think that's always the time to be a little more conservative with cash, build it up. It lets you get through shoulder season or slower times, and you've got enough where you're not having to get into that syndrome where you're kind of borrowing money from the credit line. And then as soon as you make some money, you're paying it down, and you're always kind of behind the eight ball.
Yeah, that makes sense.
Um what should an owner be looking at every week?
You know, obviously cash would be a big one. I would say prior week sales would be a big one in terms of completion revenue straight off your straight off your dashboard on Service Titan. Um, I would say that's a big one. Um some other things that would come down. I I would I would recommend um booking rates, conversion, cancellations. I mean, really having uh awareness of your board. I think that's one thing where I see a lot of times it's not, you know, I have clients that'll come to me and they have like cancellations that are off the hook and they don't have enough, they either don't, either their CSRs aren't their dependence their bats team isn't coordinating things correctly, or their team is cutting off at three or four in the afternoon and not finishing job or taking on more jobs. And so, you know, that's just money going out the window, basically, if you're not if you're not looking at those numbers religiously weekly and then making corrections. I had a guy on my podcast and he talked about looking at your numbers weekly, it's kind of like equivalent to like a halftime in a football game. If you're looking at your numbers at halftime, you can adjust. If you're waiting until the end of the month, or God forbid, you're not getting financials for a couple months, and then you're looking at data, you it's just you're losing so much time and money in that adjustment.
Yeah, no, I totally agree. I totally agree. Um, and then I would just add the 13-week forecast if you've got it. Or like engage somebody like Tyler to help you put it together. But like that just helps you plan out the next 90 days of like free cash. Um, or like where's your cash going, which I think is uh is important. Like, hey, when's payroll? When's my debt? Am I gonna have a cash flow crunch in seven weeks from now? How do I prepare? Yeah, I think that I think that we got really tight on our cash flow forecast like two, three years ago. It was game changing for us. It was it was humongous. It was honestly kind of shocking. We knew we needed it for the long longest time. Um, but like I've told said on the podcast a million times, we got to like 20 million basically without an accounting department, um, which I would not advise. You can do it, but I would not advise it. It is a mess, it's a huge mess. Winning the job is great, but keeping that customer for the next 10 years is way better. And that's why we've been paying attention to Comfort Connect. It's an all-in-one application and payment platform that gives homeowners flexible ways to pay while making it easier for contractors to close more jobs. Well what really stands out to me is what happens after the install. Contractors stay connected to those customers and they create more opportunities for maintenance and upgrades and replacements and then cross sales down the road. On top of that, Comfort Connect pays contractors quarterly revenue share based on the customers using the platform. As more homeowners enroll, that recurring payout can add up really fast. And some contractors are collecting more than $15,000 every quarter. If you're looking for more than just another payment option, book a call with Comfort Connect at the link below.
I would say things, John, we just always, you know, just the general metrics of a healthy business. I would say look for GP being around 50%. And this is residential. I'm primarily talking, I'd say net profit between 10 to 20%. I think it kind of can vary depending on what trades you're working on. Um, two to three months operating expenses is a healthy number to have. AR under around 30 days or under, depending on your business. Obviously, restoration is an extreme one. But if you're in HVAC commercial, I try to keep it around that 30 as much as you can. Big one that I see a lot, John, get QBO if you're using it, or whatever accounting system and Service Titan or whatever CRM are using. They got to agree. I can't tell you how many times I see clients come to me and that their AR and Service Titan says, I'm making this up, $800,000 and QuickBooks says $400,000. Like, how is that possible? And then I just say timely monthly closes. That's a big one. Like the 10th of the month. I I hear 15th a lot, but I'd love to have the 10th. Get fresh data, look at your cash flow forecast with your historical numbers for the prior month. And if you're doing those things, generally you're probably going to be a pretty healthy company.
Yeah. I agree with you. We got healthy when we started doing all those things.
That's awesome.
Yeah. I mean, I, you know, I could I could bore us for years on this podcast, and I have of all the different ways that I uh didn't like run accounting the way we should have. That's funny. All right, where does profit and grit uh fit in? Let's just talk about your firm um and how you can help folks.
Yeah, man. So profit and grit CFOs, uh, my domain is profitandgrit.com. We work with home service companies, three to 15 million in annual revenue is really where I love to be at. I love, John, my whole career is around small business. I just absolutely love the folks that are out there grinding and making it happen. There's nothing more exciting than when they get a chance to sell and it's life-changing money for all their hard work. Um, so that's where what we focus in. Um, I also have a podcast. It's called Profit A Grit. It's on the same website. Talk to owners, operators, expert experts. I had I was blessed to have you on the show. And uh just love being in the community. I try to participate. I'm going to Pantheon. Uh, probably this will be long after this will be published after I've already gone, but I'm going to Pantheon for the second time, which will be a blast. And uh that's basically that we're just trying to help in the community and help people become aware of their numbers and uh hopefully uh guide them along a path of feeling like they're not making progress in their numbers and being aware of where they want to be at and just getting them there faster, hopefully, is the goal.
Well, thanks for coming on today. I appreciate the conversation. We should have you back on and talk more cash flow. And honestly, I think act like prepping for acquisitions would be kind of a fun one.
It'd be a great one. Yeah.
Yeah. Well, thanks for coming on today.
Hey, thanks, John. I really appreciate your time.
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