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In this episode of Owned and Operated, John and Jack break down the most underrated—and often misunderstood—pillar of business success: cash flow.
They dive deep into what cash flow actually means (hint: it’s not EBITDA or net profit) and why failing to understand it almost tanked their companies. From sharing near-miss horror stories to the practical systems they've built—like automatic savings transfers and cash forecasting—this episode is a must-watch for any operator who wants to build a sustainable, growth-ready business.
Whether you're just starting out or scaling past $10M, John and Jack unpack how better cash flow habits can protect your company from financial landmines and unlock new levels of financial control.
🔹 In This Episode, We Cover:
The real difference between cash flow and profit
Why strong EBITDA doesn’t mean you’re in the clear
How bad cash habits nearly killed the business
Tactical tips for cash flow forecasting and savings
Best practices for managing debt and capital expenditures
The role of a controller in small business finance
Timing large financial decisions to avoid cash crunches
Creating team alignment around cash discipline
🎧 Listen to more episodes & resources:
👉 https://www.ownedandoperated.com
👤 Hosted by:
John Wilson – https://x.com/wilsoncompanies
Jack Carr – https://x.com/thehvacjack
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224 Transcript
John Wilson: [00:00:00] We're talking about cash flow. What's cash flow and why it's killing your business.
Jack Carr: It almost killed my business. I think it almost killed everyone's business. At one point before you realize how important it's 'cause cash flow is not the same thing as EBITDA or gross or anything like that. The money coming in is not the money you have.
To spend. You can't keep the lights on with credit. Well, I guess you can if you pay your credit, but it's not, not the most ideal situation.
John Wilson: I really want to just reemphasize. This is Personal Finance 1 0 1.
Welcome back. Welcome
Jack Carr: back.
John Wilson: Welcome back, uh, to Owned and Operated. It's a podcast where we talk about home service stuff or. Whatever we want to talk about. So today, uh, we're talking about, uh, cash flow.
Jack Carr: Cash flow.
John Wilson: What's cash flow and parentheses why it's [00:01:00] killing your business.
Jack Carr: It almost killed my business.
John Wilson: I think it almost kills everyone's business.
Jack Carr: I think it almost kills everyone's business at one point. Yeah. Before you realize, oh, how important it's,
John Wilson: yeah. '
Jack Carr: cause cashflow is not the same thing as EBITDA or, yeah. Gross or anything like that. The money coming in is not the money you have Yeah, yeah. To spend.
Yeah. Which is not the money that you have to walk
John Wilson: away with. Yeah. Yeah. A hundred percent. If you've been listening to the show for a while, you know that we've been big fans of service scalers. One of the things that they just dropped that we are really excited about is a paper lead program. So what they help you do is they help you directly gain access to leads and scale up your lead partner.
Program, go to service scalers.com and say we sent you. So I feel like this has actually been an, a good, this has been a big topic inside Wilson recently.
Jack Carr: Mm-hmm.
John Wilson: So, uh, [00:02:00] we are open book financial with our leadership team and something that we're trying to dial in with our team is the difference between net profit and cash.
Jack Carr: Yep.
John Wilson: And that's a big distinction.
Jack Carr: Mm-hmm.
John Wilson: Big, just like millions of dollars of difference, of distinction. And, um, I took that for granted.
Jack Carr: Yeah.
John Wilson: When starting to go open book, uh, financials because, um, on, on one hand, like, and the team knows this, 'cause we, we sort of did like a training on it yesterday, so this is pretty timely for that.
Um. We did this training at our SLT quarterly 'cause we're, we're, we're at the tail end of Q2, we're going into Q3, we're setting our goals for next quarter. And some of the pain points that people had were cashflow pain points. So, uh, like we're, right now, we're in a period of [00:03:00] investment in our marketing and we're in a period of investment in our fleet and we're in a period of like debt pay down.
Yep. So we have all three of these things happening and we had a weaker May than we thought. And gross margin was compressed for two months.
Jack Carr: Mm-hmm.
John Wilson: So on And like, while all that's happening, we're also celebrating kind of big because hey, we just hit our cash treasury goal. Like we've had this goal for a long time where we have enough in this one account, like a specific dollar amount in this one account to be like, hell yeah, we hit this goal, we hit that goal.
So, so they're confused 'cause they're over here like. Alright. I'm wanting to follow the plan. I'm wanting to follow the budget that we set out in October. I, I want to,
I wanna hire these team members mm-hmm. That we said we would. I want to make the investments in marketing that we said we would and we're being hesitant and they're like, John, we're, we don't understand.
Jack Carr: Yeah.
John Wilson: Like, we don't get it. This was the plan. [00:04:00] We are open book financial, we see that we're profitable, like we see it.
Yep. And, um, and then we also, like, we're getting held up here, so like, so it came up as like IDS issues, insider L 10. Are you guys EOS?
Jack Carr: Not yet.
John Wilson: Okay. So it came up as IDS issues and once two or three people brought it up, I was like, oh, okay. I've just done a really poor job of explaining how cash works. And if you've never managed a p and l and if you've never managed a balance sheet.
Like it makes sense that you wouldn't understand. Yeah.
Jack Carr: So what, for people listening who are like, what is John rambling about? Yeah. What is the difference then between net and cash flow? Yeah. Yeah. Because I think that's like the really big question, right? Yeah. Is like, why do my books say something, but why is my account saying something else?
Mm-hmm. So where does that come to play?
John Wilson: Yeah. Yeah. So, uh, [00:05:00] we present. Two numbers. Mm-hmm. Open book. So if I'm looking at a p and l, I'm just gonna go through the whole p and l. Yep. So we have, uh, revenue mm-hmm. Labor materials, gross profit, and that's the number that we care about the most. Mm-hmm. That's, if you're running an efficient, well priced business, you know, you're running an effective gross profit underneath that's overhead.
It's your opex. So salaries, marketing, fleet it. Yeah. Rent. So like we bucket that into like four, four or five, like total buckets. Uh, and under that you have operating net income.
Jack Carr: Mm-hmm.
John Wilson: Uh, so that's how we break it out. I think there's a few ways to break it out. Yeah. But we, we track as operating net, which is ebitda.
Yeah. So we wanna know ebitda. So when we're presenting numbers to our team. We are presenting
Jack Carr: ebitda, EBITDA numbers
John Wilson: because, uh, and EBITDA is earnings before [00:06:00] interest, taxes, depreciation, and amortization. So the team has no in input on the interest rates for loans or the depreciation of our vehicles, so we don't find it relevant.
So what we do is we present ebitda, then we present. Net income under ebitda, which is inclusive of the ida.
Jack Carr: Yeah.
John Wilson: Uh, so you can roughly think of the net income as true cash.
Jack Carr: Mm-hmm.
John Wilson: Because that's gonna have depreciation, which like is kind of CapEx. It's gonna have the interest, it's gonna have taxes. Um, but what it doesn't have, uh, is like very principle heavy debt.
So the stuff that we did this instruction on yesterday, we, we pulled up May specifically. Yeah. 'cause May we had 187. It was a, our tar. Yeah. I'm [00:07:00] centering myself here. So our target EBITDA per month is about $400,000. Okay. Budget for May was three 50, something like that. We had a week May uh. Like 2.1 and a half, like should have been 2.4.
Jack Carr: Mm-hmm.
John Wilson: So that obviously manifests on the bottom line. We did 187 net and, uh, like EBITDA and we should have done 350.
Jack Carr: Okay. So
John Wilson: missed big on ebitda, 170 grand. It's a big mess. Um, so, and we lost, uh, 13,000 in actual cash. So I had to walk them through that exercise. So the things that we did that spent that 187 plus was we onboarded six new vehicles.
Mm-hmm. And that that was $80,000 of capital expense, which is cash that's outta my bank, but it [00:08:00] is not profit and loss cash, so it will never show up in net profit. We paid down debt. We have a 12 month note with a vendor. Uh, and that was like, it's 20 some thousand dollars a month. So we paid that off, or we made a payment on that.
Uh, and that's principle heavy. So there's the interest portion is inside our p and l. Yeah, but the, the, the principal, principal is not, yeah. So that's 27,000. So between those two, I just had a hundred and. $13,000 of cash that left my account. That is not touching.
Jack Carr: Yeah.
John Wilson: Our p and l on top of that, we have our fleet, which is loans.
It's a capital lease, but it's, we treat it as a loan, so that is not coming outta the p and l. Uh, so that's another 50 grand. Mm-hmm. So we're at 163, and then we had just our standard debt, like we bought businesses and we have debt from it.
Jack Carr: Yep,
John Wilson: yep. Uh, and that's another [00:09:00] 40, so $203,000. So. You know, on one hand, 200 grand a month.
I know that sounds like a lot, but our debt plug every month is $80,000. Even getting rid of the CapEx and the one, you know, this, uh, like single use stuff, that's 85 grand that's just is out the door before we even see the the dollars. So that was the training we did with our leadership team yesterday to really explain like, Hey, the reason you're being held up over here is because revenue was below what we expected.
Gross margin also didn't hit. So EBITDA was half of what it should have been. And here was the things that we inve chose to invest in that you were a part of those decisions. Previous months brought on more vehicles. You didn't really have much control over the debt stuff, but like that's there. Uh, so we had to walk through and once we did, they understood.
Jack Carr: Yeah. And so with that now, uh, they understand what the, the net is and, and how the cash flows. You know, [00:10:00] cash flow at negative 13 on 80 or on 200 of goal or 300 a goal is not terrible, especially when paying off all that debt. Um, but when looking at that, how are you? Right? Because a lot of the issues actually stem with cash flow is they don't stem from cash flow because of, of a kind of a gross decision.
Like they're not, uh, I guess what I'm trying to say is, um. As you come upon those situations and you're a smaller company Yeah. That doesn't have a large bank account or reserve or a treasury or whatever you wanna call it.
John Wilson: Yeah.
Jack Carr: How are you dealing with that cash? Do you have, um, I, I know that there's other individuals who have like cash forecasts, cash flow modeling.
Mm-hmm. Are you currently doing that to try and, yeah,
John Wilson: we are now. Yeah. But like, you know, growing up in this thing, uh, we didn't have, I didn't have a cashflow forecast until this. Year.
Jack Carr: That's wild. Seriously,
John Wilson: I made my own, yeah. Last year for the back [00:11:00] half, but no, before that we had zero cashflow forecast.
That's not because we didn't need one. It's 'cause I didn't have an accounting department Yeah. Until late last year. Yeah. Like I didn't have a functional, talented accounting department. So like yeah, we butchered our way up to 30 million bucks. You can do it apparently,
but, uh, I,
I mean, I don't recommend it, but you can do it.
Um, so. Yeah, we didn't have cashflow forecast and we didn't have a heavy bank account, so the way our business worked, we, we were really healthy. Uh, and I ran this like profit first thing. So if you, have you ever read that book?
Jack Carr: No,
John Wilson: it's good. It's literally, it's what it sounds like. So you could, I can summarize the book in like the next two sentences.
Pay yourself first.
Jack Carr: Mm-hmm.
John Wilson: And the way we opted to do that was pay the business first. So we set up automatic transfers Just like you would personally Yeah. To a savings account. And we're on year eight of that. So it now interest, now it's daily. It used to be like [00:12:00] five grand a week, which like that's a lot.
I think that's $250,000, um, a year. So we were doing five grand a week when we were, uh. Three, $4 million business and that was a lot.
Mm-hmm. And
that was how we fueled acquisitions. So that was a big bank account for a $3 million business. Then we used it was buy these companies. I was you. What'd you use it for?
Yeah, we bought three companies. It went freaking nuts. Yeah. And then, uh, we actually didn't really have a healthy bank balance until mid last year. Took us like three years to rebuild a healthy bank. Like healthy Yeah. To our standard of bank balance.
Jack Carr: That's really interesting. 'cause I mean, we went through it last year.
We came out of, um, summer, the end of summer last year. In all transparency, we came out of it in a really bad spot. Mm-hmm. Like, because we didn't have our processes in place, we paid too much for failing marketing. Um. And it, it just, we weren't in a strong position that we should have been on a hot summer Yeah.
To convert. So this summer feels a lot better 'cause we're already doing significantly better. [00:13:00] But we came out of it under budget by quite a bit. Yeah. Just nobody was watching technicians and they were fixing things and. It is what it is. Uh, that being said, we have scraped and struggled and fought to keep it.
And one of the ways we were able to do that was focusing on cash flow. Yeah. Because that's how you pay your vendors. You can't keep the lights on with. Credit. Well, I guess you can if you pay your credit badly. Yeah. But it's not, not the most ideal situation. So,
John Wilson: well, I think you have to be locked
Jack Carr: in the ca cash output and where it's going and when who's getting paid.
So I actually reached out to Rich Jordan. Rich had, I think I reached out to the group and Rich had like a really good spreadsheet where it was, and it's not, it's not rocket science. It's like who's the vendor when they're getting paid? They need to be paid versus And what's like, what do you need to pay them to keep that account open and run.
Yeah. And then what's the, the risk profile of all that? So we
John Wilson: did that last year too, and that was our first cashflow forecast. Yeah. I called it a cash out sheet. So I would go into every month and we'd do the cash out. Now that's 13 weeks. Mm-hmm. But for the [00:14:00] first six months of it, it was me updating it the last week of, of the month.
That's for the next month next. And it's like, alright, hey. What we did was cash break evens. Mm-hmm. Like I literally need X dollars of revenue for cash break even in this month.
Jack Carr: Yeah.
John Wilson: And these are the bills I wanna pay. And if we go over, then we'll pay this and
Yeah.
But yeah, cashflow very can be very disassociated.
Mm-hmm. And it gets, I would say it gets even worse later on because the bills get bigger.
Bigger
and they, um. They get bigger and there's a lot more prepaids. So that's been kind of confusing where like, like I have a, I have a prepaid right now that's like $40,000 and that prepaids gonna carry me through for a year, but I paid 40 grand
Jack Carr: Yeah.
Today. Right.
John Wilson: For it. And like, that sucks.
Jack Carr: Mm-hmm.
John Wilson: So granted it feels great right now, but like Yeah. That's [00:15:00] $40,000. Yeah. So it gets. So, and when our, um, this is actually I think where A CFO eventually starts coming in is the, the larger the business, the more complexity of cash. Yeah. And I think that is where we will need A CFO.
Mm-hmm. Uh, whereas like we're doing a great job with tight reporting, tight, close, accurate, and timely financials. That's, that's the function of accounting department, but maximizing cash and like return on cash. That's CFO.
Jack Carr: Yeah.
John Wilson: So that's where I think we'll break, but yeah, right now we're, and we're learning it, fortunately, not that hard of a way, but like, sort of the hard, the hard, we're not going bankrupt, but like, I wish I had more cash on hand.
You know? So it's, we're we're learning. To operate at this size and scale with the amount of cash and like the way that I [00:16:00] made decisions five years ago on like capital investments is no longer the way to make. Mm-hmm. Like I should have put a lot more energy into planning out fleet acquisition than I did this year.
And I'm feeling that, yeah. Like that's a $250,000 cash out of bank account. In a 45 day period. Ouch. That I should have been more thoughtful
Jack Carr: about. Yeah. But that, I mean, that's the point though. I mean, it is right, that, that cash is king when it comes to these businesses in, in a different sense. In the sense that like that's what controls.
The business and how you pay and when you pay and what you can do and Right. We're all about this growth, growth, growth, growth, but how do we get that growth? And a lot of it is through cash, output cash. And so not, you know, not having those, that data to make the good decisions on when you can actually afford to, to have a cash outlay.
Yeah. Um, or cash out [00:17:00] situation is kind of a key because if you have to, if you wanna expand, you need more vehicles, you need to go and. Either put money down, you need to purchase whatever your plan is. That's all cash out. Yeah. And um, I don't think people understand that sometimes. I mean, I didn't understand that.
I, I look and say it's hard to imagine my, my, my business is healthy, my net is good. My gross is in there. Yeah. But why don't I have anything in the bank and,
John Wilson: well, there's a couple big examples. Yeah. So recently, so, uh, I, I have two. So one is Chris Hoffman and I his. Fortunately, ours isn't gonna look like this, but I actually don't think it's gonna be far off.
He, when the year that he did 7 million of ebitda, he had like $50,000 of free cash.
Jack Carr: Yep.
John Wilson: $7 million of paper profit. Seven $50,000 of free cash.
Jack Carr: I'm glad he posted that. It made me feel a lot better.
John Wilson: Yeah. But like that's real. Yeah. Like we'll do 5 million of EBITDA this year and our free cash [00:18:00] might be a million bucks.
Jack Carr: But I mean that's 3%, like 50 million out of, or 50,000 outta 7 million is a 3% difference. Like if he messed up his cash forecasting by 3%.
John Wilson: Yeah. Whiff
Jack Carr: that. Yeah.
John Wilson: Like yeah. Well that's the other example. So the other example, I don't remember if this was on Twitter or in our, one of our group chats, but there was a 10 million EBITDA business.
Losing $2 million a year and it was going to debt and CapEx, so buying vehicles.
Jack Carr: Mm-hmm.
John Wilson: Investing in the, in the, uh, property, like doing whatever. Uh, but $12 million of debt and CapEx, 10 million of ebitda, 10 million is a lot of fucking ebitda.
Jack Carr: Yeah.
John Wilson: Like that's, they built enterprise value. It's huge. That business is worth a hundred million dollars.
Yeah. But it's losing $2 million a year. It's like it's disassociated.
Jack Carr: Yeah. Luckily though, when you get to that size like Chris or somebody, there's options. I think that that's actually,
John Wilson: these guys are running out of options. Yeah. Well, yeah. Which is kind of interesting. 'cause [00:19:00] I think they're gonna have to fire sale because they can't.
Who can support losing 2
Jack Carr: million? No, there's no way. Yeah, you can't. That's a turnaround. It's 4,000 a day loss. Tighten up like nobody's business that's 8,000 a. But I do think that like more so on the Kristen Hoffman situation, like if you did miss and you needed to pull out 50,000 from the business, there's areas and there's loans that are not available to, to smaller businesses at that point.
Like it's, it's extremely dangerous when you to not understand that this concept as a small business because what, what are your options? Your options are you have a line of credit. I
John Wilson: would actually argue it's easier the other way around as someone. Who is close enough to 5 million or 7 million of ebitda.
Yeah. I'm interested. So for, for your, now this is dangerous as hell, but nearly every payment provider in the world has some version of a short term loan thing.
Jack Carr: Yeah.
John Wilson: So it's actually really easy for a small business to get liquidity. It's just dangerous because they are predatory interest rates.
Jack Carr: Super predatory.
John Wilson: It's [00:20:00] insane. Yeah. But because like if you had a cash problem
Jack Carr: Yeah.
John Wilson: You have two things working for you in your favor. One, your cash problem is probably not that much money. It's not like a $2 million problem.
Jack Carr: Yeah,
John Wilson: yeah, yeah. Realistically, it's probably more like 20 to 50,000. It's like
Jack Carr: I need to, to make payroll.
It's 20,000 or 50,000 for big problem for the scope of the
John Wilson: business, but it's not a million dollar issue. If I needed a million dollars like in a week and I didn't have that there, that would be a challenge.
Jack Carr: Yeah.
John Wilson: But like a problem for $20,000, QuickBooks has a loan. That you can just get almost overnight for 20 grand.
Jack Carr: Mm-hmm.
John Wilson: So I think the bigger you get, it gets more complicated. You have to get, you have to cross the gulf into con uh, middle market banking, which like, we're not, we're in the process of bidding that right now, but we're not there yet. Yeah. If you're an HVAC tech plumber or electrician, you know, that time is money and Supply House gets it [00:21:00] with over 280,000 products.
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Jack Carr: real service. Yeah.
There is, there is a point where it crosses. I don't know what that point is in terms of like moving You become, yeah, I'll tell you. Moving from like merchant service or merchant account loans, what do you call this anyway? 30% loans over a year or whatever. Right. To um, conventional where you can get debt at.
Yeah. Market rates. I'll tell you exactly what happens. I'm excited. Let's hear it.
John Wilson: Yeah. So. There's a gulf, there's a wide chasm, huge of dangerous, like a low business size that banks don't know what to do with, 'cause they're like too big for their small business banking and too small for their middle market [00:22:00] banking.
And there's really no great suite of products that fit that bubble. And that's between around 2 million of EBITDA to 7 million of ebitda. Okay? So if you're in that zone, you're in this gray zone of banking. Which is where I'm at.
Jack Carr: Boom.
John Wilson: And it sucks. Yeah. Like fair enough. It sucks because we're not big enough to go get, like we're moving up to middle market banking right now, but the pro mainly for treasury.
Right. And this gets, this matters more later, but it's crazy 'cause Chase, there's treasury,
Jack Carr: there's
John Wilson: debt.
Jack Carr: Doesn't Chase consider, I thought Chase was two to 20 is like their small business banking and then 20 to a hundred is their next lump. So you're, you're with Chase. You're not in their next tranche.
John Wilson: They're trying to move me up there now. Okay. But they didn't proactively do it.
Jack Carr: Chase.
John Wilson: Yeah. I mean, it costs me four grand a month of fees.
Jack Carr: Yeah. Get outta here. It's annoying. It's annoying. Yeah.
John Wilson: It's super annoying.
Jack Carr: But
John Wilson: yeah, I lose, what is that, $300 a day staying with [00:23:00] Chase right now. So we're trying to move off as fast as we can.
And the middle market banking option wasn't, like, wasn't that attractive. So,
Jack Carr: yeah.
John Wilson: But yeah. But, but that's just treasury, like debt is a whole, whole nother beast, fucking ballgame.
Jack Carr: Mm-hmm.
John Wilson: So, um, we're like what we're doing right now because we're in that bracket of dead zone, we're like. We, I don't wanna lose $200 a day in fees, which is what's currently happening.
So we're sliding outta chase as fast as humanly possible. And then later this year we're bidding the whole thing, uh, debt and, uh, treasury. Because treasury is what all the banks want. Like they want sitting cash. Yeah. They want the exactly $2 million checking account. They want that, uh, the debt. They somewhat want,
Jack Carr: yeah.
Which brings us to the last episode of weird businesses I want to own, and one of them is a bank and Oh, yeah,
John Wilson: yeah.
Jack Carr: That, that problem could be a solution, a product could be a solution,
John Wilson: could be. But yeah, so, so that, that's how the [00:24:00] Interesting, that's how banking works.
Jack Carr: Yeah.
John Wilson: So in between like the 2 million of EBITDA and seven, which essentially it's like
Jack Carr: 20 million, which is what Chase was like we just mentioned, 20 million in top line to like 70 million in top line if you're running 10%.
John Wilson: Yeah. Yeah. And like, you know, if. How, like what's your, I know we're on, uh, cash flow, but cash in the bank is not equal to cash flow. You can have an amazing balance sheet.
Jack Carr: Mm-hmm.
John Wilson: Or you can have, uh, an amazing p and l or you can have neither, like, for a couple years we had a terrible balance sheet and a terrible p and l.
Yep. Which was not an exciting place to be. Uh, 'cause you have, it's a double turnaround. Like if you have a terrible p and l but you've got cash in the bank, that is a solvable problem. But if you, if you have a terrible b and l, a lot of debt and no cash in the bank, it's solvable. But you will get gray hair.
Yes.
Jack Carr: Oh yeah. Banking stuff is fun.
John Wilson: Yeah. So cashflow, um, disconnected from net profit. You wanna be thoughtful about timing of vehicles. When's the right [00:25:00] time? Mm-hmm. Are your processes dialed to cash flow? Does your team care about cash flow? Uh, like are people's bonuses dependent on, is that money received yet?
How often do you talk about it? Are you starting jobs without down payments? Are you paying techs if we didn't get paid? Are commissions going out if we didn't get paid? Mm-hmm. Are you starting jobs without notices to proceed? Who's responsible and how fast are they completing financing? It is a, it's a thing.
Um, about a year and a half ago we go, it's actually the,
Jack Carr: the one thing that keeps me up at night quite a bit.
John Wilson: What
Jack Carr: is that? It's like cash in making sure we get our cash in for like healthy cash flow. Yeah. Because I mean we talked about it, you know, on a different episode recently was like last year we ran 5%.
Yeah. When you run a 5% net business. Yeah. Understanding that like you miss anything.
John Wilson: Yeah. Well is your debt 5%? 'cause that might be breakeven. For us, our debt is, no, it's more than that. Okay. So you lost.
Jack Carr: [00:26:00] Yeah.
John Wilson: Yeah. So, well, I think that's the important distinction already. 'cause you were like, I'm a 5% business, but no you weren't because you have debt.
So what we've started to try to talk to our team about is when we present overhead, we've started presenting overhead plus debt.
Jack Carr: That makes sense. So, hey,
John Wilson: our, our break, even if I'm just going off of overhead mm-hmm. Is like. $1.4 million, but actual cash break even is like 1.6 because of the debt.
Jack Carr: Yeah.
That's probably a better way to design it too, so that you can see it without having to jump into sheet. Yeah,
John Wilson: we didn't want this fake bullshit rigamarole, like our monthly debt plug is x. Here's how we cover it now. Yeah. So
Jack Carr: we accidentally get to that. We get to that on our cash outlay. Yeah. Like our, our, you know, 14 day cash, uh, out cycle, uh, paper that we're talking about.
'cause that's obviously, you know, we pay out debt once a month on this. We pay a debt once a month on that for vehicles and then the SBA loan. And so we, like, we see that, so we know what our cashflow actually [00:27:00] is. Yeah. But from a p and l standpoint, that's actually pretty genius to actually know. Like, Hey, I,
John Wilson: we want the team to know breakeven.
Yeah.
Jack Carr: I mean, well because for, that's huge. For
John Wilson: 2023, we made the mistake of talking about net, where we talked about breakeven, but hey, shocker, it wasn't breakeven. We have debt.
Jack Carr: Yeah.
John Wilson: So like we lost and it took us a while to learn like, hey, we really have to talk the real number here. 'cause otherwise we think we're doing great.
We're not.
Jack Carr: Yeah. And, and that's bad decision making. 'cause you make bad decisions on the back end of that. It's like, oh, I can do branding now
John Wilson: I can do it. I can make investments, I can do this thing, I can do cap that. Shouldn't be, shouldn't be. Yeah. Yeah.
Jack Carr: Should be tightening up.
John Wilson: Yeah. Our, we've been, um, we really started honing in on EBITDA about a year ago.
We're like 15, 16 months into it. Um, and like tightening the p and l, adding more automation, more offshore. Raising gross margin, like we have been focusing on it, [00:28:00] we have not been as deliberate about cash flow. So now we're a year into like, hey, EBITDA is healthy, like trailing 12. Like, we feel really good about that.
I think we're in the threes, which is amazing. Um, next we're, we'll finish year to date on pace for the, you know, high fours five. Uh, so we're like pumped about the work we've done on ebitda. We're now getting ready to really hit cash flow.
Jack Carr: Mm-hmm.
John Wilson: Uh, so that's gonna be, and what do you, okay. How are we thinking about debt pay down?
Yeah. How are we thinking about freeing up lines of credit? How are we thinking about prepays or non prepays? Uh, when should CapEx happen? And like, how do we think about that? So that's like, that's our current quarter three Rock is like me figure out our stance on cashflow, because last, we've really been dialed in on ebitda.
So now we have like a good. Healthy EBITDA business,
Jack Carr: which is a great place to start to like then dump, jump into cash flow. Like that's like a huge stepping stone. And so, well, and we
John Wilson: fixed the balance sheet. We like cashed up the balance sheet. So now we're like, we're [00:29:00] entering Q3 the healthiest. Yeah. One the healthiest we've ever been as a business ever, but two, the healthiest we've ever exited a quarter to.
'cause usually, like, we're typically cleaning up the mess from Q1
Jack Carr: mm-hmm.
John Wilson: In June.
Jack Carr: Yep.
John Wilson: And we didn't have to this year.
Jack Carr: Yeah. Hvac. Well, I mean, did you, I have so many questions. Quickly in plumbing, did you have that issue too, or was that mostly once you took on hvac? What do you mean? Like you're cleaning up Q1 and Q2.
Was that an HVAC specific problem when you brought HVAC on, or is that a trade specific issue? That's
John Wilson: been my whole career.
Jack Carr: Okay. So that's even in plumbing. Good to know. Um, and then back to the, the, you talked about truing up, getting your EBITDA correctly and focusing heavily on. We need to know our EBITDA numbers and that kind of visibility
John Wilson: and like, and getting it to the number we wanted.
Jack Carr: Yeah.
John Wilson: Because we, okay. Like I think it was like if profit happened, we were excited and now it's like, no fifteen's the target. Like we gotta hit 15. Got it. So, and if we missed 15, like May was like 8% or [00:30:00] something. And that sucked.
Jack Carr: Yeah. And so, so with that though, like, so there's two sides I see to this like one side is the visibility side and actually creating, because you don't know if you're winning.
Unless you've created that visibility, and then you can go and actually try to drive to that with your team. And yeah, we're gonna try this function and this function. Hence the quick turnaround of visibility, right? I tried this lever. Yeah. Didn't do anything. Try this knob. Did a little bit. Try this knob.
It worked. Boom. But you can't get there without good visibility. So not to turn this into a, who did you hire for your accounting team to get that correct. But who did you hire for your accounting team to get that correct?
John Wilson: I mean, our controller's done an amazing
Jack Carr: job. Okay. So it was, it was the controller hire who was able to really drive the value in that.
John Wilson: So position I, um, I designed all the processes that we now run. My controller perfected them.
Jack Carr: Okay.
John Wilson: So like our initial cash flow forecast, I don't know what a proper accounting cash flow forecast. I know what [00:31:00] the one is. I designed at four 30 in the morning when I was drinking coffee on my treadmill was, and that's currently the process we use.
We just extended it out to 13 weeks from four. Uh, so all of our current cash modeling, which I don't think is great because clearly I would've been able to make better cash decisions than I did in the last 90 days.
Jack Carr: Yeah.
John Wilson: Um,
Jack Carr: because that, that's what we're trying to get. 'cause we made a, we made a big one recently where we paid off too much debt, kind of.
John Wilson: Oh yeah. Like yourself. That's dangerous. I
Jack Carr: thought that we were doing well and so we paid off a ton of debt that I was like, oh yes, good. We have this. Yep. We, we had this killer May. Yep. And we paid off debt. And then, um, this other bills came along that we thought we had an extra 50 K in the account for and we didn't have an extra 50 K in the account.
Yes. Yeah. So then it was. Very, we, we'll put it this way, at one point we were down to our last thousand in cash in the account.
John Wilson: Yeah.
Jack Carr: And scraped by payroll and like, just got everything through there by the, the skin on our teeth. [00:32:00] But like that's the kind of, if you don't have the good data Yeah. You make the bad decisions.
Totally. And then you can start driving towards those good decisions and good processes. Um,
John Wilson: that's what we're trying to hit now. Yeah. So like, hey, we have this acquisition debt from three, four years ago. We've been faithfully, you know, doing our thing. Paying, paying it. Uh, our cash position now feels really healthy.
Yeah. Uh, like we're good, which is fucking awesome. So now we're okay, how much should we pay off at what cadence? 'cause we will have tax, we have to deal with that. Mm-hmm. Uh, we do have some more CapEx, so it's just a different level of cash planning than I'm used to. Fortunately, like probably a couple podcasts and a like few articles will help like solve this for me.
Jack Carr: Yeah.
John Wilson: Um, but that's the current like step we're in on cash flow.
Jack Carr: Yeah, sorry. I'm trying, I'm so, like, I'm thinking about like, like where, where's the, where's the actual, right. So from, from the, the
John Wilson: tactical stuff. So that's what I was going TI really think like tactical, [00:33:00] uh, I think the easiest thing that everyone can and should do right now is start an automatic transfer to a savings account.
It sounds so simple and it sounds so dumb, and I. Don't care because it is simple and dumb. But it works. Like we have a, we have a transfer every single day. It's $8,100 goes from our operating account to what we call our capital account.
Jack Carr: Mm-hmm.
John Wilson: We pull, that's both a profit account or CapEx. So if I'm doing a big fleet investment, then I'm gonna pull out of that.
Um, but we've used that account for acquisitions over the years. We've used that accounts for whatever. Sometimes it's excess liquidity if we need it, but it, it's a savings account. Like that's it. It's a simple concept. Yeah. So I think like, don't overcomplicate it. Set up an automatic transfer. Same as you do personally.
Jack Carr: What do you think about, I mean,
John Wilson: and then spend less money. That one's. So what we've started doing, and this genuinely is helpful. Yeah. Again, this sounds [00:34:00] so dumb. This is like personal finance 1 0 1. That's kind of why I like it. It's like the bigger the business or like the more money it's like. At the end of the day, finance concepts are simple and I think we want to overcomplicate them, but like it's really saying spend less.
Spend less than you make. Just
Jack Carr: spend less money and make more money. Yeah.
John Wilson: Make more money. Spend less than you make and like automatically transfer and hide that money. Yeah. So like some of the stuff we do. Like we lock up money in CDs. So I'm a entrepreneurial person and I like to look for new opportunities.
So if I leave too much cash sitting in an account, my brain's gonna start being like, oh, maybe we should go do some real estate. Maybe we should go buy this magic the gathering business. You know, maybe we should go do this random thing. So we've started locking up money in CDs. Yeah, so the bank still gives me credit.
For having it. So like I get reduction of fees or I get, you need minimum balances as you, as the banking relationship grows. So I still get to keep that cash. It's locked up so I can't touch it.
Jack Carr: Mm-hmm.
John Wilson: I [00:35:00] get four or 5% interest on it, and my brain's no longer like, oh man, I gotta spend, I spend that. Spend this money.
I gotta spend this money. So, so that has been a huge win. Again, very personal finance 1 0 1, but like, hey. Anytime you have excess money, lock it up. Yeah. Today's break is brought to you by owned and operated newsletter. Go to owned and operated.com and sign up for a twice weekly drop that we send to 40,000 contractors with actionable tips on marketing, hiring, and growing your business.
Join the 40,000 other home service contractors already signed up and learning. Enjoy the rest of the episode.
Jack Carr: I, I think that it's, it's difficult sometimes too though, because Right on one hand, um, like growth and growth initiatives are naturally a spend. Right. It's like spend, spend, spend, spend, and then on, well,
John Wilson: I think there's moments.
Jack Carr: Yeah. There's definitely steps. So,
John Wilson: so we're in a moment right now, and I'm really trying to get it right.
Jack Carr: Mm-hmm.
John Wilson: We're in this moment where we, we have like a year, I think I said this [00:36:00] earlier, but um, we're knocking out record months, uh, in most departments. Yep. And it doesn't feel Herculean. Yeah. Like I'm sitting over here and just chilling with you and it's fine.
I'm pretty sure like sales are great and it so it, like we mach we turned it into a machine.
Jack Carr: Yeah.
John Wilson: And in every department we're like working on processes to continue to scale and like we're in this stage where we have to be thoughtful about how we approach growth. 'cause if I come in and fucking cowboy this thing,
Jack Carr: hell yeah.
In, in the style of John. Yeah.
John Wilson: Well my, my director of sales. He said it best when we sort of like had a conversation about this. Uh, he said, look, if all you wanna do is get to a hundred million of sales, we can get you there. I can't promise what state the business is gonna be in when you get there. And when I think about some of the [00:37:00] biggest fail public failures
Jack Carr: Yeah.
John Wilson: In our industry in the last couple years, businesses that went way high and then went way low. They hit that number and then they bounced right back. Like it was not sustainable. And I think it's because they didn't put in the work that we're putting in right now to build processes to make sure we're developing future leaders.
Like we are building the infrastructure from 30 to a hundred million today. And because we're, we're, we're still growing, like, we're 25 or 30% year over year. Mm-hmm. But we are intentionally not like going freaking balls to the walls this year. Yeah. Because we're trying to. Focus on our infrastructure. Is our platform secure?
Are we good to go? Can we scale all the different things we're doing? Is our sales structure good? Is our marketing structure good? Is our call center built to scale? And while we're doing that, is our balance sheet built to scale. So we've been able to like take a breath this year.
Jack Carr: Yeah.
John Wilson: And like. Get ourselves set up for success in the future.
I
Jack Carr: [00:38:00] mean, that makes a ton of sense, especially as you get bigger and you start to be able to actually optimize certain I items, or you start optimizing efficiencies in operations, you're starting to grow the amount of cash you have, and you could easily take that and just dump that back into the wrong spot in the business and then all of a sudden you're like, oh shit, I just ruined something.
Yeah. Like it, it's, it's the idea of like, I think a lot of small operators go, oh. There's no such thing as too many leads, but like there is, yeah, there's no such thing as too much of this or too much of good stuff, and there is, if you're not ready for it, you don't have the infrastructure behind it, so yeah.
I'm with you on that one. That one sounds good. Um, if there is a takeaway today, because I think this is a great, extremely granular episode where I wanna leave everybody with like, if you do one thing Yeah. Like what is that one thing other than I think the one squirrel some money away.
John Wilson: Yeah, yeah.
Jack Carr: Well, because like, how do you, I guess what I'm thinking is like, I could go to tonight and I could set up that and pull 2000 bucks off the account a day and call it a call.
That a win. I don't, but that's not the win. Like it helps with, dude, I don't know. It [00:39:00] helps with cash in like a savings account. But like at the same time, I still don't have good numbers. I don't know if I could afford two KA day. Yeah. You know what I mean? I don't have anybody in my business who could help build.
So I would start build, I would start slow systems. Like where do the systems come from that help you understand the what's going on, and then where's the systems. I actually don't think we should do operational systems just because like the hire doesn't matter unless the hire is specifically gonna build those operational systems.
Yeah. Yeah. So like what, what does that look like?
John Wilson: Well, I mean. Accurate and accurate and timely. Financials is important. So if that's a staff accountant, if that's a controller, if you're a $10 million business, like, I'm sure I've said this differently in the past. Yeah. But like John today would say, controller at 10 million is a great investment,
Jack Carr: focusing on quick and timely financials
John Wilson: and cash flow.
And cash, like your controller or whoever is in your accounting seat should be fanatically obsessed. Mm-hmm. With the cash flow and cash in that account. Like they should be obsessed, like my controller and [00:40:00] I talk. A lot, all day about cashflow. Like that's it. Yep. And if you don't have someone that is that freaking worked up about cashflow, you have the wrong person.
Jack Carr: And so that's the thing is like, that's me and there's only me in the business. Yeah. We are, you know, only half that size. But that's my next wonder is like, Hey, is there somebody. That could own this, and then really get those financials to the T so that we can then start actually really focusing on this.
Yeah. Um, probably not a controller level, but maybe a really good senior staff accountant or a staff accountant who is young and hungry. So if you're a young and hungry staff accountant who want loves cash flow dm, US dm, owned and operated. Yeah. And work with Jack. Yeah. It's fun. Yeah. I promise.
John Wilson: Could be.
Um, no.
Jack Carr: So,
John Wilson: uh, so yeah. And ouch. I, I, I do want to. So, yeah, getting tight, tight financials. Uh, it, I mean it could be like an agency type thing. Those like bookkeeping agencies, like I feel like those are fair game. It's whatever gets you tight. Financials.
Jack Carr: Yeah.
John Wilson: Timely. 'cause you need to [00:41:00] be able to make decisions and you need to understand the game.
Jack Carr: Yeah. I do think there's some strategy behind it that those, those agencies won't do. No, they won't. So like apple tree business, who. Sponsors job positions. Yeah. Patrick's great. Patrick. Patrick's amazing. Yeah. Like we are extremely happy with him utilizing him. But there is going to at some point be somebody that needs to be in your business who's working on kind of strategy.
And it's less so well maybe you, it's almost like analyst, you know what I mean? Maybe you
John Wilson: pair what could be, but I think don't overcomplicate it. I would just like bring on an accountant on top of a bookkeeping agency.
Jack Carr: Yeah. Which gives you less, gives the accountant less lift. So it could be maybe a, I can focus more s Yeah.
On strategic side. And my
John Wilson: controller right now is pretty day to day. 'cause we're like in the middle of a lot of projects.
Jack Carr: Yeah.
John Wilson: Yep.
Jack Carr: I love it. Sweet.
John Wilson: But yeah, and I, I do, I really wanna just reemphasize this is personal finance 1 0 1. Spend less than you make, make more money automatically transfer and lock it away like it's personal Finance 1 0 1.
If, like, I have friends who've been consistently squirreling away for longer than I have and like [00:42:00] not pulling it out the way I have for like, investing in new stuff. And they're sitting on like a cash ho five times the size of mine. Mm-hmm. Literally five times. Uh, and similar size business.
Jack Carr: So it talk about good retirement account,
John Wilson: it's, well,
Jack Carr: they're,
John Wilson: they're large, like the cash, what do you
Jack Carr: do with it when it gets that large?
John Wilson: It's becoming like the cash itself is becoming its own business. Yeah. Like the returns off it are spitting off like a third or 40% of the core businesses. Net cash. That's so cool. It's crazy. Yeah. Yeah. And he can, you know, he can take some swings. Swings that I can't take.
Jack Carr: Yeah.
John Wilson: So I do think the squirreling away and locking it up is like really important.
So we've really been working on this automated CD thing. Every time this one account hits a certain dollar amount, we immediately ye 200 grand into a cd. Yeah, just lock it.
Jack Carr: Look it up. I mean, I like that. And then if you know, it's going away as well from [00:43:00] like a cash flow perspective and planning, you just plan it out.
Yeah. And then somehow, I don't wanna say somehow you always make it, but like
John Wilson: if you know what's coming up Yeah. If you know what's coming
Jack Carr: up and you're expecting it, like you make it work. Yeah. Like that's what you plan to, to hit and win for like Yeah. I think it's great.
John Wilson: Yeah. Same
Jack Carr: sweet.
John Wilson: This was great.
Uh, if you've learned something about cashflow, make sure you're leaving the comments. I would love to hear it. Besides that, like sub and check out owned and operated.com. We have a workshop coming up in August and it's gonna be a ton of fun. Super fun. You're trying to break 5 million bucks.
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