How To manage your cash so it flows predictability and freely

When you're a business owner, you struggle so much with cash flow. It seems when we have these conversations with so many different business owners, one of the biggest questions we get all the time has to do with various elements of cash flow. These questions come to us at different times and in different ways.

Hey, it's Scott Beebe with Business on Purpose. Delighted to bring you some content that I think could be encouraging and helpful to you around this idea of cash flow.

Before I dive into this, one thing I want to let you know is if you're not living a life of generosity—and I'm talking about monetary generosity, not just other types—you will always, always struggle with money. There's a sort of spiritual law around this. You can go back millennia and realize that money is one of the top topics discussed in all of history. A lot of it has to do with the fact that we're not taking parts of it, cutting them off, and moving them to other places. We've got to be mindful of this idea of generosity.

But we also have to ask the question: Why do we not have as much money as we think we should as business owners? I want to walk you through this. To demonstrate the importance of understanding the full fiscal picture, I want to discuss an example about a man I'll call Steve. This is a real client of ours, but I've changed his name.

Steve owns an $8 million high-end new construction home-building business in California—a tough state for building due to strict credentialing regulations. This context sets the stage for the financial challenges he was going to face as 2020 began. You might think, "Well, that’s a pretty old example." Yes, but I’m using it because the pandemic made things even harder. Even though many construction companies started booming, cash flow issues persisted.

Steve, like all of us, was unaware of the impending pandemic, but his financial situation was already precarious. At the end of 2019, we examined his cash position and suggested subdividing his bank accounts to better track and manage his finances. Steve trusted the advice, and we set up several accounts—about six or seven—including an all-income account, a profit account, an operating expense account, an owner’s compensation account, a capital expenditure account, a tax account, and a few others.

Initially, Steve believed he had a comfortable cash balance. He looked at his one bank account and saw $160,000 to $170,000. That might seem substantial to some, but for running an $8 million home-building company—where upfront cash is needed for projects—it was quite lean. As we broke down the balance, his true financial picture started to emerge.

We explained that a large portion—about 80%—would go to the cost of goods, including labor and materials. The realization was eye-opening for Steve. He knew the number but had never thought about it in these terms: for every dollar that comes in, 80 cents goes right back out. We also pointed out the need to set aside funds for taxes, reinvestment, equipment, operations, payroll, and other necessary expenses.

After segmenting the $160,000 to $170,000, the stark reality became clear—Steve really only had about $32,000 of available cash to run his $8 million company at the start of a pandemic year. The revelation was shocking but crucial for understanding his position. His scenario illustrates a common issue among small business owners, especially those with 3 to 100 employees. Many believe they have more available cash than they do because they fail to account for upcoming expenses and obligations.

By breaking down the numbers and allocating funds to specific accounts, business owners can gain a clearer picture of their financial health and make more informed decisions. For Steve, this realization came just in time. With the pandemic looming, having a precise understanding of his available cash allowed him to navigate the challenging months ahead.

This experience underscores the importance of proper financial management—what we call the past, present, and future view. I’ll talk more about that in an upcoming podcast, but for now, let’s focus on subdividing multiple bank accounts. Instead of putting all your money into one account, break it up. Why? If you put popcorn in one big bucket, you’ll eat all of it. But if you spread that same volume of popcorn across 10 buckets, you’ll feel guilty by bucket six and slow down.

Once we identified the problems, we focused on improving Steve’s cash balance. The key question became: How do we generate money that can be used for profit, bonuses, incentives, and essential business activities while maintaining generosity? We wanted to position him for radical generosity.

To simplify the process, we focused on tracking his cash balance weekly. We enlisted his in-house administrator to monitor the bottom-line cash balance, considering all expenses, including the cost of goods and profit. We calculated an eight-week rolling average to prevent cherry-picking favorable numbers. Initially, Steve’s weekly rolling average was $81,000. Fast forward a year—despite the pandemic, a drop in revenue from $8 million to $7 million, and a six-week municipal construction shutdown—his rolling eight-week cash balance grew from $81,000 to $320,000.

Four to five years later, the business is now projected to generate $17-18 million in revenue. Not only has revenue increased, but the cash balance has grown substantially. Today, his average rolling cash balance is between $800,000 and $1.3 million every week—before accounting for costs and expenses. The transformation has been extraordinary.

When asked what he did differently, Steve humorously says, "I think it’s voodoo." But it’s not—it’s simply the psychology of money. Subdividing your bank accounts and understanding financial behavior can lead to profound results. His case illustrates the power of consistent tracking and focusing on cash balance. By maintaining a vigilant eye on finances, making informed decisions based on real-time data, and having a heart for generosity, businesses can withstand unexpected chaos and achieve remarkable growth that benefits many beyond just the owner.

This story is in my new book, The Chaos Free Contractor, available on Amazon. Also, if you want to check the financial health of your business, visit mybusinessonpurpose.com/healthy and take a five-minute assessment to see how the behavior of money is affecting your business.

 

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