Mike Andes (YouTube) explains that many home-improvement and service-based small businesses lose cash during the spring rush even while revenue grows. Causes include hiring, advertising, equipment and truck purchases, and inefficient labor as new hires ramp up. As a result, businesses often don’t reach cash break-even until May–July; Andes notes growth above ~15–20% year-over-year materially increases cash demands. He advises tracking the calendar date when your bank balance returns to the January 1 level (cash-based break-even) and emphasizes monitoring cash accounting rather than accrual accounting.
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Today I'm going to be giving the raw and unfiltered truth about home improvement small businesses and how most of them will actually take three, four or five months to get to profitability when it comes to the beginning of the year.
So if you are in lawn care, landscaping, roofing, construction, whatever might be. Most of us have a spring rush. A time when the phone is ringing off the hook, customers are calling and we're growing our businesses, but our cash flow and our bank statements don't show it. We literally start to run out of cash during the time when we are the busiest. And the reason for that is this. During the spring rush you are hiring people, you're advertising, you're buying trucks, you're buying equipment, and all of that puts a massive drain on your cash reserves. And so what actually happens for most small businesses, because the main reason I'm making this video is so you don't feel like a loser, because no one talks about this. Most small businesses, if you're growing, actually lose money from a cash flow perspective during those months. And I still remember when it would take me till June 1st just to get above zero for the calendar year. So in January we weren't very busy busy. I might lose five or ten thousand dollars in my business. And in February we were ramping up, getting ready for spring rush. We were hiring and buying new stuff and new equipment and all the rest of it. And I'd go 15, $20,000 down and then March. We had a very inefficient labor because all these new hires and people break stuff and yellow slips and damage cases and all this stuff is happening. I might lose more money. And even though the business now, the revenue is growing, everything like that is just going up and up and up and we're growing the company. But from a profitability standpoint, I'm actually losing money every single month. And it wasn't until March and April, then May and. But then in order to actually become above zero, I've got to be profitable with that same 5, 10, $20,000. So before I actually hit zero, literally we would talk about June and sometimes into July. Before I was above zero. Now this is not uncommon and the main reason I'm making this video today is so you don't feel like a loser because this is happening to you. This is very, very common in service based businesses that are seasonal and are growing. And when I say growing anything above 15 to 20% year over year growth is relatively substantial and is going to there impact your cash reserves. You cannot Grow a business by 50, 60, 80, 100% a year, year over year, and expect there not to be massive cash draws in the form of equipment, trucks, capital expenditures, hiring, advertising and everything else that goes into growing a business. So what are we supposed to do about it? Well, obviously it's not a good thing, but what you want to track is how long does it take you to get to zero. How long does it take you to go through that trough of profitability as you're growing the business in the spring rush and actually become profitable and then actually get to zero? There should there be a date on your calendar that you search circle every single year so as you grow the business, you can track this. In my opinion, most people don't fail in business because they don't have good numbers. They fail in business because they don't know their numbers. There's not a right or wrong. It's about knowing what that number is and then tracking it over time so you can see your performance and see which way you are trending. And so what I would recommend you do, look at your cash flow statements, look at how much money is in the bank account and determine when you hit the zero and then circle that date on the calendar. Now this is not accrual based accounting which you're going to use for taxes, where you don't take into account the fact that when you spend $15,000 on a piece of equipment, your bank balance goes down $15,000. When it comes to accrual accounting, it's not going to say that. It's going to say, oh, we're going to amortize it over five years. But you can amortize things till you're blue in the face. But if you run out of cash, the business is going to fail. And the, you know, accrual accounting and depreciation doesn't pay for your food or your bills. So you got to keep track of your cash accounting and actually determine when from a cash perspective you get above zero. And do not be alarmed. Do not be surprised if you're growing very quickly or you are new to the business in the first five years of your business being in operation, that it can literally take till May, June or even July to get above that zero marker. And then usually the second half of the year for service based businesses is where we see most of our profits. I've seen it where 70 to 80% of profits are made in the second half of the year because by then you don't need more trucks, you don't need more equipment. You don't have to establish a new team of employees because you've already trained them up. Now they're efficient. Now they're much more profitable. You've kind of figured out certain systems or glitches in those systems to be able to be more efficient. That is when you actually make most your profit. But this is what I want you to determine and this is why I want you to track. What day of the year are you hitting break even? What day of the year have you dug yourself out from a cash perspective? And your bank balance basically hits back what it was January 1st. And do not be surprised, do not be alarmed if that takes longer as the business grows, as it improves and then stabilizes its growth. Growth stabilizes profitability. You can literally start to become profitable in January and February. That typically is going to be a lower growth business that doesn't require as much capital expenditure during the spring rush. If you're going into the spring rush, watch this video here. These are some tips that I would recommend you get ready for the spring rush and make sure your business is ready to scale during a time when all the leads are coming in.
