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On the surface things looked great. His
phone was ringing, he was very, very busy and a large amount of cash was
flowing though his checking account. But underneath this facade his
business was slowly coming apart. The rate at which leads were coming in
was slowing, projects were increasingly running over budget, customers were
becoming more difficult, surplus cash was shrinking… Although he was aware
of some of these issues, he believed that they were the result of growth and
were nothing to be concerned with. Sadly, due to this lack of concern and
good business and project oversight, late this summer his company
unraveled.
Following our brief
discussion on the phone we got together to talk further about his
situation. After further conversation it became fairly apparent what the
specific problems were:
- Although
having hit $4 million in sales this year he was projected to have a business
loss for the first time ever.
-
By focusing only on growth, his
once healthy gross margin (30%) was 1/3 of what it was three years earlier
thus cash flow and profit was nonexistent.
- His
long-held “quality contractor” reputation was severely damaged due to poor
project management, constant budget overruns and lack of financial,
operational and management systems and controls.
- His
overhead had grown by leaps and bounds and was now two-times what it was in
2006.
- His
fairly substantial retirement fund (that he had created over that last
thirty years) was considerably depleted because since the spring he has been
using it to sure up cash flow to keep his sinking company afloat.
- Lastly,
with the down economy, sales had significantly slowed and his three-month
backlog was now only one-month at best.
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