Let’s start with a quick, basic definition of cash flow: generally this is the amount of money being transferred into and out of a business, especially with regard to liquidity. It’s important to remember that “cash flow” statements conceptually are different from P&L, or profit and loss, statements. Accounting best practices determine P&L statements, which don’t necessarily monitor the amount of cash moving through your business.
Cash flow tends to be affected by these factors, especially in small business HVAC operations:
- Accounts receivable
- Accounts payable
- Capital expenditures
- Borrowings and debt services
- Timing differences
Here’s a quick example, from that Inc Magazine article linked above. It relates directly to field service. The author worked for a small business field service manager, who didn’t understand why he made money in a quarter -- but lacked the cash to pay his bills. The explanation:
In this case, the difference between his net income and his cash flow was primarily a result of the purchase of a truck for cash, sales made during the period that were not collected (accounts receivable), estimated tax payments made in an amount different than tax expense for the period, increased inventory levels in preparation for the coming selling season, distributions to the owner, and principal payments on a bank loan.
- Overall, this is the takeaway: You want to have positive cash flow in a business because it helps make everything else run smoother. Some of the most successful companies in the world -- Google (Alphabet) and Apple -- are thought of that way in large part because of their positive cash flow status. Now, if you run a small business HVAC shop in your primary geographic area, let’s be realistic: You will not have as much cash on hand as Google does. But there are ways you can improve your cash flow!
Most of positive cash flow in small businesses comes from effective tracking/monitoring of different aspects of your business, and that usually comes from integrated systems. In the case of an HVAC company, FSM software is usually the best bet. FSM software helps you integrate:
- Customer information
- Scheduling and dispatch
- Sales and marketing
- Anything else you want to integrate (document storage, email, etc.)
Typically, the primary benefit of FSM software is that it allows for better communication and more transparency so that different silos within your business all can arrive at the same page. This usually makes your decision-making and data analysis more effective.
But in a cash flow context, FSM software tends to shorten the cash flow cycle for businesses -- which is really useful in an SMB context. Better invoicing and billing (which happens with FSM software) leads to shortened billing cycles and more accrual of revenue; you can also use a metric within your FSM software, such as “Completed Jobs vs. Invoiced Jobs,” to showcase how your cash flow is moving relative to jobs you’ve billed out for.
Positive cash flow is all a part of getting the most out of your FSM software. How do you do that? And how can FSM software lead to increased profitability? We prepared a guide for you, which you can easily download now.