Lessons from a Fast-Growing Company:
Managing the Growth and Getting More
A few years ago, the gut feeling was costs were just too high at RAM Pavement Services, a 10-year-old asphalt services company in Charlotte with more than two dozen employees. Though the business overall was doing well, President Rob Miller wasn’t sure he had the appropriate business practices in place for further growth and maintaining real control over his company. He also tended to buy equipment and hire additional employees based on intuition about when they were needed. But intuition can be expensive.
Then he started working with Lucrum Consulting. We talked with Miller about his experience and how some lessons from Lucrum could benefit other business owners.
1. Create a budget for your business. RAM had never prepared an annual budget before working with Lucrum. Even when your business is growing quickly, it’s risky to operate without a budget. Miller said expenses are bound to be higher without tracking them against a budget and income from month to month may not be what you imagine.
2. Understand your cash flow. Just like a budget is essential for controlling expenses , but so are cash forecasts based upon historic trends. How much income do you forecast for third quarter this year? How do you know? “Having forecasts helped me and my sales manager to grow the business in a faster and more efficient direction, not just by the seat of my pants, but with real data,” Miller says. He used the information to determine the most profitable types of clients and projects for his business, as well as those he should turn down.
RAM was also able to predict when cash would be tight and avoid making equipment purchases or hiring new employees during those periods. Another concern was the cash collection cycle, the time it takes from the begging of a job to when the payment is received. Using this information, RAM was able to shorten that period, increasing cash on hand.
If your budgeting and cash forecasting is done correctly, you’ll be able to anticipate issues that might arise a year from now and head them off before they become serious. You’ll also have a better sense of the right time to hire more employees.
3. Evaluate equipment purchases based on numbers rather than intuition. Let’s say Miller is thinking about buying a new dump truck. Previously he would have gone out and bought it. Now, to evaluate that purchase, he considers the costs to buy, insure and maintain the vehicle, along with the salary for the driver. If he used the truck for 35% of the year, would it be worthwhile to purchase? How about if he was able to get it at a lower price? Would renting be a better option? Miller encourages business owners to take the time to do this kind of logistical assessment for each of your major business purchases.
4. Plan for the costs of employees. No matter how many employees a business has, owners need to establish and maintain a plan for the employee-related expenses. Together, Lucrum and Miller created a spreadsheet to keep track of who qualifies for health insurance, a retirement plan, training, and other benefits. Miller recommends tracking when employees are up for a raise, and tell them before they ask to keep employee morale high (or, if their performance doesn’t merit one, let them know that, too.) Miller also recommends monitoring compensation to make sure your business stays competitive for the best talent.
5. Seek outside financial help if you need it. An outside CFO can create the kind of financial reports that help you make good decisions. For Miller, that’s Jeff Heybruck with Lucrum Consulting. The first full year of their partnership, RAM’s cash flow was better than it had ever been and revenue was up by 30 percent. “He works really well with our staff. They’re very comfortable reaching out to him with questions. He’s the go-to guy to keep our office going,” Miller says.
These changes may seem small but when combined they can be transformative for a business. According to Miller, “RAM is continuing to enjoy healthy growth” – and managing it well.