Keys to a profitable, financially stable business

January 15, 2014 -  By

This post is part of a threefold summary of A Better Way 2 Learn Financials’ 2013 Financial Management TeleSummit.  Presented by A Better Way 2 Learn, Go iLawn and Landscape Management, the event was held in three, live, hour-long segments Dec. 3 to Dec. 5.  This is a wrap-up of the conversation “The Keys to a Profitable and Financially Stable Business,” held Dec. 4 with guests Jim McCutcheon and Erin Milam.

Jim McCutcheon has made some arduous financial moves in his time as CEO of HighGrove Partners, which ranked 88th on the 2013 LM150 with $14.4 million in 2012 annual revenue.

There was the time in 2001 when he bought the Austell, Ga.-based company from Post Properties to operate it the private sector. And then there was the time, in 2004, when he made drastic changes to get it running with the mindset of a small business rather than a multinational corporation.

Perhaps the most comfortable financial move he made, though, was in 2010 when he hired Erin Milam as CFO.

Her job is to keep company goals at the forefront of her financial decisions, keeping her eyes on the road ahead while McCutcheon, in CEO fashion, is “constantly looking through the rearview mirror” at financials.

It’s financial moves like that—looking for ways to leverage sales and profit—that create profitable and financially stable businesses, said telesummit moderator Chris Heiler, in reference to Inc. magazine‘s article “4 Smart Financial Moves for Businesses.”

Heiler, president of marketing agency Landscape Leadership, shared the list with McCutcheon and Milam for a HighGrove perspective and to find out if the company saw success from making similar moves.

1. Know your net profit.

“It is the final and ultimate indicator of the company’s overall performance,” Milam said. “That’s something everyone in top management should be aware of.”

Milam and McCutcheon view profit differently because of their positions, though.

As CEO, McCutcheon relates net profit to HighGrove’s 10-year tax planning, cash-flow program, which he said is the bedrock of the company’s financial department.

Milam, however, keeps a closer eye on gross profit and contribution margins than net profit.

Contribution margin, for instance, “will let you know how everybody is performing and at what operational sufficiency” because this figure reveals how much it costs to operate outside of corporate overhead, she said. 

2. Think (cash flow) positive.

It’s “obviously” natural and necessary to strive for positive cash flow, Milam said, but it’s especially key to not lose focus of cash flow in financially sound times.

“Not only does (cash flow) save you in bad times, but it also allows you to take advantage of good opportunities when things get better,” she said. “It enables a lot more freedom to push growth more quickly.”

Leading into No. 3, she added, “If you are more financially sound and healthy, you’re more likely to have a bank be able to extend you a line of credit that allows you to better manage cash.”

3. Borrow wisely.

Borrowing money boils down to the relationship you have with your bank, McCutcheon and Milam concurred.

McCutcheon credits the close relationship with his bank for his ability to buy out his partners in a financial downturn. Because the bank knew how his company functioned and that it was reliable to pay back borrowed money, the bank was more willing to lend.

Milam has kept up that relationship-centric manner since joining HighGrove four years ago, too, saying she aims to be more proactive than reactive with the bank.

Business owners need to move away from the mindset “as long as I don’t hear from my bank, it’s a good thing,” McCutcheon added.

4. Look for ways to leverage sales and profit.

HighGrove puts a bulk of its profit toward replacing vehicles and equipment every three years, and it aims to make those purchases prior to the yearend for tax benefits under the Section 179 Tax Deduction.

“You don’t want to over extend yourself just to get a tax benefit out of it,” Milam cautioned, though.

Additionally, she said if you must accumulate debt to leverage your business that can be OK.

“Leveraging your business is what you have to do to grow,” she said. “I do not see debt as a negative thing at all. It just has to be watched very carefully.  You have to make sure you don’t get in so deep there’s no way to get out of that situation.”

McCutcheon emphasized to invest your money—borrowed or from profit—in the right place, meaning your company. Speaking to CEOs, he said to get visualizations of boats, vacations and toys out of your head and hire a CFO instead.

“Understanding exactly what your vision is, having a plan to make that happen and using those resources wisely is how you win this game in the long run,” McCutcheon said.

For more content from the 2013 Financial Management TeleSummit, see “Building a business you can sell,” a summary of the Dec. 3 segment, and “Communicating financials with your team,” a summary of the Dec. 5 segment.

About the Author:

Former Associate Editor Sarah Pfledderer is a West Coast-based contributing editor for Landscape Management.

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