Executive Summary
Mastery Fractional CFO Services worked with a client in the construction industry to overcome financial inconsistencies, streamline operations, and achieve substantial profit growth. Through strategic financial planning and process improvements, the client's net profit increased by over 700% in 2022 and continued to grow significantly in the following years.
Client Background
Industry: Construction industry
Employees: 10-15
Structure: Corporation with a single shareholder
Service Areas: Diverse client base
Engagement Start: mid 2021
Challenges
Initial Situation:
The client’s business had been operating for many years. The company’s annual profits had been spotty, with some profitable years, and some years with losses.
The owner paid himself a wage, but it was minimal, and he worked long hours. He wanted to achieve better and more consistent financial results for his efforts.
The company’s executive assistant performed the company’s bookkeeping, and they had an accountant file the corporate income taxes each year. Although the bookkeeping records were being looked after, there were inaccuracies, and they weren’t up to date.
Solution
Phase 1 (mid 2021):
Cloud-Based Accounting: We (Mastery Fractional CFO Services) transitioned the company to a cloud-based accounting platform, and worked with the company’s executive assistant to improve their bookkeeping methods and record keeping processes.
Financial Statements: The changes made enabled accurate up-to-date financial statements, which allowed us to proactively identify trends and areas for improvement.
Phase 2 (beginning of 2022):
Financial Literacy: Educated the owner on interpreting financial data for better decision-making.
Role Definition: Clarified the roles & responsibilities of the people working for the business. This helped the business owner focus on the high-value tasks. Our primary focus was on making sure the accounting and finance aspect of the business was being provided with necessary information from the other parts of the business. At the same time, this helped provide structure for the company overall.
Profit Increase: By the end of 2022, the business had increased its net profit relative to 2021 by over 700%. 2021 and 2022 were the first two years in the available records (dating back to 2014) during which the business had back-to-back years with increasing profits.
Phase 3 (2023):
KPI Monitoring: Developed a financial KPI (key performance indicator) dashboard and used them in regular performance reviews with the owner and key members of his team.
Cash Flow Forecasting: Used proper cash flow management techniques to help the owner understand and plan for the timing & impact of different decisions on his available cash.
Salary Increase: Encouraged the owner to increase his personal annual salary significantly. Despite the increased cost of the salary, the business increased its year-over-year net profit again, this time by 75% over the previous year. In 2023 the net profit was over five times the company’s average annual net profit from 2014-2022.
Phase 4 (2024):
At the end of 2023, we began planning, budgeting and goal setting for 2024. The company was growing, but some capacity constraints were beginning to arise.
The owner of the company discussed with us a variety of ideas he was considering, including moving to a larger facility, purchasing equipment, and hiring new employees. We ran the numbers (the budget, the profit & loss forecast, and a cash flow forecast) and discussed likely implementation timelines with the owner. We all decided that the owner’s ideas would likely be good options in future years, but for 2024 there were better options.
We looked at what would produce the best return on time, money and effort, and how to best position the company for future profitable growth.
The strategy we arrived at was to focus on increasing the company’s revenue, without adding additional labour or capital costs. The goal was to focus on increasing revenue, without increasing fixed costs, so that much of the additional revenue would flow directly to the bottom line. To achieve this, we focused on:
How the company prices its services.
We collaborated with the company’s vCIO (virtual or fractional Chief Information Officer) to develop a tool that enabled the company’s executive assistant and operational supervisor to input the key pricing variables for each job into a spreadsheet-based pricing tool, and calculate an estimated price for each project. Before this, the owner was the one who did the company’s pricing.
The tool made it so that the owner could focus on confirming or adjusting pricing on a priority-sequenced basis. Some small jobs didn’t require his confirmation at all, and the ones that did required less of his time because much of the preliminary information had already been processed.
Increasing the minimum charge for small jobs. Traditionally the company was pricing on a per square foot basis, but in collaborating with the company’s vCIO and using data from the company’s ERP (Enterprise Resource Planning software) we found that pricing small jobs by the square foot wasn’t effectively factoring in costs for things such as travel time, set up time on-site, clean-up time, etc.
Adjusting prices to keep up with inflation, and focusing on jobs and product types that produce relatively high gross profit margins. We showed the owner with our financial models that he could make more money by focusing on some jobs at the expense of others, and how doing more jobs wasn’t necessarily better than doing more of the higher margin jobs, even if the company won fewer deals overall.
Increasing the efficiency of the installation employees to free up capacity for performing additional work.
We encouraged the owner to begin managing the efficiency of the installation staff so that more jobs could be completed without adding new staff.
He began by emphasizing directly to the staff the importance of productivity.
In 2025 we plan on introducing metrics to measure the efficiency of the staff, as well as ways to incentivize efficiency with a compensation model that rewards employees for being more efficient.
Improving inventory management by tracking inventory more closely to make the most of the company’s available storage space, increasing inventory turns, and taking advantage of opportunities to purchase strategically (i.e., at a sale price).
We’ve worked regularly through the first half of 2024 with the owner of the company, the vCIO, and the executive assistant to execute our plans. We’ve made course corrections, and we’ve taken advantage of opportunities that have presented themselves.
The aggressive targets we set at the beginning of the year were as follows:
I. Grow top-line revenue by 15%
II. Increase gross profit by 13%
III. Increase net profit by 50%
IV. Maintain great cash flow
As of June 30, 2024
I. Revenue is trending 3% above of the year-to-date target
II. Gross profit is trending 21% above of the year-to-date target
III. Net profit is trending 25% above of the year-to-date target
IV. Cash flow has been maintained above target level
Plan versus Actual Metrics as of June 30, 2024
As well, the owner is training & developing key employees to take on more of the tasks that he used to perform, which is allowing him to spend more time working on high value tasks – further contributing to the success of the business.
Conclusion
Summary of Success:
Mastery Fractional CFO Services provided valuable financial guidance, leading to significant profit growth and operational improvements. The company is on track for another successful year, with proactive planning for 2025 underway to align business goals with the owner’s personal objectives to enhance the company’s value for future investors.
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