Today, we're kicking off a new series called "Advisor Success Stories,” where we delve into real-life situations where businesses have reaped the benefits of financial planning and analysis services.
Sure, you may have heard a lot of general talk about CFO or FP&A (financial planning and analysis) Services, but let's bridge the gap between theory and practice and explore a case study that showcases how a client greatly benefitted from implementing a budgeting and forecasting process.
Meet the Advisor
Our first interview is with Bruce Benes, who has been in the Fractional CFO space for over 13 years. Bruce does not typically perform the accounting services directly, but he is heavily involved in communicating with his client’s accounting team to tell them what he needs from an FP&A perspective. Bruce partners with, and mentors, other business advisors who want to bring these services to their clients.
The Client’s Journey
Bruce’s client is a construction contractor that specializes in municipal infrastructure projects. The business started small but rapidly grew over the last few years. As part of the growth, they acquired a large fleet of construction equipment, and they started getting to a point where the debt service was unsustainable. Bruce was contacted by the bank and brought in to help before it was too late.
The company is run by a husband-and-wife team. The husband (John) performed all the sales/bidding and day-to-day site management. The wife (Jane) ran the back office and performed all accounting duties. As is frequently the case, there was a disconnect between the aspirations of the person growing the business in the field and the person paying the bills.
The company had two primary revenue streams: New Construction and Service.
The New Construction jobs were typically much bigger and drove in significantly more revenue. They required a bigger, more diverse fleet of construction equipment, but each piece of equipment was only used for a small portion of the project. Because they only had one person winning engagements and managing the jobs, they did not have enough job volume to keep this equipment utilized.
The service jobs were smaller from a revenue perspective but were significantly more profitable. They were often driven by some sort of failure that required immediate attention and were not required to go through the arduous RFP/bidding process associated with new projects. These service jobs can be done with a much smaller fleet of equipment.
It became clear to Bruce that the company could generate more profit by focusing on service work despite significantly less revenue. Jane was immediately supportive of this approach; however, it was not as easy for John to dial back his ambitions. Despite the stress of losing money in 2022, John still thought they could grow enough to increase their equipment utilization and get back in the black.
Shifting the Client's Mindset for Success
Bruce built a detailed 2023 forecast that perfectly aligned with their QuickBooks account structure. Bruce was able to tell a detailed, account-by-account story of how they were going to generate more profit even with less revenue. There are no shortcuts when trying to help a business through such a big transformation. A few back-of-the-envelope calculations cannot persuade someone to make the right decision if their heart is not into it.
John’s attitude changed when Bruce presented his 2023 Service-only forecast. Bruce demonstrated how selling the New Construction equipment would immediately generate cash (the book value of the equipment was greater than the loan values) while cutting interest expense in half. John agreed that if he spent less time trying to win the larger new construction projects, he would have more time to be in the field managing more Service business.
John’s aspirations to stay in both new construction and service depended on successfully conquering several obstacles, that he had no defined solutions for. Conversely, the forecast that Bruce put together was built on things they knew they could accomplish. The decision became easy for John when he was presented with a path to success that was relatively stress-free.
John and Jane successfully transitioned to a Service-only model and sold much of their equipment. This freed up cash and returned the business to profitability. Now that they’ve worked through the large challenges, Bruce meets with them for about 2 hours a month to compare budget vs actuals and re-spin the forecast.
Being Smart and Agile in Future Decision-Making
One of the pivotal issues that Bruce discusses is the importance of having a network of people who understand your services and offer complimentary services. He leverages the PlanGuru Partnership Program to help connect him with other business advisors who offer complimentary services.
The ongoing process of monthly re-forecasting is critical to how the company makes decisions. For a construction company that is working on large projects, the value of this cannot be understated. They are now profitable and ready to intelligently analyze large decisions on the fly.