ruth-king-squareIn this episode, we talk with Ruth King who is an expert at helping contractors manage their cash flow and create profits into dollars. You will learn how to read a cash flow statement and we will share the right template that you can use so you will never have to worry about cash flow.

Ruth King is well known as “The Profitability Master.” She is passionate about helping small business owners get profitable and stay profitable.

Ruth is a serial entrepreneur having owned 8 businesses in the past 37+ years. She has a knack for helping business owners truly understand financials, and then apply their knowledge to fuel massive growth, income and profits.



Narrator:        Welcome to Cracking the Cash Flow Code where you'll learn what it takes to create enough cash to fill the four buckets of profit. You'll learn what it takes to have enough cash for a great lifestyle, have enough cash for when emergency strikes, fully fund a growth program and fund your retirement program. When you do this, you will have a sale‑ready company that will allow you to keep or sell your business. This allows you to do what you want with your business, when you want, in the way you want.

In Cracking the Cash Flow Code, we focus on the four areas of business that let you take your successful business and make it economically and personally sustainable. Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he's learned through his 40 years of owning, running, planning, and thinking about what it takes to make a successful business sustainable and allow you to be free of cash flow worries.

Josh Patrick:   Hey, how are you today? This is Josh Patrick. And you're at Cracking the Cash Flow Code. And my guest today is Ruth King. And we are in for a treat because Ruth is an expert at helping contractors manage their cash flow in cash and create profit into dollars they can actually put into their pockets which is something that our friends in the construction business really need.

Now, for me, this is a real treat having Ruth on today because we often get people who are generalists in the world of management. But this is one of those great times where we get somebody who actually specializes in working with blue‑collar business owners and there is nothing more blue collar than a contractor. So, let's bring Ruth on and we'll start the conversation.

Hey, Ruth, how are you today?

Ruth King:       I'm doing great. How are you, Josh?

Josh:                I'm doing well.

So, tell me. Let's start with cash flow. How do we manage cash flow for-- or what’s the biggest mistake that contractors make when it comes to cash?

Ruth:               It's very simple. They don't check their bank account every single day.

Josh:                It's really that easy?

Ruth:               It is that easy. Now, obviously, there's the profit piece of it and everything else like that. But the most critical thing that you absolutely need to do is check your bank account every day. And I'll tell you why.

One of my client’s bookkeeper was looking at the bank account every day. The owner never bothered. He said, “Okay. Andrew’s taking care of it. So be it. I don't worry about it.” And one day, he noticed these two little deposits, you know, one was like 22 cents and the other was 70 some odd cents, or whatever it was. And he said, “Ah, the owner’s just setting up a new account somewhere or whatever else it is.” So, the next day, got a phone call from the bank. Somebody was trying to withdraw 50 grand out of their bank account.

Josh:                That's not a very good day.

Ruth:               No. Well, they caught it. That was number one.

Josh:                Yes.

Ruth:               But the reality was had he been looking at it rather than the bookkeeper, he would’ve said, “What the--?” Knowing his personality style and how he likes to talk about language, he would’ve said, “What the (blank) is this?” And he would've called the bank. And they would’ve found out what it was. And they would’ve immediately shut down his account, right?

So, it takes you five minutes a day to look at your bank accounts, all right? And you can be in your office. You can be on vacation. You can be in Hawaii. You can be in Europe. You can be anywhere in the world that has a place that you can log on to the Internet and look at your bank account. So, no excuses for that.

And the reality of it is is not only would he have caught that little two cent‑thing but you, as a business owner, can see all the deposits, all the withdrawals, all the ACHs that are going in and out. And many, many, many times embezzlers know that you never look at the bank statements, so they write checks to themselves or they do ACHs to themselves or something like that, because you don't look at the bank statement. It really and truly is the first line of defense, you know.

And so, that is the fundamental basic thing that you’ve got to do first. All right? So that makes sense?

Josh:                It makes a lot of sense. I've been doing that for a zillion years. My father taught me 45 or 50 years ago about the concept he called checkbook accounting. Essentially, checkbook accounting was, if your bank balance is growing, you're doing well. If it's not, you’ve got a problem.

Ruth:               Well, that's not exactly right either.

Josh:                No, it's not but in the vending business it actually was right.

Ruth:               Okay. In the vending business it is because you're in a situation where everything's cash.

Josh:                Yeah. Well, it was cash business so we could tell by that. I mean, in a construction company, it certainly is not the thing you need to be looking at.

Ruth:               Right. And I'll give you another story about that one. Two contractors started a business together. They grew it from zero to $2 million in 12 years. They only looked at their checkbook, i.e. checkbook accounting. And as long as the company was growing, they always had cash finishing one job to start the next job and they always could pay their bills. They took their discounts. They didn't have any problems paying payroll, or their vendors, or anything along those lines. And they hit $2 million and growth stopped. Literally, just flattened out.

And so, they started not being able to take all their vendor discounts every once in a while, having problems making payroll once in a while. And they're like, “Hey, we've always had cash. Wait. We're a $2‑million company. This shouldn't be happening.” Well, they were smart enough to get some help, so they called me on the phone. And long story short, they were losing a nickel for every dollar they took in the door for 12 years.

Josh:                To what? What were they losing a nickel to? You mean, as far as profit goes?

Ruth:               No. What they were doing is they weren't pricing their products-- you know, pricing their construction products high enough.

Josh:                Ah, I see.

Ruth:               And they never saw it because the money from one job did the next. They never looked at a P&L to see whether they were profitable. They were only looking at cash, all right?

Profits and cash are two totally different things. You can be profitable and have no cash in the bank. And you can be having a loss and having a lot of cash in the bank.

Now, you can't have losses for very long because the cash in the bank will go away. But the reality is--

Josh:                Unless your name is Amazon, then you can do it.

Ruth:               Well, Amazon's not a contractor, okay?

Josh:                Right.

Ruth:               So, you're in a situation there. I mean, it literally is, you know, they didn't pay attention to inventory, cost of goods, how much time the guys were actually spending doing the work. If they did the job for 16 hours and it took 20 who knew because all they cared about was cashflow. Did we have enough cash in the bank to pay our bills, take our discounts, pay payroll?

Josh:                Yeah. And even a P&L is not enough for you to look at. If you don't have a cash flow statement. And for those of you listening who don't know what a cash flow statement is, the first thing you need to do, in fact, stop listening right now. Get on the phone. Call your accountant and make an appointment--

Ruth:               No, no, no. Call me. I've got one.

Josh:                Okay. Call Ruth and she'll teach you how to read a cash flow statement. Because the truth is, if your business is growing, which is what your contractor example was, it covers up for a whole multitude of sins until you stop growing. And you'll never know that unless you're looking at a profit and loss statement. A cash flow statement. And if you really want to get fancy--

Ruth:               And a balance sheet--

Josh:                --start doing. A balance sheet. But start doing P&Ls on your jobs.

Ruth:               Yep.

I have a template that they can use. I'm happy to share it with them. I have a weekly cash flow report that they can use and I'm happy to share it with them. If you find me, it's [inaudible 00:07:49].

Josh:                Oh, I'm sorry. Do let me change that.

Ruth:               Yeah. So that's--

I mean, I'm happy to share it with you. The really interesting part of all of this, you know, I love working with contractors. You are all really, really smart people. You care. And I hate seeing you, you know, work your butt’s off for no cash and, you know, no profitability.

The thing that I use, quite frankly, is I don't believe in percentages which, Josh, is probably something else we should talk about. I believe in numbers. So, like, at the end of the year, if you have a 10% net profit, or a 5% net profit, or whatever it is, you can't go to the bank, go to the teller and say, “Here's my 5% net profit. Will you deposit it in my account?” The teller will look at you like, “What the--?” You know, “What's going on here?” type thing.

So, what you truly can manage and what you truly can count is dollars right? So, I look at it, for every billable hour, how much drops to the bottom line, right? And I'm not talking about total hours because your guys have vacations, holidays, trainings, meetings, you know, whatever else it is. I am talking about every hour you can bill a customer for. That's it, only billable hours. And it's never 2,080 hours a year because you pay for vacations. You pay for holidays. You pay for sick, some of you, and stuff like that.

And, you know, most of the time we start making this calculation the first time. A lot of times it's like $4.17 an hour. I had a $4‑million contractor who I went in to try and help. And when we did the numbers, you know, he was $4.17 an hour, and he goes like, “Oh my gosh.” Because you don't realize it because you only care about the percentages. Start looking at the dollars.

Josh:                Yeah. I'm going to push back just a little bit. I think you need to look at both.

Ruth:               Why? I can show you a contractor, both of which who had 10% net, one was earning 10 and one was earning 50 net profit per hour. Which would you rather be?

Josh:                Well, I think you need to do both. I really do. I think that percent’s are important because those tell you what you're doing as a percent of something and dollars are what you spend. So, I agree with you need to look at dollars. I also would say you need to be looking at percent’s. And you need to be looking at the changes where your cash is coming from.

Ruth:               Okay.

Josh:                More importantly, what you really need to do is have a dashboard.

Ruth:               Yeah.

Josh:                And that dashboard needs to tell you a whole bunch of stuff. So, I know what I put on my dashboards. What do you put on your dashboards, Ruth?

Ruth:               I put on revenue.

Josh:                Yep.

Ruth:               Gross profit.

Josh:                Yep.

Ruth:               Not gross margin, gross profit.

Josh:                Yeah, okay.

Ruth:               And the reason why I don't use gross margin is because it's a percentage again. I can show you [inaudible 00:10:35].

Josh:                Yeah. I look at both. If you're not looking at percent’s, I'm going to tell you. you’ve got to be looking at both.

Ruth:               Okay. I will tell you. And I will show-- I mean, and we can go offline and talk about this. I can show you two jobs, both with 40% gross margin. One made $73.37 an hour. The other lost $21 an hour.

They paid the customer, same gross margin. I can show you a 19% gross margin that netted 52 and, at 64%, he netted 48. Margins don't matter.

Josh:                Yes, they do. They do.

Ruth:               Okay.

Josh:                I mean--

Ruth:               You and I both have a disagreement on that.

Josh:                I'm going to tell you. We’ve just got to agree to disagree on this.

Ruth:               Okay. That's fine.

Josh:                You know, it's--

And the other thing you want to be looking at is-- and, again, I am-- and we're probably going to disagree on this also. But the truth is, if you're charging by the hour for anything, you're limiting how much money you can make in a very serious way.

Ruth:               Yep, I agree.

Josh:                So, what I look at, is we look at efficiency per hour that people spend. In other words, if I'm paying you for 40 hours a week, how much of that time are you actually working?

Ruth:               I call it a productivity ratio.

Josh:                Yes.

Ruth:               Same thing.

Josh:                And, for me, that is a hugely important thing. I see a lot of businesses, a lot of contractors, where their efficiency ratio was 50 or less. And the truth is, they just don't really know how they're doing.

The other thing about dashboards which I think is really important, Ruth. And again, we may disagree a bit on this is that, for me, most of the information we put on dashboards is what's going to happen to the company in the future, not what's happened in the past. So, I don't really-- I mean, it's important to track gross margin. It's important to track what I've done per hour. It's important to track all that sort of stuff. But I also need to be knowing “What’s my backlog?” And if I'm not tracking backlog and I'm not making sure they're staying at an appropriate level, I could run out flat out of work 90 days down the road and not even realize it's going to happen.

Ruth:               Yep. I had a contractor whose backlog was really, really high. And he said, “Oh, good. I don't have to bid anymore.” Well, when we actually analyzed his actual sales cycle, it was 90 days. No, it was nine months, excuse me. And so, he ran out of work because he stopped bidding saying, “I'm too busy,” which was crazy, which is insane. So, the other thing--

Josh:                That happens with almost every business you run across, is that they have hills and valleys on how they run their company. They get busy, busy. They sell, sell, sell, sell. Get a bunch of work. And then, they forget to keep selling. And then, they do the work. And then, they run out of work and they're back in zero. And then, they’ve got to go sell, sell, sell. And it becomes a repeating cycle which is a real pain in the neck.

If a construction company has a sales process. That won't happen.

Ruth:               Correct. And if they have a marketing process, that will not happen.

Josh:                Yes. Although--

Ruth:               So, both of them.

Josh:                Yeah, I have this thing about sales and marketing. I think they're very two different activities. Marketing creates awareness of who you are. Sales actually creates a customer who will pay you money.

Ruth:               Yes. Marketing's job is to actually produce a lead for the salespeople. And the salesperson goes and closes it. Marketing says, “Well, I'm interested.” Salesperson goes and closes it. And so, you know, sales is the last step of marketing.

The other thing I would put on the dashboard is-- this is probably not appropriate for all contractors but, if you have maintenance agreements, if you have maintenance plans, if you’re plumbing, electrical, HVAC, pool and spa, generator-- what am I missing?

Josh:                We have a security company that puts on their--

Ruth:               Security. Yeah.

Josh:                We track how many people they gain and how many people they lose every week for monitoring which is--

Ruth:               And also, how many are up for renewal? Well, [inaudible 00:14:17].

Josh:                We don't really do it. They do automatic renewal. [inaudible 00:14:20] those. They just keep going. But it's still we want to know, are we gaining? Are we losing for that recurring revenue piece? And what can we do to make that a little bit stronger?

Ruth:               Yep.

Josh:                So, I think you're absolutely correct. And if you don't have a maintenance program, you need to put one in your company.

Ruth:               Yeah, absolutely. Maintenance really evens out your cash flow, if nothing else. One of the things I try to do, if at all possible, and sometimes it's not, is to have maintenance cover the entire overhead of a company so you never have to worry about cash flow at that particular point because you know that your overhead is always covered by maintenance.

Josh:                Yes.

So, when you measure productivity-- go back there again, let’s just-- what we asked people to do a lot of times, we say, “Okay. Let's take your total work that you had and the total amount of hours that you spent.” And that gives your productivity per hour. Is that sort of what you do or you do something different?

Ruth:               No. I look at how many billable hours did you have versus how many hours did we pay you? Same thing.

Josh:                Yeah, well, we do it like, say, we brought in $5,000 worth of work and we had 200 hours. We would divide 200 by 500 and say this is what our utilization is per hour. And then, we compare that with our average hourly wages. And we're typically looking for three or four times hourly rate as our average.

Ruth:               Yeah. I don't do it on the sales side. I do it on the profit side.

Josh:                Okay.

Ruth:               It's not necessarily what you bring in. It's what you keep. At least that's my philosophy.

Josh:                Well, that's true. But, I mean, again, if I'm looking at direct labor and I'm getting four times my direct labor cost, and I'm getting a reasonable markup on materials, there's a pretty darn good chance I'll be profitable.

Ruth:               I agree. I agree. I mean, you've got to know your numbers. You’ve got to know your ratio’s one way or the other.

Josh:                Yeah.

Ruth:               And, you know, I look at it and I do the job costing. So, I say, “Okay. You know, this is what the revenues were. This is how many hours it was. This is material costs. This is equipment cost. This is, you know, permits, overhead costs, and everything else.” With that you end up with a net profit per hour. What was it? Did you make money or not?

Josh:                Yeah. That's very simple.

One of the things we like to see people do in the contracting world is to put some sort of a process in place where they improve their productivity on an ongoing basis. You know, a lot of people look at, you know, Six Sigma or Lean but that's way too complicated for contractors.

Ruth:               Here’s what you do. And it's real easy. I mean, we do this all the time.

All right. You have a poster board. I'm old, okay? You put a dashboard up some way, shape, or form that everybody can see. And they can post what the compensation percentage was this week, last week. You know, we can do it by department. We can do it by company. This is how many hours we paid. This is how many billable hours we had. What's the percentage? And you have to put it up. If it's under 50%, we have a problem. It should be somewhere north of 80, preferably north of 90.

Josh:                Well, what we do-- I mean, that's great for historical stuff.

What I'm looking for is, “How can I have a process where we continually improve and continually make more efficient what we're doing out in the field?” And what we use for that is a methodology called Scrum, if it's big enough project. Now, if you have a $10,000‑project, using Scrum is a real waste of time. But if you have a project that's $50,000, $100,000 or $200,000 and you're not using something like Scrum or Scrum‑like something, you're leaving a ton of money on the table.

And one of the questions I like to ask contractors, I ask manufacturers this, too. I say, “How would you like to decrease the amount of labor it takes to do a job by 40%?”

Ruth:               Yeah. And Scrum can do that. Yeah. You and I have had that conversation offline.

Josh:                Yes.

Ruth:               And I looked it up and it’s like you can do it. It's easy.

Josh:                Yeah.

Ruth:               Well, it's not necessarily easy. It is--

Josh:                It’s simple.

Ruth:               It's putting all the data in. It's simple to use. And you just have to do it.

Josh:                Yeah, there's a lot of stuff in the world that’s simple but not easy.

Ruth:               Yeah.

Josh:                And that's one of it. And the not easy part, at least in my experience, is changing habits of people. You know, the idea of having a 10‑minute meeting in the morning. People just start saying, “Oh, we don't need it. We'll skip it.” Well, you do need it. That's the reason-- that's how you get to that great productivity. Or, “Gee, I think we're going to skip a retrospective” which is I'm going to look back over the last two weeks and see what we did great and what we could’ve done better, and make adjustments for the next two weeks.” Or I'm going to look at, “Gee, what stuff doesn't really have to be done in a project?”

You know, we just had our deck redone on our house and I have to tell the story. They spent a month on it. Now, they did have a whole bunch of rain days, but we could’ve taken three days out of the project if they had used Scrum. And I called up the guy who owns the contracting company. He had 20 employees. I said to him, “So, Ryan. I'm going to give you a present.” I said, “I will give you two free hours to explain to you how you can decrease your labor cost by 40%.” And what do you think he said to me?

Ruth:               If he was smart, he should’ve said, “How do I do that? If he hadn’t been smart, he’d said, “Nah, I don't need to.”

Josh:                No. He said, “I'm too busy.”

Ruth:               I'm too busy.

Josh:                And if you're too busy-- and this is something I think is a huge big deal. If you, as an owner of a company, and you have 20 employees and you're too busy to figure out how to take 40% out of your labor cost, I feel sorry for you.

Ruth:               I find that people don't change until something happens to make them change--

Josh:                Yes.

Ruth:               --i.e. you know, they run out of cash.

Josh:                Yep.

Ruth:               A client doesn't pay them.

Josh:                Yep.

Ruth:               They lose a very significant important person, manager in their company. Somebody who has been in that position dies. And I've seen that happen a lot. You know, somebody who has all the knowledge here, instead of in where it is, and he's gone. And all there are are yellow pads - the yellow legal pads.

Josh:                Yeah.

Ruth:               World of hurt. That's when people start changing is when something bad happens. Other than that, as your contractor said, I'm too busy.

Josh:                Yeah. They don't have a good compelling reason. That's the reason why.

We call that scratching the itch which is, you know, if you walk in my office and I don't scratch your itch, you're never going to talk to me about what’s really important for your company.

Ruth:               Yeah.

Josh:                So, if you're an advisor happening to be listening this, remember that when someone walks in your office, and they own a business, they walk in for a reason. They didn't walk in because they had nothing else to do. And you better find out what that reason is and scratch it or you're never going to get to talk to them about what you want to talk to ‘em because they won't stick around.

Ruth:               But we can flip that around, to the contractor side.

I know. I totally agree with you there. But, you know, if somebody’s calling your company. They're not calling you because they want the time of day. Yes, there are salespeople calling about, you know, a potential customer. They're calling you because they have a problem. They have an issue. They have a whatever else it is. And if you don't take care of that issue, they're going to call somebody else.

Josh:                Yes.

Ruth:               I mean, how many times do people call you and say, “How much do you charge?“ They're not calling you because they want the time of day. They have an issue. The answer to that question is, “Who am I talking to?” and make sure you get their name first. It's like, you know, “Mrs. Jones, it sounds like you're having an issue with whatever.”

Josh:                Yes.

Ruth:               You know, if they’re calling a plumbing company and “It sounds like we're having an issue with the plumbing in your home, is that correct? Well, can you tell me a little bit about it?” And then you go service call, or get a project, or whatever else it is. Do not answer the question.

Josh:                Yeah.

Ruth:               They’re the same thing. Same thing. Just turn it around.

Josh:                Right.

So, Ruth, unfortunately, we are out of time.

Ruth:               Right, I'm sure.

Josh:                Yeah, it always come short.

I am very impressed with what you do. We have a difference in methodology, potentially, but, at the end of the day, we're both probably going to get to the same place.

So, I'm going to hope that some folks who are listening here would want to talk to you who are contractors. So, how do they find you, Ruth?

Ruth:               Best place to find me is literally

Josh:                Okay.

Ruth:               All my contact information is there. I'm happy to, you know, talk to you by email and talk to you by phone if you’ve got a quick question. If you want the weekly cash flow report, I am happy to send it to you. If you want the job cost template, I am happy to send it to you.

So, you know, we're trying-- you know, both Josh and I are trying to make you more money. We may be going at it a slightly different way but we both have the end in mind for you to, you know, have more money, have more profitability, have more cash flow so that you can achieve the goals you want to achieve.

Josh:                Cool.

Ruth:               So, that's how you get me, yeah.

Josh:                Cool. Great.

And I have two things I would like to do. First, and this is really important for the podcast, please go to wherever you're listening to this podcast and give us an honest rating and review. If you love us, give us like a five‑star review. If you hate us, well, less than five, but I hope you love us. And that's how it is. But make sure it's honest.

And the second thing which also has served something like that is I just came out with my second book. It's another parable. It's called The Sale Ready Company. We follow our friends in the Aardvark family again as they go through-- and this time John is getting ready to transition out of his business. He's trying to figure out how to get out, afford to be able to leave, who to leave the business to, and how to leave the business to. We have lots of fun twists and turns in the book. And you can get it for half price.

It's really easy to do. All you have to go to and you get to buy the book for $7.95. It's normally $15. If you buy the book on our site, you also get a chance to sign up for our bonus section where you'll get ebooks, and worksheets, and checklists on all the strategies and tactics that we talk about in the book, but we don't go into in detail because this is actually a story and you want to read the story.

So, this is Josh Patrick. You're with Ruth King. You're at Cracking the Cash Flow Code. Thanks a lot for stopping by. I hope to see you back here really soon.


Narrator:        You've been listening to Cracking the Cash Flow Code where we ask the question, “What would it take for your business to still be around a hundred years from now?”

If you've liked what you've heard and want more information, please contact Josh Patrick at 802-846-1264 extension 102, or visit us on our website at, or you can send Josh an email at

Thanks for listening and we hope to see you at Cracking the Cash Flow Code in the near future.

Topics: cash flow statement, cash flow tracking, contractors, ruth king

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