Cash Flow Myth 4 - That's What Our Bank and Credit Line are For

Banks and sureties know that as a rule, poor cash flow is typically a sign of deeper problems.

D. Brown Management Profile Picture
Share
Cash Flow: Myth 4 - That's What Our Bank and Credit Line are for

Fact 4.1:  Banks will only finance a portion of your cash flow needs.  They will have specific loan covenants related to how much working capital you need to have, quality of receivables and customer concentration. 

Fact 4.2:  Banks and sureties know that as a rule poor cash flow is typically a sign of deeper problems. 

Fact 4.3:  When the economy is good the loan covenants and their enforcement will loosen up.  Combined with the optimism of strong backlogs this causes many contractors to take their focus away from some of the basics of great capital management practices.  

Fact 4.4:  When contractors are smaller; especially emerging ones the loan covenants and capital ratios that sureties work off of are significantly looser than when there are many millions of dollars at stake.  If you are a contractor planning to grow make sure you put great capital management policies in place early.

Fact 4.5:  When the economy tightens and contractors need the most help with cash flow banks and sureties will tighten their covenants, restrict lending and enforce much more rigorously. This cycle is what causes debt crises including the mid-1980’s and the recent one in 2010.

We are revamping our publicly available cash flow workshop that includes 18 techniques that contractors can use to accelerate cash flow. Stay informed of updates on release. 


More from D. Brown Management
Leadership and Management of Details
Building a great contracting business requires the right balance of leadership and management. While it is possible to separate them the truth is that many of the top leaders are relentlessly disciplined managers.
The Leadership Vibrancy Curve
Leaders must navigate (1) the stages of contractor growth, (2) the phases of management team development, and (3) the arc of their own career and life. Maintaining the right levels of leadership vibrancy leads to sustainable scaling and succession.
Thriving with a Difficult Manager
In the ideal situation, everyone would have a great manager - both internally and externally. In the real world, we will all have to work for someone we consider a difficult manager. Learn to thrive in these situations.