EntreLeadership - $11,000,000 Company Can’t Pay Their Bills

Episode Date: July 1, 2026

🎯 Figure out your business's next steps in a free consult call with an EntreLeadership® team member: https://ter.li/cjk4u0   Cash-flow problems rarely start where you think they do.  In this episode, Dave takes a call from a CFO trying to uncover the root cause of her company's cash crunch, and he explains how profitability, overhead creep and weak payment terms can quietly drain your business.     Next Steps: ·      📞 Have a question for the show? Call 844-944-1070 or send us a message: https://ter.li/ask-us ·      ✉️ Become a better leader in six minutes a week. Get tactical tips sent to your inbox every Friday: https://ter.li/enl ·      📌 Don’t wing it. Get a coach that helps you lead and grow with confidence: https://ter.li/eqlowqqk ·      🏢 Attend EntreLeadership Summit: https://ter.li/summit-leadership ·      🎤 Attend EntreLeadership Master Series: https://ter.li/masterseries-conference ·      📖 Order Dave’s book, Build a Business You Love: https://ter.li/b4kru2   Connect With Our Sponsors: ·      Go to Belay Solutions or text ENTRE to 55123 for their free resource!Plus, in celebration of America's 250th anniversary, get started with BELAY for just $250 (regularly $995) through July 17. ·       Go to Christian Healthcare Ministries and use code ENTRE for a 50% credit toward your first month of membership. ·      Visit NetSuite today to learn more.   Listen to More From Ramsey Network: 🎙️ The Ramsey Show 💸 The Ramsey Show Highlights 🧠 The Dr. John Delony Show 🍸 Smart Money Happy Hour 💰 George Kamel   Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

From the headquarters of Ramsey Solutions, this is Andre Leadership. I'm Dave Ramsey, your host with over 30 years of experience leading in the trenches right alongside you. If you got a question you want to ask on this show, well, click the link in the description, and we'll make you a caller right here. Janet is in Philadelphia. Hi, Janet. How are you? Doing well.

Hi, Dave Ramsey. It's an honor to speak with you. You too. What's up? Well, thank you. Thank you for speaking with me, first of all. So I'll get into it. We are an engineering firm based in the Philadelphia area.

I am the CFO of the company. We have about 25 employees, and we did 11 million in revenue last year. Cool. And my question for you is, how do we determine the root cause of our cash flow issues? Well, I mean, if you're the CFO, I would suspect you're already looking at things like accounts receivable being a problem, right? Yes. So we have, so in 25, what was a down year for us?

And we had 11 million in revenue, but, you know, we had been tracking about 13 million the year before that. And, you know, and that was more of our steady state. And we're tracking then again, that, again to that this year. But in 25 and kind of coming into 26, just because of the aftermath, we've just, it's difficult every month, you know, in terms of, you know, making payroll, paying vendors, and just fulfilling, just even just... How heavy is your AR? How heavy is your account receivable?

Okay, yeah, so accounts receivable. So now it's good. It's, we have about, I mean, I would say right now we have about one and a half to two million in accounts receivable, like at the current state. I think it got low. I would say our average is about $1 million, maybe a little bit above that. Are you getting paid in 30 days from billing? I would say it depends. I mean, I would say smaller, you know, smaller purchase orders, I guess, get paid out in 30 days, but our larger ones are 60 to 90 most of the time.

Okay, so who is it that would pay you in 60 to 90? The contractor, an architectural firm, who is it that is paying you late? Oh, well, we work with large manufacturing companies. So they're typically, you know, we typically have to go follow the standard terms of those companies. We don't necessarily have a lot of wiggle room there. And their terms are 90 days to pay a small business? They can be, yeah, 90 days or 60 days. we definitely sometimes some of them have offer early pay which is nice which can which can accelerate that but i would

say that i would say that our our kind of our median is 50 days yeah i mean so assuming you're profitable on your 11 million the first place i go to as you can tell to figure out a cash flow problem is you're not getting paid what's owed to you on time if you got the money every month within 10 days of when it was owed uh you wouldn't have a cash flow problem most of the time. That would be most small businesses, and that's where I go to first when you tell me you have a cash flow problem. That's assuming you're profitable, and I don't see reason why an engineering firm with 25 team members shouldn't be profitable with an $11 million or $13 million gross revs, right? That seems like you got margin.

We do. We had a fair amount of fixed cost last year, so we were actually break-even last year. You had a fair amount of what? A fixed cost. We just had a fair amount of operating expenses last year. So we were actually break-even. We're not break-even. I mean, we're tracking profitability in 26, but, you know, it was just tight. Well, there's a difference in profitability and cash flow.

Okay, you can be highly profitable and have a cash flow problem because of the terms with your vendors, okay? And the terms with your customers. That's one example, okay? But what you're saying is, is you guys let your purchasing run away with you on software and hardware purchases and other things. Your fixed cost, you let your overhead creep up and it ate up your margin. And now you're just recovering from that. And that's a profitability issue. Am I right?

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clarity. If your revenue is at least seven figures, figures, go to netseweet.com slash Ramsey for a free product tour. That's netsuite.com slash Ramsey. Let's get back to the episode. You let your overhead creep up and it ate up your margin. And now you're just recovering from that. And that's a profitability issue. Am I right?

That's true. Yes, I think it's both. I think we're feeling the cash flow on a daily basis, but the overall kind of underlying is the profitability issue. Yeah. So it sounds like you had fairly substantial growth in the last five, six years, and then you got a little bit sloppy, which would be normal, on some of your purchasing systems, some of your overhead controls.

You need to institute some metrics to where you don't let overhead creep up. You don't let people just go buy crap just because we've got some money right now, finally, because people will spend it. There's somebody inside that organization will spend it if they know it's there. Same and true. At Ramsey, we fight the exact same stuff. You can tell,

by the way, I'm voicing this. And so, yeah, so you got to put Institute controls to go, okay, just because we started making a little money, doesn't mean when you get sloppy.

Then the second thing is, I'm going to tighten up on my terms with my customers. I don't like a mammoth huge manufacturer treating an 11 million. dollar engineering firm as a bank where they're riding on their you know they're they're they're banking you they're not paying you what they owe you when they could and so therefore they're using your money for the next 60 90 days because you guys didn't tighten up on terms and so when i'm cutting some of these deals going forward i'm going to say hey listen we're a small business we depend our very

existence, our survival, our sustainability depends on our customers paying us within 30 days. We can't do 90-day terms unless it's the only way we get your business. And then we'll have to build it into the pricing because now we're in the banking business and we don't want to be in the banking business. And with our rates, you don't want us in the banking business because we're going to raise our fees considerably to cover our cost of capital because you're not paying us on time. And so I cut the terms differently. And, you know, and, you know, in most cases, I've been able to change the terms with most of our customers over the years to where we get paid within that 30-day period and sometimes even quicker.

And stuff like, we'll just do an automatic draft when the account. We'll set up a draft account with a customer and just draft their dad-gum account when the bill's due. And we don't have to sit around bill somebody, wait on an invoice, wait on their payables department to get their act together. So I don't know how much of that you can do, but I think you can do better job with that than you've been doing. And I think you do a better job of fighting the overhead creep that can happen as soon as you start having a little growth and making a little money. And then if there's a slight downturn, it exposes that weakness immediately. So, Janet, I think you're probably doing a better job than you feel like you're doing. The lack of profitability is what's bit you more than cash flow has bit you.

I think it's revealed some of the other stuff, though. So good question. Thanks. Thanks so much for calling. So to recap, guys, here's the deal. Anytime you start growing, I don't care who you are, you start looking in the mirror and going, you're pretty smart. You start thinking everything's good. Like, I mean, we got a little room.

And the team gets a little swagger and they go, hey, I think I need a new computer. Hey, I think we need a new dot, dot, dot. I think we need a new piece of equipment. I think we need some new software. And a half butt look at stuff. They don't crunch it. When we were scrappy and everything mattered, we're buying stuff at bankruptcy auctions, you know, and then all of a sudden we're paying retail for it because we're making a little money.

And, you know, you just got to go back to scrappy. Keep everybody going back to scrappy. This is a small business. We're not running a $10 billion operation. We don't have six venture capitalists funneling money in here that have more money than brains. we're a small business. We got to watch what we're doing. We have to manage every dime. And it's easy to lose the scrappy and get over into the spoiled as you get a little bit of growth and a little bit of profitability. Get a little fat and sassies. What happens. So don't do that. And then the second thing is always watch and decide carefully, is this new customer really worth the pain they're going to cause me? So let's say we've got an $11 million company and the customer is going to give us $2 million. Well, they're freaking 20% of our operation now.

Is the tail going to wag the dog? Are they now going to tell us what to do because they're the big dog? Are they going to set our terms and set our prices so low and our terms so bad that we lose money doing business with them at the end of the day? I've done that and I've seen people do it. There's a large major retailer in America that's known for selling things at a very good price to its customers. The way they do that is they buy them at a very good price from the vendors. And some people are in order to get distribution through that large major retailer are willing to sell their stuff almost at a loss.

I'm not. So you don't see my stuff in there. I gave up on them. I'm not going to sell it to you at a zero margin. so you can get a great deal to the consumer. If I'm going to do that, I'll put it on my own website, give it a great deal to the consumer, and I'll still make more money.

Might sell fewer of them, because I don't have a store in every deadgum nook and cranny in the world, but I'll be okay. I don't need to lose money to do business with you. That's dumb. And so you can't let the large customer dictate terms and dictate prices that make you wish you didn't do business with them. you're better off to be a $9 million company and not have $2 million worth of work to do

that you're going to make you're going to spend $2.1 million doing the work. And that's easy to do. That's easy to do. So be careful how much you value some of these customers because I got to tell you, they value themselves. There was a little car company down the road from us that went out of business down here called Saturn. And we were, Saturn called us up and wanted to teach our classes one time. but they wanted to buy the classes per person at less than our cost to produce the kit was.

And the guy's comment was, yeah, but you can tell everybody you're doing business with Saturn. And I'm like, so I'm not really selling you our kits. I'm really buying advertising. And he said, what? And I said, well, I think, I don't think you're going to understand because I don't understand what you're saying. And so I think that Saturn's not going to be able to teach our stuff. And so the Saturn employees were never got financial peace university.

and now Saturn's broke, which had nothing to do with not getting financial peace university. But it was just there were a big deal. They were the hot. They were the kid in town everybody wanted a date with, you know. And everybody would do anything to get to say they were doing business with Saturn, except this hillbilly. And I just said, nope, I think I'll pass. And that's a good lesson to just look up and go, you know, every piece of business is not good business.

I'll turn down some stuff occasionally. And I'll be more profitable and have much more job. joy because I did. If you enjoyed today's episode, be sure to like, share, and subscribe for real world leadership content. I'm your host Dave Ramsey and this is Entree Leadership.