Data to Dollars: What Each Metric Means & How to Use It to Drive More Profits: Series #9 - Net Cash Flow
When I first started working with builders on their financials, I’d walk into our meetings armed with accurate data, detailed reports, and carefully tracked metrics. I was confident and excited to share what I’d uncovered, knowing these numbers could transform their business.
But there was a problem: I might as well have been speaking another language. It became very clear very quickly that my clients didn’t just struggle to understand the reports—they didn’t know what the metrics meant, let alone what actions to take, if any.
By the time I explained the significance of the metric, I’d already lost their focus. And the worst part? We never got to the best part—the actionable insights that could actually drive their dollars to meet their goals!
Enter: The Data to Dollars Series and The Playbook for Builder Profitability! In this series, we’ve broken down the key metrics residential construction companies need to track, what they mean for your business, and—most importantly—what to do with them to drive profitability and growth. We’re currently taking every metric covered in the series and packaging them altogether into one Playbook especially for Builders. Armed with this Playbook, you’ll know exactly what to do when with what you find in your financial reports.
Let’s dive into this week’s metric and see how it can help you turn some data into dollars.
#9 - Net Cash Flow
What It Is -
Very simply, Net Cash Flow measures the amount of money flowing into and out of your business during a specific period.
How we calculate it -
Net Cash Flow = Cash Inflows - Cash Outflows
For residential construction companies, cash inflows include payments received from clients or project draws, while cash outflows cover expenses like labor, materials, overhead, and debt payments as well as Owner’s Distributions, investing activities and financing activities.
Why We Track It -
Profitability doesn’t always equal cash flow. A company can be profitable on paper but still experience cash shortages due to delayed collections, retainage, or misaligned expenses.
Tracking net cash flow ensures your business has enough liquidity to pay bills, fund projects, and seize growth opportunities.
Why You Need to Know It -
Net cash flow highlights whether your business is operating sustainably:
Good: Positive cash flow means you have more money coming in than going out, giving you the flexibility to invest in growth or handle unexpected expenses.
Bad: Negative cash flow indicates you’re spending more than you’re bringing in, creating potential cash crunches that can disrupt operations.
Action Steps Based on the Net Cash Flow -
If Cash Flow Is Positive:
Allocate excess cash strategically—pay down debt, build a reserve fund, or reinvest in the business.
Plan for growth by identifying areas where capital can generate the highest return (e.g., marketing, hiring, or technology upgrades).
If Cash Flow Is Negative:
Review Collections: Tighten up payment terms and follow up on outstanding invoices to improve cash inflow.
Analyze Expenses: Identify discretionary spending or inefficiencies to reduce cash outflows.
Renegotiate Payment Terms: Work with vendors and subcontractors to align payment terms with project cash flow.
Conclusion-
Net Cash Flow is the lifeblood of your business. Tracking it ensures that you’re not just profitable on paper but have the liquidity to keep operations running smoothly and fund future growth.
At Catalyst Construction Accounting & Consulting (Catalyst CAC), we specialize in helping residential construction businesses just like yours track and understand key metrics like GPM and more. Whether you need help with construction bookkeeping (data accuracy, essential construction financials), construction controllership (holistic oversight over construction financial processes & strategic financial guidance), or a construction CFO advisor (forward-looking, strategic, big-picture financial guidance), we’ll work with you to eliminate financial chaos and give you the tools to drive profitability and growth.
Let us help you turn your data into dollars. Contact us today to learn how we can become your valued partner in building a stronger, more profitable business.
What’s Next -
Stay tuned for the next episode in the Data to Dollars Series as we uncover yet another cash flow metric to help you operate smoothly while driving profitability to scale your business!
