Latest / Cash Flow Conversations with Fexingo: Working Capital, Receivables, and Small Business Finance / How a Plumber Used a Cash Flow Waterfall Chart to Fix Her Business
Transcript
- Lucas: So we've talked a lot about specific tactics — factoring, discounts, retainers — but I want to zoom out today and look at a tool that ties them all together. The cash flow waterfall chart. Luna: I've heard that term thrown around. It sounds like something a CFO would use, not a plumber. Luna: Fifteen hundred bucks a month is real money. What was her setup? Lucas: Maria runs a solo plumbing business — residential service, no employees. She brings in about twelve thousand dollars a month in revenue. Her fixed costs are rent on a small shop, a van payment, insurance, software — about forty-two hundred a month. Then she has variable costs: parts, gas, subcontractors for bigger jobs. And she had a three-thousand-dollar equipment loan payment due every quarter. Luna: So roughly sixty-five hundred in total monthly outflows against twelve grand in revenue. On paper that's a healthy margin. Lucas: Right, but the waterfall showed her something different. She was using a simple spreadsheet — date on the horizontal axis, cumulative cash on the vertical. She plotted all her inflows and outflows over a sixty-day window. What she saw was that from day twenty to day thirty-five in each month, her cash balance dropped below zero. Luna: Negative cash despite being profitable? That's the classic small business trap. Lucas: Exactly. The gap was about fourteen hundred dollars. It happened because her biggest client — a commercial property manager — paid invoices on a net-forty-five schedule. Meanwhile her parts supplier wanted payment in fifteen days, and the equipment loan hit every quarter, which meant in months two and five, the gap was even wider. Luna: So the waterfall made the timing mismatch visible. Before that, she probably just saw a positive P&L and wondered why her checking account was always tight. Lucas: That's exactly what she told me. She'd been covering the gap with a credit card, paying eighteen percent interest on about two grand a month. That's over four thousand dollars a year in interest alone. Luna: Ouch. So what did she do once she saw the chart? Lucas: Two things. First, she asked her parts supplier if they could extend terms from fifteen days to thirty. She'd been a customer for five years, never missed a payment. The supplier agreed. That alone shifted the timing on about twenty-five hundred dollars a month. Luna: So now the outflows move from day fifteen to day thirty, which aligns better with her inflows from the property manager at day forty-five. Lucas: Right, but there was still a gap between day thirty and day forty-five. So for the second fix, she approached that commercial client and offered a two percent discount if they paid within ten days instead of forty-five. Luna: Two percent seems small. Did they bite? Lucas: They did. That client was paying about four thousand dollars per invoice. Two percent is eighty bucks. For the property manager, that's a decent saving. For Maria, it meant she got the money in ten days instead of forty-five. The waterfall showed that the benefit of closing the gap — avoiding credit card interest — was way bigger than the cost of the discount. Luna: She's effectively paying eighty bucks to avoid, what, about three hundred in interest over that month? Lucas: Closer to two-fifty, but yes. Net gain of a hundred seventy a month, plus she no longer has the stress of a negative balance. And the waterfall makes it all visible. Luna: Honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Lucas: Yeah, if these conversations have moved your work forward in some small way, that's how listener support keeps this show ad-free. We put a lot of time into finding real cases like Maria's. Luna: So back to the waterfall. The key insight is that it's not just a forecasting tool — it's a diagnostic. Lucas: Exactly. A lot of small business owners look at profit and loss, maybe a balance sheet. But cash flow timing is a completely different dimension. Maria's waterfall was literally a bar chart with two colors: green for inflows, red for outflows, stacked sequentially. The cumulative line told the story. Luna: What software did she use? Excel? Lucas: Yeah, just a simple Excel template. There are dedicated tools too — like Float or Pulse — but Maria started with a spreadsheet because it was free and she understood it. The important thing is the logic: list every expected cash movement by date, then run a running total. Luna: How far out did she project? I imagine if you go too far, the estimates get fuzzy. Lucas: She did a rolling sixty-day window. For recurring items — rent, insurance, the loan payment — those are fixed. For variable stuff like parts and labor, she used averages from the past six months. And for revenue, she used her actual open invoices plus a conservative estimate for new work. Luna: So it's not perfect, but it's directional. Lucas: Absolutely. And the goal isn't precision to the dollar. It's to see the shape. Maria's waterfall had a clear dip every month. Once she saw that, she could ask the right questions. Luna: It reminds me of what we talked about with the baker who used customer float. Same principle — timing mismatch — but the visualization made it concrete. Lucas: That's a good connection. The baker used float from prepaid orders to cover ingredient costs. Maria used a waterfall to find the gap, then used a discount to close it. Different tactics, same underlying idea: cash flow is about timing, not just totals. Luna: One thing I'm curious about: did she also adjust her own payment terms with new clients? Lucas: She did. After the waterfall exercise, she started asking all new residential clients for payment at time of service. For larger jobs, she required a fifty percent deposit upfront. That shifted more of her inflows earlier in the cycle. Luna: That seems obvious in retrospect, but a lot of solo operators are afraid to ask for money upfront. Lucas: Exactly. And the waterfall gave her confidence. She could see that if she didn't ask, she'd be back in the red. So the tool didn't just inform — it motivated a change in behavior. Luna: What about the equipment loan? That was a quarterly lump sum. How did she handle that in the waterfall? Lucas: She treated it as a single outflow in the month it was due. The waterfall showed a big spike in those months. So she started setting aside eight hundred dollars each month into a separate savings account. By the time the loan payment came due, she had the cash ready. Luna: That's essentially a sinking fund. Another timing fix. Lucas: Right. And again, the waterfall made the quarterly spike visible. Without it, she might have just felt surprised every three months when the payment hit. Luna: So what's the takeaway for someone listening who runs a small business? Should they build a waterfall this weekend? Lucas: I'd say start with a simple one. List every inflow and outflow you expect in the next sixty days. Put them in date order. Calculate a running balance. If at any point that balance goes negative, you've found a timing problem. Luna: And then you can apply one of the tactics we've covered in past episodes — discounts, deposits, supplier terms, float — to close the gap. Lucas: Exactly. Maria didn't need a complicated financial model. She needed a clear picture of a single number: her cash balance on each day for two months. That's it. Luna: I love that this is accessible. You don't need an MBA to do a waterfall. Lucas: Not at all. And in fact, the simpler the better, because you'll actually use it. Maria now updates her waterfall every week. It takes her about fifteen minutes. Luna: And the result — she's off the credit card cycle? Lucas: Completely. She's been debt-free on that card for six months. And she says she sleeps better. Luna: That's the kind of ROI that doesn't show up on a spreadsheet. Lucas: Yeah. So if you're a business owner listening, I'd encourage you to try it. Even if the first waterfall is ugly, it'll show you something. Luna: And if you want to see a template, we'll put a link in the show notes. Something to build on. Lucas: Good idea. Next episode, I want to look at how a landscaper used a similar approach to plan for equipment purchases. That's a different kind of timing problem. Luna: I'm in. Let's do it.