For anyone in this industry who started out hustling sales - whether that means collision repair jobs, cans of paint or tools and equipment - pulling back from a focus on growth in gross sales can be a challenge. Increasing the top line, after all, is often a key ingredient in increasing the bottom line. More sales equals more profit, right? 

But in an industry with over-capacity - too many jobbers, too many shops - growth often requires acquisition: entry into new markets, or purchase of competitors in existing markets. That kind of growth requires cash and a different although not altogether new way of monitoring your business' finances.

Joe Mattos, for one, is a solid advocate of a cash-centric form of financial management.

"Cash is cash; everything else is just a journal entry," says Mattos, a third generation CEO of Mattos Pro Finishes, a 78-year-old paint distribution company now with 17 branches in five states. "We need to be managing our businesses to focus in on cash. You can look at all the numbers, and generate all kinds of statements. But when it all comes down to it, all that accounting is just the way you write down numbers. When you boil it all down, what really matters is cash."

His reasoning? In a jobber or repairer market that has too much capacity, your business needs to generating the cash you need to grow in a consolidating industry - or the cash that will drive up the value of your business when you sell.

"So you have to be on one end or the other. You either need to grow, or you're going to sell," Mattos said. "Either way, you want to be focusing on cash."

And whether you're buying up a competitor or selling to one, Mattos said, you need to understand how to determine the value of your business or theirs - again, a function of the cash the business generates.

The two key numbers

CPA Jeff Whipple has been managing Mattos Pro Finishes' numbers as the company's chief financial

officer for about a decade. He said that measuring and tracking two numbers will help a business focus on cash.

The first goes by the acronym EBITDA: earnings before interest, (income) taxes, depreciation and amortization. The second is "free cash flow," essentially what you have left aside from your working capital (inventory plus accounts receivable minus accounts payable) and investments in long-term assets (vehicles, computers, equipment, etc.).

"The value of your company is going to be a function of the free cash flow," Whipple said.

Start by generating your own EBITDA statement for each of the past two or three years. You can draw the numbers from your regular financial statements because it's really just a different way of looking at the same numbers.

Chart 1 shows a sample for the fictional ABC Paint and Body Supply Co. Whipple cautions that business owners may need to adjust the "payroll and benefits" figure from their financial statements for the EBITDA statement based on how much they are paying themselves.

If times have been tight and you've cut or eliminated your salary, you may need to add to this figure to accurately reflect what someone else would need to pay someone to manage the business or do the functions you perform in the business. Similarly, if times have been good and your pay reflects bonuses or other "rewards" you have taken based on your investment risk in the business, this figure should be reduced downward, again to accurately reflect just the amount a non-owner would receive to perform the management or other functions you handle.

You can check the accuracy of your EBITDA statement by adding up your interest, depreciation and amortization expenses. This amount added to your EBITDA should be the net income shown on your regular financial statement.

Now that you know your EBITDA, it's time to determine where that earnings has gone. First, it's gone into working capital. Again, your working capital is defined as the value of your inventory plus your accounts receivable minus accounts payable. Whipple recommends determining this number at a given point to serve as a baseline, and then track it year to year. The change in that number is essentially money you've given back to customers or vendors, Whipple said, whether that's in terms of increased inventory, money owed or money owed to you.