When Kevin Montecalvo began his Proforma (asi/300094) business out of his house 11 years ago, he got off to a fantastic start – so great, in fact, that he took his eye off the most important aspect of his business: the bottom line.
“I don’t think I’ve ever made as much money in my career as when I started with Proforma, because the overhead was really low working out of my house,” says Montecalvo, owner of Proforma inMotion in Byfield, MA. “Every year, the sales were increasing, and I was doing over a million dollars in business. I got to about two million when it was getting more and more difficult to work out of the home.”
So, Montecalvo expanded by purchasing a 3,000-square-foot building and hiring eight employees. The idea, of course, was to maximize profits and efficiency.
“It’s one of those things where you say, ‘The business is going to keep coming in,’ so you can keep expanding the company,” he says. “But like a lot of us owners in the industry, we’re usually the best salespeople and we don’t keep our eye on the operational side of the business. So, all of a sudden, your cash flow starts turning because your overhead has increased, and I was getting kind of frustrated with the whole situation.”
Once business started to drop off and expenses began to pile up – ultimately leaving Montecalvo $200,000 in debt, with balances owed on credit cards, mortgages and cars – he realized he had to start tracking his budget.
“I basically turned to Proforma on the whole cash flow situation, and they helped me with modeling. They gave me a cash flow model on an Excel spreadsheet so I could figure out where I was,” he says. He now had a plan and a cost management system in place.
The turning point was a simple one for Montecalvo: he finally made up his mind that enough was enough. “I guess that’s the first step. When your credit cards start getting maxed out, when you start looking for the next proceeds check all the time to make sure you can pay the payroll, you start to look at this as a priority,” he says. “And so, I made it a priority.”
Montecalvo made the decision to shut down his warehouse, saving him a great deal in overhead costs, and trimming his staff to just three people. “It really didn’t hurt the business at all. The business actually grew,” he says. “A lot of people think that, by throwing a lot of money at things and having a lot of people, that’s going to be the saving grace. But looking at the reduction of not only business overhead but personal overhead turned things around.”
Among his personal decisions, Montecalvo sold one of his two Newburyport, MA, houses, and chose to live more modestly. “We started rapidly paying off our debt based on that,” he says.
Less than two years after he took action to cut expenses, Montecalvo’s company was debt-free. Since then, he’s put together a business plan at the beginning of each year in order to have specific goals on paper and, more importantly, specific ways to meet those goals without going into the red. “I told myself I’m never going to get in that position again,” he says.