In this episode of the Leveled Up Contractor Show I share with you how to master cash flow in your business. If you’re a contractor or run a construction business you know how important cash is to running and sustaining your business. In this episode you will get some of my best tips for mastering cash flow. Specifically we will cover:
- The 1 Meeting you must have every single week to increase your Cash Flow.
- How to setup controls to make sure you get the money your owed.
- Why we require sales reps to always get a down payment.
And a whole lot more.
As a construction business owner one of your most important tools is Cash. If you don’t master cash flow you will consistently struggle to grow, or worse…go out of business.
In this episode of the Leveled Up Contractor Show I share with you how to master cash flow in your business. If you’re a contractor or run a construction business you know how important cash is to running and sustaining your business. In this episode you will get some of my best tips for mastering cash flow. Specifically we will cover:
The 1 Meeting you must have every single week to increase your Cash Flow.
How to setup controls to make sure you get the money your owed.
Why we require sales reps to always get a down payment.
So let’s dive in.
Hello, everyone. Welcome to the Level Up Contractor Show. My name is William Fletcher and I’m glad that you’re here because today we’re talking about how to master cash flow in your business. And guys, you know, if you’re a contractor. Cash flow is one of the most important things to keep your business operating, to keep things functioning, to keep the lights on, to keep the subcontractors paid, to keep vendors paid.
It’s a huge deal and it can be tough. Sometimes our jobs take a long time to complete. We could be waiting on material. A lot of different things happen. Material’s expensive, paying good workers to do good work is expensive and having good equipment, good buildings, good employees, all that stuff costs a lot of hard earned money.
So cash flow is absolutely key to running a successful contracting business. It’s a high profit high earning business, but it’s also a high expense business. And a lot of contractors get themselves in trouble when it comes to cash flow. So this is something I’m really passionate about and hope that you take it very seriously in your business.
And the scary thing guys is a lot of contractors don’t focus on it until their bank account hits that red alert number, where they’re freaking out and they’re like, oh my gosh, we got to go collect some money. What the heck is going on? Oh my gosh, we gotta make payroll. We gotta pay our subcontractors. We got to buy material for all these jobs.
Then hey’re scrambling. They’re trying to figure it out. They’re going everywhere and they’re picking up money and boom. They get a huge influx of cash. Pay the bills, pay the suppliers. Everybody’s happy. We’re all good. They chug along and keep chugging along. Boom, red alert again, and we’re back to square one, doing it all again.
That’s what we don’t want to do. So let’s talk about some things in this training that you can actually do to make cashflow a regular part of your business.
The Cash Flow Meeting For Contractors
The number one thing that we have found to improve cash flow is our weekly cash flow meeting.
It’s not glorified. It’s a meeting…But at the end of the day, it is the meeting about one of the most important things to keeping our company running and keeping us smooth and not having to worry and scramble about getting money.
The meeting is pretty simple. There’s a couple of things that we bring to the meeting.We bring our work in progress report, which is basically everything that is a job that’s in our production department’s hand and not finished, that we don’t have all the money for.
We haven’t earned all the money for it because we haven’t completed this job. Therefore, we can’t get paid for it. Right. So we bring that report to the meeting. We bring our accounts receivable report, which is basically all the jobs that we’ve completed that have been invoiced that we haven’t been paid for.
The other report that we bring is everything that our production team has completed but haven’t been invoiced or hit our AR report. This should be a very small number of jobs, but nonetheless, it’s something you need to pay attention to because maybe there’s a punch out or maybe there’s a sales rep dragging his feet and he hasn’t submitted the information to get the job invoiced.
If the job, isn’t invoiced the customer doesn’t have an invoice and you aren’t going to get your money. So that’s why it’s an important report. Depending on the size of your company, it depends on who’s going to be in that meeting. In our case, Im part of the meeting. Someone from our accounting department is in the meeting.The owner of the company is in it. The Production Manager and Sales Manager are also a part of the meeting.
We start things off with the AR report. This has all the jobs that have already been invoiced. These are the customers that owe us a balance and we go through them and ask why haven’t we been paid on this job?
Why has this one been sitting here for X amount of days? The Sales Manager better come to the meeting with a plan. “Hey, we’re collecting this one. We’re collecting this one this week, this one this week. We can’t collect that one yet. Production manager. I need you to get on that on. Ms.Smith, ain’t happy. Can you make sure that it gets fixed this week so we can collect this money.”
You go through the report and boom you’re you’re taking action on those items that have been invoiced and you haven’t been paid on yet. Next we go to the production side.
You look at all your jobs that are in the production pipeline and your Production Manager comes to the meeting prepared to say: “Hey, we’re completing this job this week. We’re completing this job this week. We’re hoping to complete this one, but it may be off schedule, completing this job, I won’t have this one done this week but hoping to get that…”
They’re laying out a progression report for you. You’re seeing the jobs that are going to get done. Now your Sales Manager is seeing the jobs that are getting done and can start sending out plans to make sure his or her team is collecting the money.
In this meeting you’re bringing the right people together. Now the third bucket that we look at is completed but not yet invoiced. Jobs that production has completed but it hasn’t hit accounting yet. Accounting is asking “hey, why can’t I invoice this job?
Lets say you have a group of five to seven jobs in there.
You start going through them and Sales Manager looks at that. “Well, we can’t invoice that one yet. We can’t invoice that one yet because there’s a punch item that’s not complete.”
Go down to the next one. “What’s going on with this one? All man, I just actually talked to the rep about two hours ago. He didn’t have all his paperwork together. There was a change order that he’s got to get updated. He’ll have it updated in the next hour or so. So we can get that one invoiced.”
So you go through all of them and make sure they are progressing. You get the jobs invoiced and you get your money collected. So you got all the right people in the room, you got your accounting team, you got your production team, you got your sales manager representing the sales team. You bring all those people together so they can work together and build a plan to get the money collected.
You’re not just letting things happen naturally. You’re not waiting for a sales rep to just one day, wake up and go collect money when its convenient for them. Now, they should be doing that anyway, but we’re going to make sure that we have a system in place to collect the money in a timely fashion. We’re going to have checks in place to make sure that we get our money. So that’s one of the biggest things you absolutely have to have in place.
Down Payments Bring in Cash Flow
This is super simple but you would be amazed at how many contractors do not do this. And that is requiring their sales reps to get a down payment on a job. Sounds simple.But there’s a lot of people that don’t do it and here’s why it’s so important:
Let’s say that your average job size as a company is $10,000. And let’s say your material percentage is roughly 25% . So 25% of $10,000 is $2,500. If you don’t collect that down payment, now you have to front $2,500 for the material and you have to pay your subcontractors.
And then finally at the end of the day, whenver that job gets completed and invoiced AND the customer pays you, you get your money. Not a huge deal. But now let’s say that you did that for 10 jobs . You fronted 2,500 for 10 jobs, that’s $25,000. That you have now fronted and you haven’t been paid anything on them yet. Then you pay your subcontractors on top of that. So that’s an additional cost.
Now, let me ask you this. What does extra $25,000 in your bank account do for you? Would an additional $25,000 in your bank account today make a difference for you?
Now think about this , If you’re not requiring people to get down payments that’s $25,000 that you didn’t collect on those 10 jobs that you’re doing this week.
Let’s say that your turnaround time on getting jobs done, invoiced and collected is four to six weeks. Do that for four to six weeks and see what happens. Twenty-five thousand dollars at four weeks is a $100,000, 25,000 at six weeks is $150,000. And I wouldn’t be too afraid to bet money that a $100,000 or $150,000 to most contractors is a big deal.
So down payments are absolutely important. To stop this don’t approve a job for production from your sales team until they have that down payment which leads me to the last thing that I want to talk about today, which is controls.
Construction Accounting Controls For Contractors
You have to have controls set up in your business to make sure that you are getting your money collected and make sure that you as a company are protected.
Recently in our Leveled Up Program I held a massive workshop on cash flow, collections, and setting up all the systems to make sure you get paid. But one of the biggest things that we focused on was having the right controls in place. Things like:
Having the right contract with the right language to make sure you get paid the money at the end of the day. Things like:
- Making sure that your sales reps are collecting down payments
- Making sure that sales reps aren’t getting paid a full commission until they collect all the money
- Making sure that your subcontractors aren’t getting paid for inadequate work before a job’s been walked or approved by your production team.
You have to have controls in place to make sure that at the end of the day, If you do a good job and you do what you say you’re going to do for your customers, that you’re going to get paid the money that you’ve earned. So I’ll leave you with that one today. Guys, cash flow is a killer for a lot of construction businesses. Do not let it happen to you by setting these types of things in place.
Other things you should check out:
- 3 Pieces To A Successful AR System For Contractors
- How To Master Cash Flow In Your Business
- How To Map And Systemize Your Entire Business
Get Access to the FREE CHEATSHEET: The 5 Reports Every Contractor Must Have To Run And Manage Their Business By The Numbers
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