Keeping Cash Flow

eric wayne

Hello guys,

I have been in business for 5 years. I do a lot of residential contracting and I am having a hard time keeping a good cash flow. I am 26 years old so I've not had much time to build up much money to work with. I built my first house when I was 21 and after that I went straight into general contracting. I always pay my subs when they are completed with a project, but that sometimes puts me hard up for money. My draws do not come to me quick I do a lot of government housing for HUD and USDA rural development. I get two draws per job 40% when 60% is completed and the other at time of completion.

I make good money but I always pay it out on the next project. I am tired of owning my own construction company and struggling through life. I always get my money on the end but this can take a while through the course of a project. It is hard to keep a good cash flow when I am going so long between jobs. I deal with a lot more money that my subs in the course of a project and this is a problem. I don't won't to loose my company I have worked so hard for.

Can any of you more experienced guys help solve my problem. anything would greatly be appreciated. I know you guys had to start somewhere too.

buildpinnacle

My questions would be when you say you make good money, do you? Do you know how much it takes to operate your business? Do you know how much overhead comes out of each individual dollar you take in? Do you take a salary, or do you 'see how much is left after the job'? Do you create a budget each year based on a particular dollar amount of sales and track it? Do you make the necessary sales and expenditure adjustements when you are not on your 'track'?

I assume you don't have much control over the draw schedule in the type of business you do, but maybe you should branch to more cash paying customers that you can control your draw schedule on. There are several posts on this forum where contractors have given various draw schedules. The bottom line is you should NEVER spend your own money on a project. We are not the banks. You should NEVER let a HO or Business owner get ahead of you. You can do this by taking a deposit at time of contract for legwork and scheduling, and breaking your draw schedule to recieve amounts at the beginning of seperate phases. For instance:

10% down
XX due at commencement
XX due at start of demo
XX due at start of electrical rough, plumbing rough, etc
Break it down on large ticket or special order items where you collect these monies at placement of ordering.

You should never have more than 10% left after you are at substantial completion to collect on the type of work you do.

Just some thoughts.

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eric wayne

I do know my overhead and operating cost. I just have so many jobs going at once it takes a lot of my money. I always have money tied up in other projects. most of the time I have 3-4 jobs going at once. I just need to know should I pay subs when I get paid and if not should What should I do to keep money in my business account for other cost.

strathd

Should I pay subs when I get paid ?

I erased everything I said.............................................. ..................................
Just pay them when you want to. Make sure they know where you live though...............

Chris Johnson

If the sub is a small guy, one of sort of deal I will pay them pretty quickly, 7-10 days, if they are a good size company, I pay 15 days end of month, pretty much how I get paid.

Suppliers should be 2%-10, net 30.

If you are running short of cash, you either are not charging enough or if the distance between jobs is so great you spend the past profits on your wages you need a silent investment partner...but be prepared to bend over there is a reason they are silent and invest.

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Chris

strathd

Any of your subs speak spanish??????????

orson

If you're on top of your finances and your costs then securing a business line of credit is a great way to relieve cash flow problems.

Obviously if you're not on top of costs and not charging enough then you're just going to end up in debt.

With all the myriad things I have to worry about on an individual job I can't imagine adding cash flow worries on top of that.

Having a credit line available also helps you take on larger jobs than what you would otherwise be able to handle because of cash flow constraints.

Again, I can't stress enough that credit is a tool that needs to be used wisely and requires good bookeeping and self discipline. If you are capable of that it is hugely beneficial.

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contract223

I have to second what orson said - Get a business line of credit. Cash flow may be the two most important words for any small, mid and even nowadays - large companies. One thing to be careful of - make sure that your budgets are accurate otherwise you will be living out of the line of credit and due to the monthly flow of cash you may not realize it until it's too late.

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Warren

Sounds like he might be paying himself too much. Five years in business is plenty of time to get over the cash flow hurdle. If you don't have a handle on it by now you might never get there. Gotta make up your mind if you are gonna continue or not. You stated first that "I am tired of owning my own construction company and struggling through life" and then followed that up with "I don't wanna lose my company that I have worked so hard for." Subs won't remain loyal for very long if the GC continually makes them wait on money. Thats what separates the Bst from the rest.

eric wayne

It is not that I don't have a handle on my company. I have so many diffrent jobs going at one time. I didn't mention that I do commercial work also. At the time I have two turn-key homes that I am building and a school addition for a college this takes a lot of money. I never make my subs wait more than one maybe two weeks for payment. My company has grew so fast that I am losing control of it. Keep in my that I am only 26 years old. I do not have too much pride to say that I am still learning how to run a successful company. I take very much pride in my work and give a quality product I am not always the low bidder. customers just want me to do their job. If all I had going was one or maybe two jobs going at once it would not be a problem with cash flow. I have multiple jobs going all the time. Most of you guys are seasoned contractors and have had time to build up money for your bussiness but me I am still young and learning

Handymanservice

I get it, a lot of work, not a lot of cash. Some posts offer good advice and then

I get it, a lot of work, not a lot of cash. Too much work going on that the money is eaten up again, got it! Now I want to stretch the guys that actually did the work so I can have more money.

I get it, a lot of work, not a lot of cash because I am young, did I mention that?

Maybe you need to hire some support staff to help you manage more effectively. Are you running jobs too long? Is your best interest in the Government work? Can you afford to keep doing this work?
Are you mismanaging company funds? Or are you really just stretched beyond your cash?
It sounds like you would be a easy line-of-credit guy if you can manage the money, if your can't, it's decision time. Do you hire the experienced team you need or drive your company into the ground.
If you have managed to build up this much business in all facets, I imagine you will make the right dicision if you spend some time soul searching.

FWIW, I try real hard to hire people that are smarter than me, it doesn't always work. But there are people out there you can learn from to help take your company from good to great. Many are on this forum

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"You can shear a sheep every year, but you can only skin him once!" Remember that when dealing with your customers and pricing.

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Mike Finley

Just another disguised profitability problem.

Doing lots of work for little profit = cash flow problem.

Raise your rates and you'll be doing less volume at a higher profit and solve your cashflow problems.

When you pay your subs has nothing to do with your problem.

eric wayne

I am going to give you guys and example. the homes that I build usually take me six to eight weeks, I always do a profit and loss sheet on those. Since January I have built three of these homes. two of the homes where for the same contract price $76500.00, after every one was paid subs, suppliers, etc. I would put right at $60000.00 in both projects. this gives me a total profit of 16500.00 from both jobs. I am not working cheap I am just so stretched out with so many jobs it keeps all of my cash tied up. I keep all of my subs paid without making them wait too long. It not that I can't manage my finances.

Mike Finley

Then why are you asking the question?

Ask yourself the question and answer yourself while you're riding around in your truck instead of posting it here if you don't want to hear the truth.

Here's an example so it's easier to understand -- take the example you just made and instead of 16K in profit change that number to 160K in profit. Would you have a cash flow problem if you made 160K?

No.

Profit problem.

If you can't keep enough working capital on hand to fund your business it's only 1 thing. It's not having enough profit to have enough working capital. I mean how hard is this to understand?

If you had 500K in your bank account would you be having this problem? No. How do you get 500K in your bank account? You make more profit.

You can make more profit a number of ways, you make more gross profit on a job, or you lower your expenses and net more profit in the end. Maybe you are paying yourself to much? That would lower your profits because you are taking too much out of the business.

I really don't know how to explain it to you any simpler.

If you want to argue what the problem is don't ask us the question. Cause the answer is simple if you don't have cash flow it's because you don't have cashflow. How much harder is that to understand?

Maybe you don't know what cashflow is or how you get it?

eric wayne

I am not trying to argue my point. You are not understanding yourself. You can't charge more than the job is worth. You say increase your profits. when i increase my profits that much I put myself out of business.

Why is it so hard to understand what i am asking? I just need help trying to fix this problem. I thought maybe some of you guys could give me some better advice than criticize me. I know what goes on with my business, YOU DON"T. Try to give me advice on how to fix this problem and not criticize me for what you think is happening. I have told you my problem can you help me out or not. I need to know how to fix this. My prices or just fine the way they are.

mattp

Make a budget on all your expenses when things need to be paid. Then you can figure out when you can figure out when you need draws and payments. Also have multiple accounts, one for payroll, one for fixed payments, and then a savings for when someone is late on a payment or your running behind and not going to get your draw on time.

Mike Finley

You don't understand because you don't understand profits. It shows when you say you can't charge more than the job is worth. This shows that you don't understand what profits are. There are gross profits and net profits. Gross profits are what you generate per job and net profits are what you generate after you deduct your fixed expenses from gross profits. Therefore your net profits are determined by three things - what you charge for a job, what your expenses are directly related to that job and #3 your fixed expenses (phone, rent, truck, PAYROLL)

If you don't have cashflow it's a result of one of those 3 things or a combination of all three:

#1 What you charge for a job
#2 Your expenses directly associated with that job
#3 Your fixed monthly expenses.

FOR INSTANCE -- IF YOU ARE PAYING YOURSELF TOO MUCH YOU DON"T HAVE ENOUGH NET PROFIT LEFT AT THE END OF THE MONTH TO BUILD A WORKING CAPITAL FUND LARGE ENOUGH TO PROVIDE YOU WITH THE CASHFLOW YOU NEED.

FOR INSTANCE -- IF YOU HAVE TOO HIGH FIXED EXPENSES LIKE A HUGE CAR PAYMENT FOR YOUR MONSTER TRUCK YOU DON"T HAVE ENOUGH NET PROFIT LEFT AT THE END OF THE MONTH TO BUILD A WORKING CAPITAL FUND LARGE ENOUGH TO PROVIDE YOU WITH THE CASHFLOW YOU NEED.

FOR INSTANCE -- IF YOU ARE PAYING TOO MUCH FOR LUMBER ON A JOB YOU DON"T HAVE ENOUGH GROSS PROFIT LEFT AT THE END OF THE JOB TO BUILD A WORKING CAPITAL FUND LARGE ENOUGH TO PROVIDE YOU WITH THE CASHFLOW YOU NEED.

FOR INSTANCE -- IF YOU HAVE EMPLOYEES WHO ARE NOT PRODUCTIVE YOU DON"T HAVE ENOUGH GROSS PROFIT LEFT AT THE END OF THE JOB TO BUILD A WORKING CAPITAL FUND LARGE ENOUGH TO PROVIDE YOU WITH THE CASHFLOW YOU NEED.

Do you get the idea how many scenarios there are yet? They don't all have to deal with raising your prices.

However no matter what, the problem comes down to gross or net profitability - the fact that you don't have enough of it.

IF YOU DID, YOU WOULD HAVE CASH FLOW TO OPERATE WITH

KitchenSync

My father used to shoot that back to me 25 years ago: "You're psyching yourself out - if you don't believe you're worth more than the 'going rate', then you won't get it." Of course you'll have to be ready with the answer as to why you're better, but that's another topic.

Believe it or not, folks are generously giving you some very sound advice on how to fix your problem:

- get a line of credit, and/or
- raise your rates.

You probably might not have realized that some of us learned the hard way.

Also? I've never seen anyone put themselves out of business by raising rates, but I've certainly seen my share of businesses who lost their battle with cash flow. Just saying. Hope you'll at least consider what everyone's said. (Or if not, at least check out some accounting books from the library.)

eric wayne

Thank you guys, I finally understand what you are saying. Mike I do have a problem with employees who are not being productive. This does hurt me very badly. I thank all of you for your advice, I will try my best to get on the right track and fix my problem. I did not understand what you where actually meaning. I apologize for this. Thank you so much!

KitchenSync