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Cash flow in construction is complex, but managing your company’s cash flow shouldn’t feel impossible. What you need are a few simple, actionable strategies that will take your cash flow management from chaotic to clear and productive.

Cash flow experts Scott Peper (Mobilization Funding), Suzanne Cox, CPA, CIT, (Saltmarsh, Cleaveland & Gund) and Lori Drake, CBA, (Levelset) will share their best practices for managing, tracking, and forecasting cash flow in your construction company. See how effective cash flow management can increase your team’s performance and your company’s ability to grow!

Autumn Sullivan

Okay. Thank you, everyone for joining us today. My name is Autumn Sullivan. I’m the Marketing Director at Mobilization Funding and I’m so excited to bring you these three cash flow experts. We’re going to talk about cash flow management and construction. I have Scott Peper, the CEO of Mobilization Funding. I have Lori Drake, who is the community manager of payment professionals from Levelset. And Suzanne Cox, who is a partner at Saltmarsh, Cleveland and Gund. And Scott will be leading the conversation, they have a list of topics. But if you have a specific question you want to ask, please drop it in the q&a. And I will make sure they get that. And without further ado, I’m going to go behind the curtain, hide my screen and monitor our LinkedIn conversations in our chats. You guys have a great conversation.

Scott Peper

Thank you very much Autumn and welcome, everybody, Lori, and Suzanne, I really appreciate you guys joining me and going through this topic, I know the three of us are very impassioned by cash flow specifically for construction, how people get paid, when they get paid, how we can make it better how we can fix it.

And I think each of us have a shared perspective, but also comes from different ends of that cash flow waterfall spectrum. So I find it really interesting and exciting to be able to go through that with you guys. And kind of, I think the genesis of how we all landed on this spot together from where we came from with these clients, I think is gonna be really impactful and beneficial to the collective audience. So jumping right into it, first and foremost, thank you for joining me. I’m glad to be here. Thank you.

All right, jumping into it, I want to talk about basically the flow of cash in and out of a construction business, and how it’s a little bit different than many other industries, cash flows. And what I mean by that is, every business has I like to call a revenue cycle you get in order to do work today. And ultimately, you either perform that work, you make a product or a service, and then you invoice it and you get paid. To me that’s the revenue cycle. And then there’s cash needs all along the way just for that specific opportunity revenue. And then that may has to marry up to the cash flow needs of your overall business. But specific to construction, there’s some unique things about that, that are very different for than other industries. And so, Suzanne, can you just can you share what experience has been like working with contractors in your role as a CPA, and what you do to help manage contractors cash flow? And I might have a follow up question or two after that.

Suzanne Cox

Sure. So I’m I’m making a wild assumption that we have some contractors on the phone here. So you guys probably already know why cash flow is a challenge. So I won’t back up and talk about why. But obviously, there’s this time period between you know, when you may have mobilization costs, and you’ve got labor costs and supply costs, and all of these costs, and they’re rolling in the door, and you may not get paid for 60 to 90 days, you know, depending on who your customers are. So you’ve got this very long wait time in between when the services are performed. And when you get paid, unlike, say, a restaurant who also has the same thing, supplies, people, etc, etc. But the minute you give that service, you’re getting paid, you know, there’s no 90 day wait time to pay for your meal that you just had, you know, so there’s obviously a huge challenge of that.

I would say that I have some contractors that have desperate cashflow needs, and then I’ve got contractors that are sitting pretty nice. And it depends, like on a few things, what kind of construction they do, who they work for who their customers are. If they’re working for the government, perhaps they’re getting paid really timely, and they’re submitting on you know, line and they get paid in EFT and a couple of days. But that’s not going to be your most of your, you know, contractors out there. So it does depend on what type of construction you’re in, you know who your clients are, how well you manage your you know, your business, and I’m not sure if you asked me part of that. But you know, my my contractors that are paying close attention to cashflow, they’ve got a dashboard. They’re constantly monitoring what their AR turnover is. And what that means is how quickly they get paid. So they send a bill. And that time in between when they send that Bill and when they collect the cash is is essentially a turnover rate.

And so the people that are monitoring their collections and their turnover very closely, and they’re monitoring their payables, you know how soon they’re paying people and can they negotiate better terms, both on the front side and the back side, the contractors that are focused on those are obviously usually in a better, you know, cash position, the ones that are just winging it. And I say that because a lot of people do when times are good, and there’s a lot of work. Some of these, like accounting, boring, you know, boring accounting details, they tend to get pushed to the backburner. And so the contractor is, you know, not really focused on that they’re about going out and making money getting new work and Getting it done. And they’re very focused on the production side of their business and maybe not so much on the, on the boring accounting side of their business. So that’s when I, you know, come in and help from, you know, let’s do a cash flow forecast, let’s talk about a budget, you know, let’s get things in order in your house, so that you can go out and have the infrastructure to take on more work. And, and that sort of thing. Did that cover what you’re looking for?

Scott Peper

I think so. Yeah. Lori, you know, you have an interesting perspective, you know, prior to the role that you serve now level set, you are a credit manager for a supplier working directly with construction subcontractors, general contractors, and their their purchasing. Can you give us some insight into what you saw in that aspect of your life? And how you manage that from a supplier perspective?

Lori Drake

Absolutely. So it’s always been a big issue, like you say, I was a credit manager for over 20 years in construction. And obviously, we work on the past two accounts. That’s our big focus. And typically, those are the ones that have the cash flow issues, we found that when it one of two things was always the case, they either had strong cash flow, but they didn’t have any profit, or they had a bad cash flow with a lot of profit. And unfortunately, that usually means that they are making so much a third excuse me, it means that they are not covering their liabilities. Because their profit margins and earnings are not coming in high enough, it could happen because they’re not budgeting for retainage. They may have a high DSO, they’re not collecting on their accounts and kind of closing that past due GAAP, they might not be projecting their cost estimates and progress payment Billings. And there’s a lot of different ways they can do that. But we definitely find the ones that we were typically working with, they had the bad cash flow, because they were just trying to get the profit in there, they may be trying to pay their bills to get that 10% discount or 1% Discount within 10 days with that some other suppliers. They’re just not managing the money like they’re supposed to be managing, we had a lot that were trying to pay us in terms. Well, they weren’t paid yet. So not paid paid pay when paid paid not paid, that it has a big effect on contractors, especially, you know, the ones that are working on the back of this truck, you know, they may not have the big office and other resources that they could use. So managing that cash flow was definitely something that we tried to help them out with.

Scott Peper

So, so question to both of you guys, do you think the average contractor that you work with? I guess in any phase, regardless of the size of business, do you think they understand cash flow? And the management of it and how to use it as an effective tool? We I know they all understand cash flow in my in my opinion, I don’t know if they understand. And I’m curious what your thoughts is to what the power of it is, when you when you when you actually can control it and understand it, what you can do with it, I guess, same question to you. What is your opinion on that? In my opinion,

Lori Drake

In my opinion I don’t think that they do. I mean, a lot of people start construction businesses, they’re the labor side, you know, they don’t really know how to do the business side. And then they hope to hire somebody that does have that experience or knowledge, but not understanding the cash flow side of it. I mean, they may get a bunch of jobs, and they don’t have payroll to pay somebody to work on those jobs. So those jobs just sit out there. They can’t grow, if they don’t have the cash flow coming in to pay the labor to buy the materials. I mean, it’s kind of a vicious cycle. And fortunately, if they keep getting these jobs and not getting the labor and materials to get out there, they’re kind of going to go in more debt. It’s kind of that same old sale where it’s not a sale until it’s paid. I honestly, I just don’t think that a lot of them know how to manage that. I know, we’ll talk later on different policies, but there are ways you know, that even their credit manager to supplier can help them. You just got to ask for that help. And they can kind of walk through what’s going on in their company currently, and try to make some changes on where they see that it could improve.

Suzanne Cox

Yeah, sure. So that we, of course, are issuing tax returns and financial statements. And the first question I get when anybody gets a financial statement is on the cash flow page. And, of course, there’s a difference between accounting cash flow, and perhaps what we’re discussing here, you know, cash flow forecasting and things like that. But that’s always the first question. They’re like, I have more cash than that. I definitely made more than that. And they they’re not sure what’s you know, the inflows are and the outflows are so it of course, is a top top concern for contractors to to understand what that page and all those numbers mean. And, and so it’s really nice to work with them to be able to simplify it and say, Okay, here’s, you know, cash inflows from receipts of AR and from that, you know, if you’re getting inflows of cash, and then here’s your outflows and you know, breaking it down and showing them where their cash is coming in and out. I would say our contractors that are maybe a little bit bigger and have an in house person that has an accounting background or doing a little better in this area, are smaller contracts. that aren’t you know, spending money on the accounting again, the backroom, you know, processing infrastructure type things. If that’s not a focus or priority, then you you do see that suffer in their numbers you see that suffer in their profitability, you see the suffrage in their cash flow. It’s pretty obvious which contractors have spent money to pay attention to these things and which ones haven’t.

Scott Peper

So it’s interesting I one of the things I love about doing these webinars is I’ve watched lots of webinars, and I think that a lot of webinars can point out all the problems, but they never offer any solutions. And one of the focuses that we always have, and what I appreciate about both of you, and what you do individually, but also whenever we’re working collectively is you always have a solution. I’ve talked to many CPAs, accounting firms, or even just CFOs that are either employed by a business or they’re an owner of a business or sometimes even like your largest fractional CFO organization where you make their a CFO for hire. There’s one thing that always resonated with me that unanimously they all say is like the first or immediate second thing that they do when they enter in a business is a 13 week cash flow forecast. And anytime I bring that up, you guys are nodding your head, anything I bring that up in a close relationship with our one of our clients. Probably 80% of the time they say, Scott, what is a 13? Week cash flow? whisper to me aside. And can can you guys one? Tell me if that’s your also my opinion? Or my perspective is do you share that? And two? Can Can you explain what a 13 week cash flow is? And the why that is the first thing you would do before you do anything else when you jump if you were to jump into a business to try to help?

Suzanne Cox

Sure. I Lori were you about? So we do fractional CFO work? We have a team for that. So I’m not always the one the one diving into that specific need. But the reason is, again, back to like, how is this business going to stay afloat? You know, how are they going to stay in business? That’s one of the first things we analyze from a risk perspective. As CPA, we analyze risk. So we’re coming in there going, Okay, well, is this business gonna be able to make it you know, three months or six months, you know, what’s their long term sustainability? And you know, of course, we do a lot of valuation work. And that’s one of the ways you value a company is based on their cash flow. So it’s one of the most important things for our company to know, even if it’s just a basic, just basic knowledge of what’s coming in and what’s coming out. And, you know, what, what is my forecast for the for the next, you know, like you said, 13 weeks, so it’s just important to understand how the business runs, you know, how do you make money? And what’s the viability of you existing past 13 weeks? Yeah.

Lori Drake

Yeah, and I think we’re on different sides of it. When I used to work in the credit side, Suzanne, when I worked with the companies, the first thing we did was look at the financial statements, like you said, cash flow page, which usually didn’t really exist. But the biggest issue that we always found was that they didn’t have a credit policy in place, or they weren’t enforcing them when they had and like you said, the credit policy is what assesses the risk and lets them know what risks they can take and what risks they can’t take. So we would work with them not on the 13 plan thing, but we would work on setting up the credit policy, just to you know, know when they should invoice timely you know, when they should deal with waivers, contracts in writing, there’s just a lot of different specific things that once they’re focused on it, it would help that cash flow side a lot better.

Scott Peper

Yeah you know, and to add what I look at as a cash a cash flow third job what it really does for for contracting business, is when you’re when you know you have receivables of $100,000 $200,000 or 150 year you’re going to invoice X amount each month, which the funniest part about the construction world is the the business owners extraction world know an amazing amount of detail about their business, they can tell you who all their customers are, how much is getting invoiced to them, what they’re estimated to be invoiced them. There’s a tremendous amount of detail broken down into three, four or five, six major categories on a job. It’s it’s just never has all the infrastructure been put together to marry up to it, but when it is, those contractors with all the knowledge they have are able to make such good a good decision.

So to explain to the audience, in my viewpoint, what a cash flow a 13 week cash flow does for you is it tells you basically where your sources of cash are coming from when those sources are expected to come, which is it which are inputs that you would provide, and then more importantly, what the cash flows. The cash flow sheet is going to do is then tell you how you can use that cash and when you can use it, you might not be able to use that $100,000 exactly the way you want. But when When you look at it over a 13 week period, it gives you a chance to forecast at least four or five, six weeks in advance and also look back four or five, six weeks, so you can see exactly what you have going on. So you know, when you get this specific $100,000, check and exactly how you can use that, and exactly how much cash you need to leave out of that. So you’re not in you might be in panic mode one week, but you’re not going to be in panic mode every week on every Monday trying to figure it out, it’ll eventually will become a problem that you’re solving, you might have panic today. But as that money comes in, if it’s used appropriately, and it’s managed in this way, you will not have a panic Monday or a panic month, it’ll eventually smooth itself out. That’s what it will do for you.

Suzanne Cox

Well, and I think part of that to add is, you know, management of your cash flow, which a lot of people underestimate how much control they may have over the management of the cash flow. So if you’re doing a 13 week projection, and you can see, hey, I’m going to get paid in this week, but the expenses are due in this week, you know, is there a possibility, you could call that vendor and say, hey, you know, I needed two week, you know, grace period, you know, this this month, because I’m running a little bit behind, you know, ask, talk to your, you know, suppliers and your vendors and have open conversations with them, or, you know, Scott, what do you do for a living, you know, look into some, you know, quit, you know, financing alternatives to maybe traditional debt, or, you know, there’s a lot of options, and that, again, goes back to managing your cash flow. So I think it’s really important that you not just do the projection, but then you do something with it.

Scott Peper

No, right. And when we decide to make loans, we it’s exactly what we do, we build out a cash flow forecast for that specific project, or groups or projects, so we can see where the sources of cash are, but when it’s needed, and then how we’re going to use those sources of cash all the way along, and we use the exact same information that you would put in to a 13 week cash flow for the overall business.

Lori Drake

So I was just gonna say, I think that’s a big deal to you, we’re saying that you do the cash flow for the job, a lot of issues that contractors are having as well is they may not have enough money for one job. So they take it from another job and put it into that job. So I mean, it just messes it up across the board. And that’s a really bad cycle to get into.

Scott Peper

It can be very dangerous, you know, and that’s a great segue to my next question for you guys. You guys are so we didn’t plan that at all. How you came up with that. But my question is, we all obviously you hit the nail on the head, we know that cash flow can impact the performance on a job pretty significantly. What are some of the ways that each of you have seen with your experience and clients on exactly what has happened when cash flow isn’t manage what shows up what other problems or issues show up?

Lori Drake

Well, like I was saying, on the jobs, if you can’t afford the labor to put out on the job, then you’re obviously not gonna be able to meet your deadlines. If you can’t pay your bills, you may not be able to get the material out there in time for when you need it especially you know, right now when it’s so far delayed even getting material out there. You see a lot of notices get sent out see liens possibly file, that’s kind of your reputation, if you don’t have good cash flow, you’re gonna unfortunately wind up with a reputation of they can’t pay their bills or they can’t manage their money. So unfortunately, like I said, I always saw the bad side of it. I never saw the positive side of it. But I mean, knowing that jobs have different parts of them, they can change orders, they have progress billings, if you can’t manage any of that stuff, it’s gonna throw everything up in the air.

Suzanne Cox

I was gonna say the same is that I think it’s more long term than short term effects of the long term effect is you have vendors that will no longer you know, be your vendor because they’re not going to get paid you have you know, customers that don’t want to work with you because you clearly can’t run you know, manage your business so that it’s just long term reputation is the biggest effect that I see is that if you are especially a new contractor and you want to establish that you know what you’re doing and establish yourself in the market as a true player and you need to have your ducks in a row before you go out because you will get a bad reputation and people will not want to work with you

Scott Peper

specific to a companies that are trying to grow or are growing how have you seen cash flow become an obstacle in front of them to grow? So obviously you pointed out some things related to vendors if you can’t keep maintain vendor relationships with a lot of companies sometimes they might have hovered at a good level they have a good amount of cash and they get they get a good feeling and justifiably so. So they step up and start taking on a different project or a bigger project and they the same offense from a cash flow perspective and management of that cash flow that’s always worked for them. What shows up now and how does that lack of cash flow infrastructure so to speak, where does that show up as a business is trying to grow?

Suzanne Cox

So I think we haven’t you know, touched on it yet but construction in Most areas of construction, you’re going to require bonds. And so there’s also this is a topic we, you know, need to address here is the ability to acquire bonds. So if you do not have a plan, you know, if you don’t have financing in place, if you don’t have an open credit line, if you don’t have six months of backlog to cover your expenses, you know, all of these things is going to affect your ability to get bonded, so it’s gonna affect your ability to get work. So like you, you know, you mentioned, you know, hey, they’re on this job, and they’re borrowing from this job to do this other job, at some point in time, the bonding company is gonna hold their hand up and be like, yeah, we’re not bonding you for any more jobs, because you, you know, you’re clearly not managing your cash flow, and we don’t want to get hit at the end of this train, you know, train wreck. So I think that’s a big thing that we haven’t really discussed yet, you know, is your ability to be to be bondable.

Lori Drake

Yeah, I would think the bonds is a huge deal as well. But even you know, some states don’t require it, but even getting your licensing or getting your insurance, you know, workers comp, any of that stuff, you know, if they don’t see what they want to see, when they you submit your application and turn in all your financials on that, you’re going to have issues getting all of that stuff. And I think it’s on the same line of things. But like, if you don’t want your contracts, I mean, if you do the pay when paid or the pay, if paid. And you’re not managing that because you know, you’re kind of shooting yourself in the foot saying that, hey, you don’t, you don’t have to pay me until you get around to it, you’re not going to have any of that cash coming in to mess around with so it’s gonna affect you a lot.

Scott Peper

Lori, when you were in the credit markets, for our Ma, she’s MTU as well is, have you ever seen the reverse of this, where you have a client who has very aggressive, very organized cash flow manager, they’re very detailed reports. And with that also came a comfort level to for them to know them, and they use them. And then they use those as tools to either get credit they otherwise might not have or get jobs or other ways, some ways they’ve used those tools to get more work or grow or get credit they might not have gotten before, do you have any stories or proactive things that customers did do that

Lori Drake

I kind of look at that as our no notice list, we have certain customers, you know, they’re big customers, or they have great reputations, you know, we just do a lot of work with them. So you just extend and you extend all this credit, and you don’t notice them, because you made that agreement with them. And then as a supplier, you run out of all the funds from any of those, and you don’t have any right to get them back. So I think that they can put yourself out there too far, maybe and not have any repercussions for it. Because you gave up your lien rights. So they there’s no like pressure to make them pay on time. To me, it would just kind of throw them off track there.

Suzanne Cox

I do probably have a specific example of a client back in the first downturn of the economy in recent years, back in the old 910, you know, area area seemed like contractors got hit a little bit later. So it might have been in the 1112 timeframe that I’m speaking of, but I had a contractor that was very, very tight on on cashflow, and they were to the point of like, hey, we may need to like close our doors because we can’t make it happen. So we advise them to go look for alternative financing. So we’re like, look, just, you know, even if the interest rates are crazy at this point, like you’ve got to get something you’ve got to get anything to, you know, get back on your feet, you know, get get something interim, not long term, but you know, do something interim to keep them afloat. And they did they were able to find some short term financing that was you know, like a year, it was highly aggressive interest rate. And I don’t always suggest that, but it just happened to be, you know, at a pinch point, and it made sense. And it was a good decision. And they made it through, they got the short term financing, they were able to finish the jobs, they were able to pay their suppliers, and they were able to, you know, keep going. So I think to answer your question is yes, I probably have more than one example of a contractor without availability to get cash has been able to, you know, continue his business where if he didn’t even have the ability to get that, you know, extra, you know, cash, he wouldn’t have been able to take on any more work. So the contractors that are positioning themselves in the market, to have some excess cash, or the ability to get excess cash, are the ones that are able to capitalize on having that available capital to take on jobs. You know, that’s part of when you’re assessing the risk of should I take on this work, you have to assess Well, you know, what’s my cash flow? Can I take on this additional work? Can I hire these extra people and pay the suppliers to get on site and start doing this work? If you don’t have cash available? You may doubt you know, you may turn down that work. And so cash up front and handy handy cash, you know, available cash is going to let contractors capitalize and maybe take work that other contractors can’t because they don’t have financing available or line of credit or something like that.

Lori Drake

No, I’ll add it when I was doing the credit and all that I had never even heard of like your company’s Sunday. options that are out there. Now, I think contractors now have a lot more opportunities to get that cash flow flowing, or at least to get the help for it and to be taught how to deal with it, to where they can take on more jobs, they can pay their bills, I think it’s a nice thing to have not to, you know, sell you here. But you know, what your company does puts a lot of help out there.

Scott Peper

You get to see that one. Thank you very much. I appreciate appreciate you saying that. But have you guys also, have you seen companies use those financial reports to gain new customers or maybe win a job that they might not have won before or in your case, or when credit that you wouldn’t have given to them that they didn’t come in and say, hey, look, this is why I needed I’m running my business like this.

Lori Drake

Kind of sorta, maybe a lot of our credit was extended based on whatever the job was not really the customer. I mean, even if the customer has bad cash flow, or they don’t pay their bills, we always have those lien rights to go on to the GC or then go on to the owner. So not really, it’s just whatever the job is, if we determined that it was a good job, you know, then we would find that

Scott Peper

what about uses and you have clients that come to you, maybe they ask for capabilities letter or financial stamp of approval that they can use sort of in their, their brag book to kind of win an award or to show up a customer of theirs and owner, developer general contractor? Hey, you give me the contract, you know, here’s my sort of stamp of approval,

Suzanne Cox

So we get asked a lot, we get asked for financial viability, I think was your term that you just used, we’re actually precluded from from issuing that that’s an opinion that we can’t make, without doing a formal, you know, valuation of the company and a formal engagement. So we don’t actually issue financial viability letters. Although I do get asked a lot. What has to stand alone is really your your financials, whether they’re, you know, compiled, reviewed or audited? Or, you know, again, a formal, you know, projection or cash flow analysis or something like that. We can’t just send a letter without doing any subsequent work to support that opinion, for our own risk reasons,

Scott Peper

obviously, yeah, no, that makes sense. Well, you know, what we’ve done immobilization funding early on, I got some advice to always audit our financials. So we do a full financial audit of our financials. And at first, it felt like an extra expense. And I couldn’t really understand why we’re doing I mean, I knew why but it didn’t, it didn’t feel like it, me or the typical clients.

I tell all of our clients all the time, like I am exactly the same as you, they’re, I’ve been dragged into them all the things I’ve done. So I’m just now part of helping people drag along, so I can at least say what it feels like on the other side. And you know, what happened? What I realized is when I did as the business grew, and I did need to go get more capital for which we use to make loans, it was a lot easier when I sat down with an individual with Financials, and certainly when we went to the bank, who basically thought we were in saying,

Suzanne Cox

Thank you like here, because like, you know, there’s no chance Why would we ever make loans to you, Scott, so that you can make loans to people we would never make loans to, and, you know, having an audit financials that they could trust, verify, that basically just eliminates their questions off. I mean, they’re gonna have questions, but they don’t, it doesn’t, they’re not trying to figure out if you’re lying or not, or if you’re, you know, that’s an extreme word, they don’t think you’re lying, per se, but they don’t know if they can trust it. When you have third party assurance, you know, fully reasonable, their, their risk is, at a certain level. And from our standpoint, you know, bonding companies and banks are some of our obviously biggest referral sources, because they need those things to do their work. So it depends on what level they need. So if you need a large line of credit, or a large term loan or something that may require an audit, if it’s a smaller line of credit or smaller term loan, then you may be able to get away with a review or compilation. And those are three different levels of our assurance that we put on that, but the audit is the gold standard, you know, or platinum, you know, that says, hey, this is that we did the most work for this one. And obviously, our risk is the highest there as well. Because we’re opining saying that yeah, these people, their financial statements are not materially misstated. You know,

Lori Drake

you know, it’s kind of funny, we assume that everybody has financial statements, but when you’re extending credit 90% of people don’t have them. And if you can actually get financial statements from somebody, you actually do award them more credit, you treat them back because they actually, you know, you know that it’s putting orders on they’re

Suzanne Cox

paying attention to their house, you know, back to the House comment, they’re paying attention, they’re managing their house and and they’re getting themselves positioned. And you know, in this market, it’s very hot right now, obviously for transactions and we noticed that a lot in transactions is somebody will get a deal on the table and they haven’t had an audit or any sort of assurance from an outside you know, person And now all of a sudden, they’ve got caught with their pants down, and they’re scrambling and rushing, you know, trying to get due diligence work and financials prepared and all of these things. And so, you know, part of that is getting your house in order, you know, having these financial statements ready and the cash flow projections ready. Because when someone comes knocking in right now, there’s a lot of people knocking, you know, you’re going to be like, bam, here’s my folder, you know, and I’m ready. So it’s just good business.

Scott Peper

I mean, one of the things we’ve talked about that, just just to your point, Lori, and Suzanne, is when we get those financials, we care what they said. But what we really want to see, first and foremost is, does the Does, does the company owner care enough to get that monthly scorecard? Like, do you really do care if you really care, you want to know how you’re doing how you’re doing as a business is your financials. That’s how you that’s your scorecard in a business world, at least in my opinion, a lack of that certainly can demonstrate to someone regardless of the size of your business, it demonstrates that it doesn’t mean you don’t care. But it does mean that you only care to a certain degree. And if you’re trying to lend money to someone, or you’re looking for someone to lend you money and trust you and care about what your business is, and partner with you. It’s a really key important thing. And when you’re working with your suppliers, they’re lending you money, extending credit is no different than giving you cash, they want you to be paid back, sure they have lien rights, and sure they have other things. But at the end of the day, they’re trying to run a business too. And they’re trying to find the right people to partner with. So it is important, and I’m sort of letting people know a little bit of the secrets behind what we do and why we look at Scott Warren to look at that. But I’m so important. One other thing is cashflow management, one of the key things as getting paid on time. And Lori, do you guys have tips at level set that you recommend for every contractor to do to basically ensure their timely payments

Lori Drake

Absolutely. So you definitely want to make sure you invoice timely, I mean, that’s going to be your biggest thing with a lot of GCS, they also have specific pay applications that you have to submit. So you want to make sure you understand how and what you’re billing for. Otherwise, it’s just not even going to matter, you’re not going to get paid. You want to protect your lien rights, even on your GC, a lot of people get scared, they will think that they won’t get any more jobs if they like send a notice on their GC or something. It is so common in construction, it people just you know, goes in one ear out the other. So protect your rights, you never know what’s going to happen. We say to definitely send reminders, you know, if they’re not paying in time, like Susan said, you can call your supplier ask for a little more leeway on that, like I mentioned the contracts, definitely make sure you do not sign any pay when paid or pay if paid contracts. You mean you don’t want that risk put on yourself. And we also just Sorry, I lost my place there. But now,

Suzanne Cox

I’ll pick up this, you know, maybe they don’t touch on there is no contract negotiation is really big. A lot of contractors feel like their hands are tied, and they have no, you know, ability to negotiate their contract. But when you start a relationship with someone new, you need to be very transparent about, hey, this is you know, these are the deals that I think would be mutually beneficial. Don’t just take it, you know, if a GC is saying, hey, you know, this is how we do business, ask, you know, ask and maybe maybe ultimately they say no, that’s fine. But, you know, be very transparent about what your needs are as a subcontractor as well, I think communication is really key. And I know some of those conversations can be very difficult to have, but they’re so worth it in the long run.

Lori Drake

So a lot of those contracts will even throw the indemnification clauses in there. I mean, you definitely want to make sure you’re looking through it and make edits, you know, have some initial it off and just have them change, right align it. Yes, most people don’t say anything. So that you know,

Suzanne Cox

they don’t, they’re just like, Oh, I better do whatever they tell me. And yeah, that’s not always true. I think that’s a miss a myth. Yeah.

Scott Peper

We actually did a webinar on that topic. We have an attorney that we worked pretty closely with and they went through basically, there are five or six things that you can negotiate in a construction contract as a subcontractor to a general contractor, that are just key three, four things that are usually pretty negotiable. Most general contracts will accept but they can make a huge difference when it comes to indemnification agreement. And the key real important things to help you within the in the event of a disaster or a bad situation prevent you from being the only person that gets hurt. And you can go to that webinar right on our YouTube channel and find that is posted but it’s great. They lay out the five six main areas and tell you exactly what you can negotiate you know, for a couple 100 bucks. You can have those sections, read them. run by an attorney, and in the front end, and it will save you 10s of 1000s of dollars or more on the back end, and give you a little one more thing to that last.

Suzanne Cox

Maybe question is Lori brought it up is, you know, friendly reminders to get paid? You know, one of the things we do, which is why I’ll tell you no one likes audits, because we come in and ask a bunch of hard questions that they don’t have answers to. And when you know, you’re asking things like, Hey, who’s your collections person? Do you have a person that’s assigned with collections? You have someone calling? And they literally? Don’t think so?

Lori Drake

No, yeah, no, it’s amazing how many contractors do not have anybody calling for their payments?

Suzanne Cox

Not gonna pay for it? Oh, yeah, they feel like that would be inappropriate, or they’re too pushy, or they’re very scared, you know, they’re scared of it. And, and don’t let fear drive your business, you know, that that’s since it should not be driving your business. And so when we ask this question almost 98% of the time, it’s, it’s no, we don’t have anyone doing flexions. Or they’ll say, Oh, the project managers in charge of that. So then we call the project manager, and they’re like, oh, yeah, I don’t do that. You know, and so there’s nothing wrong with asking for payment, especially if someone is past due, you know, so that’s just good. Again, good business structure is to have someone that’s in charge of paying attention to your collection rate, and, you know, calling people and saying, Hey, friendly reminder, your past your 25 days,

Lori Drake

well, that’s where you find out too, if your invoice wasn’t accepted, you know, maybe

Suzanne Cox

it may have been declined, and you didn’t even know it. And that’s, you know, part of the you you mentioned also Lori was, you know, some people have very specific payoffs that they require to be filled out to the near the decimal imperfection. And if there’s one thing wrong with it, or they just don’t really like the font it’s in, they’ll decline it. And so if you don’t have somebody following up on those paths, you your invoice could just be sitting there, and you think, Oh, they’re not paying us because they think our work was crappy, but really, they’re not paying you because they thought your font was bad, you know, so you need to make those calls and understand why you’re not getting paid.

Lori Drake

And two other things on that contract side of things with the invoicing is you have to watch the billing dates as well, a lot of contractors will have like the 15th cut off or the 20th cut off, if you don’t get your invoice in before that time, they’re going to push it off to the next month. And then also retain that you really got to watch your contracts of when retainage it’s easy to hold it out of your drawers, that’s fine. But to find out when you’re going to get paid retainage is that when you’re done with the job is that when the job is totally complete, is it when somebody buys the property, I mean, you definitely want to make sure because otherwise that money is just sitting out there and you can’t count on it for

Suzanne Cox

anything. Absolutely Good point.

Scott Peper

And you know, you know what your know, in reality, what how many days it actually takes for your business to get paid. Because if you think it’s 30 days, or that’s the terms in your contract, but you’re really not, you’re 35 or you’re 45 planning your impact that has a dramatic impact on your cash flow, and showing that maybe you can’t pull your cash flow for maybe your customer is going to pay your 45 Even though you are contracted for 30. But you can make those adjustments and modifications to planning and helping yourself so you’re not in that weekly or daily or monthly stress of cash and managing it. So you the other thing is just be really honest with yourself do the work, don’t just look at the terms that you have, but look at what is in reality you are is actually happening and you are getting paid. A lot of times it’s net 30 After inspection, and maybe the inspection takes an extra six days. So it’s really 36 days from when you submitted the invoice. I mean, there’s a lot of things but just be really, really, really hone in on that and lock in that real number that when you’re doing your planning,

Lori Drake

I can tell you on that same note is there’s a lot of contractors out there that won’t pay until you call and ask for it because they get interest on that money as long as they have it their money there. You know, I watch that. Yeah.

Scott Peper

Well, guys, is there any questions that I should have asked you that I did not?

Suzanne Cox

Maybe not questions, but just maybe additional comment on? You know, it was maybe a few questions ago, if you have bank covenants, or you know, financial ratios that you need to meet for whatever financing you have, or, you know, for bonding or anything like that. So you paying attention to those before you fail them is always a good policy. Yeah. So if you do have cash flow metrics that you need to be aware of, I cannot stress how many times I have met with a client and said hey, what are your you know, does your loan have any covenants? And they’re like, no, no, I don’t have any. And then I open up their loan document and it’s like seven, you know, and I’m like, Well, I think you missed this page. So let’s go over them and usually they’re cash based, you know, they and it’s that’s, you know, service coverage and debt to equity. All these other fun, you know, covenants and so if you’re on this call right now and you haven’t looked at your debt covenants, you may want to take a peek at those because they may relate to cash flow or when you’re closing new financing, you know make sure that you’re asking what are my covenants? What are my responsibilities to not be in default for this you know, financing whatever it is line of credit loan, whatever good questions to ask. So write them write them down a lot of people are just completely unaware of, of some of their covenants and, and cashflow directly ties into them. So another good reason to track it.

Lori Drake

Yeah, I was going to say just as far as your suppliers, ask for help if you need it. I mean, I don’t know any credit manager out there that wouldn’t help somebody that asks for it. We’re used to people just not wanting to pay their bills, or they’re ignoring this. Yeah. But if you actually want help, say you have a new GC that has a path, they will help you, you know, learn how to fill it out. And they’ll help you close the gaps on your aging. And actually,

Suzanne Cox

if you do good work, yes.

Scott Peper

You don’t want to be thrown in a bucket, or have someone make an assumption about you because of previous experiences that aren’t justified. So it’s always good to be honest and upfront with why there is a cash flow concern if there is they don’t think you’re just not trying to paint. So and you know, to the point you made about covenants, actually, Suzanne, I think it’s those should become part of the scorecard that you managed yourself to every month. So when you get those financials, get a list of where are you in those debt coverage ratios, those loan covenants, those other items, and know what they are, so you can know ahead of time. So you can make you have a month or two to manage to that versus all of a sudden, it’s a problem. And it’s getting exacerbated over the next two months, you can start to fix it and adjust it. Which is also the reason why accountants don’t just do your taxes.

Suzanne Cox

So we’re not once a year people. If you have a once a years VBA start calling, you know, on around. Right, I noticed the question in Chad, based on our contracts about getting paid when paid. So we’re not saying that you can always have that leverage, and you may not always be able to negotiate it. So it sounds like it’s not worked for you in the past. And, you know, perhaps Perhaps that’s true, perhaps the GCS you were working with, or the people you were working with. And no, that’s just not something we negotiate on. That may very well be the case. But that’s not the case with everyone. And also this goes back to the more valuable you make your work and your service, the more apt they are to negotiate with you. So that’s just something to consider also, as if someone new that you’re working with, they may say, hey, we don’t know these people we’re not really comfortable with the more work that you do with them. And the more comfortable you are with relationship, you get to the point where you can negotiate those things. So just think of it as a, you know, maybe it didn’t work today, but it might work next year.

Lori Drake

And as you go through, you’ll learn what she sees, we’ll negotiate on that which won’t, and you just decide if you want to take that job, right,

Suzanne Cox

you decide who you want to work with on the flip side as well.

Scott Peper

And working with an attorney to let you know what the risks are of accepting that clause. So you can at least make a good business decision whether you want to accept those risks or not.

Autumn Sullivan

Awesome. Thanks, guys. I just wanted to jump in real quick and let our participants know that I will be sending a replay of this webinar and an email later today or possibly tomorrow morning really depends on how long it takes YouTube to process the video.