All construction problems are related to cash flow or communication Some construction company owners are gung-ho about doing the work and yet are embarrassed about asking for money.
Here are the 10 most popular excuses for not asking for money:
The customer just signed the contract and I haven't done any work yet
As soon as I need money I will ask for it - See Cash Flow Diagram
I don't want to look bad in front of my customer by appearing needy
I don't want to appear financially weak in front of my staff
My wife is good at managing what little money I bring in so I don't need any just yet
I have personal and business credit cards to finance the work
I have many charge accounts at suppliers everywhere
My sub-contractors don't bill me until the end of the month
I have a little cash in savings I can use for a while
I have a line of credit on my house (Wives hate and FEAR this one)
When the contract is signed ask for a deposit And record it in QuickBooks and on the Pay Application. We recommend one week of work as a fair deposit. To calculate it take the contract amount and divide it by the estimated number of weeks to complete. For example: Contract $50,000 / 5 weeks = $10,000. Use this money for working capital and stop financing somebody else's dream.
Progress Payments Every week, perhaps on Monday, you could review the work that was completed the week before, issue a simple invoice or better yet give your customer a comprehensive payment application and get paid.
Change Orders Every change order has a clear scope of work and pre-determined price which needs to be documented IN ADVANCE OF THE WORK BEING DONE and paid in advance. Sound strong doesn't it? Well change orders have a short-short shelf life...the value of the work and the motivation to pay for the work on all Change Orders rapidly diminishes after the work has been performed. This happens a lot because some of your customers think you should have read their mind and have known in advance they were going to want the change. Keep change orders paid early and often or Christmas may come early for your customer and not at all for you and your family.
Final Payment When the work is done when you prepare the final invoice you will credit back the deposit and either issue a small refund check or collect a small check.
If you did everything right you did not put any of your money into the project.
Business Strategy For Your Construction Company Could Be The Ultimate Answer
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We Scan Your Receipts And Invoices link the appropriate transactions to QuickBooks or Xero Accounting Online depending on the construction accounting service you are using and provide ongoing Cloud Based Contractors Bookkeeping Services by accountants who understand construction.
About The Author:
Our Co-Founder Randal DeHart - Is a Certified PMP (Project Management Professional) with several years of construction project management experience. His expertise is construction accounting systems engineering and process development. His exhaustive study of several leading experts including the work of Dr. W. Edward Deming, Michael Gerber, Walter A. Shewhart, James Lewis and dozens of others was the foundation upon which our Construction Bookkeeping System is based and continues to evolve and improve. Check out our Contractor Success Map Podcast on iTunes and Follow Randal on Google+