at a project from a cash flow vs. billings standpoint, their
business maturity increases.
Collect All Receivables on Time
Always analyze an owner’s ability to pay. This is a prudent
business practice and should never be overlooked. Assuming
your company verified the owner’s sources of funding, it’s a
good business practice to establish your collection expectations up front.
Generally, the accounting department contacts the owner
about late payments a couple of months into the billing process. At this point, the behavior has already been established
and will likely get worse before it gets better.
The “squeaky wheel” saying works in collections, but only if
you set expectations early on. In other words, set the precedent for timely collection before the first progress bill is due.
For example, one contractor dedicated an accounting
employee to call owners to advise that the first progress billing was in the mail and mention the payment due date. The
accounting employee called again three days before the bill
was due to remind the owner of the due date. A third call was
placed on the due date.
This procedure sets precedence for your collection tolerance
and establishes the behavior for payment up front, before a
1 CUP OF COST CONTROL
Here’s one of my favorite quotes: “...being frugal is not just
a matter of cutting costs in a downturn. It is a question of
being sparing with resources at all times, of continually looking for new ways to cut costs, and of creating an atmosphere
in which waste and excess are unacceptable, no matter what
the market conditions.” 1
Maintaining a frugal environment is imperative to cost control. However, it’s important that employees who buy into
this concept are rewarded for their efforts. The construction
industry already operates on extremely lean returns; therefore, maintaining a “no waste” philosophy throughout the
company is imperative.
One cost control option is flexible overhead. Although the
short-term costs of flexible overhead may be more expensive, they are easier to dissolve over the long term. Flexible
• Equipment leases and rentals
• Month-to-month rentals
• Temporary employees
• Contract employees
• Reward-based compensation plans, rather than
fixed salaries and a company truck
• Deferred employee benefits
• Joint ventures
If your company rents equipment or utilizes outsourcing, will
it price itself out of the market? Depending on the continued
severity of this economic decline, it’s certainly possible.
Fixed costs and fixed debt require fixed revenue and margin; you cannot control revenue and margin as previously
explained. Efficiency and innovation are requirements when
you utilize flexible overhead.
Here are other practical ways to control costs:
• Invest in construction software for efficiency and
long-term cost savings.
• Improve the company’s safety plan.
• Prevent small tool losses.
• Manage purchase orders and implement centralized
• Avoid accumulating non-performing assets.
• Plan and document any external borrowings.
• Maintain a philosophy of creative, innovative solutions
to construction challenges.
• Track costs within a unit-priced job cost system.
• Overbill, or internally finance the operation with
the owner’s money.
• Understand the components of your overhead. (How
much does it truly cost to turn the lights on?)
• Reward employees for being frugal.
1-1/3 CUPS OF PREPARATION
Planning for future production is vital to any contractor’s
financial success. Although preparation sometimes takes a
back seat during times of stress and adversity, that is actually
when it is most needed.
Preparation and planning should be a part of each key manager’s job responsibilities. In fact, the CEO, CFO, and VP
of Operations should maintain a management journal that
records business plans, forecasts, and strength/weakness