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:

1. The customer just signed the contract and I haven't done any work yet
2. As soon as I need money I will ask for it
3. I don't want to look bad in front of my customer by appearing needy
4. I don't want to appear financially weak in front of my staff
5. My wife is good at managing what little money I bring in so I don't need any just yet
6. I have personal and business credit cards to finance the work
7. I have many charge accounts at suppliers everywhere
8. My sub-contractors don't bill me until the end of the month
9. I have a little cash in savings I can use for a while
10. I have a line of credit on my house (Wives hate and FEAR this one)

The answer is simple...when you think of a reason not to ask for money...STOP IT!

When To Ask For Money

• When the contract is signed ask for a deposit. 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.

Payment Application Summary Page

Payment Application Detail Support Page

• 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 change rapidly declines once the work has been performed because a lot of 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.

Quiz: How Many Projects Can You Work On?

• If you put money into each one Make a list of all your cash and anything you can turn into cash: checking + savings accounts + credit cards + suppliers credit  limit + home equity line of credit + other lines of credit + kids college fund + Christmas fund + vacation fund + loose change + gold + silver + jewelry + any other cash or anything that can be converted to cash.  Add it all up and that is how much construction work you can do and hope to get paid.
• If you operate on your customers money Your limits are how determined by your soft assets, business systems, and your hard assets including equipment and employees.  

Warm Regards,

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