You’ve Got Problems? Whoa, Dude (or Dudette), We need to talk!!

Last month we started talking about how our “Profit First Cash Management System” can help you better manage your contracting business. Now it’s time to show you some of the snakes hiding in the grass. Oh yes, there are snakes…

While it sounds simple to create a few extra bank accounts and start allocating cash into them, that doesn’t mean it’s easy. There is a big difference between simple and easy, you know. Simple means that it’s doable. But sometimes it takes a lot of work to get to “simple’” And that’s the part where it’s not always easy.

Here are some typical problems we find as our clients begin implementing our PFCMS:

How should you manage subcontractor payouts?

It’s critical to remember that 100% of the money we collect from our customers doesn’t belong to you. Some of it belongs to your subcontractors. Nothing creates more dysfunction on a construction project than when the subs get strung out waiting for payment.

Typical results of being strung out:

Bumping up quotes to account for the hassle of slow payments

  • Moving to jobs and contractors that do pay on time
  • Cutting quality of work due to feeling ripped off
  • In extreme cases, pulling off the job completely, leaving you with a mess

That’s why it’s critical to carve out the amounts needed to pay the subcontractors upfront and segregating the funds in a separate account. That way, when it comes time to pay the subs, the funds are already there to do it.

Of course, that doesn’t mean you will actually pay them 100% of what they’ve invoiced. Obviously, the work must be completed on time, on budget, and on customer satisfying quality before some or all of their payment is made. But at least the funds are already there when the timing is right.

Getting agreement on the work to be completed

Many of the issues we see happening in construction projects can be eliminated upfront by paying more detailed attention to project specs, including choice of materials to be used.

Also, getting a detailed fixed bid upfront as you are bidding the job will help manage costs. It’s also helpful to get a sign Purchase Order (PO) from each subcontractor once the job is secured. Be sure you actually enter that PO into your accounting system and match up the sub invoices to that PO. While this might sound cumbersome, with the technology we currently have, this process can be easily automated and becomes an efficient process.

Typical results of being paid on time:

  • The work tends to be completed on time, on quality, on scope
  • You can push the subs a little when you need them to step up on a job
  • They are more accommodating for change orders
  • Better customer relationships with your customers
  • They will tend to gravitate more to your jobs

Call us if you need help setting up your system for this. We have the experience and know the technology to make this SIMPLE and EASY (well, at least easier).