5 Ways to Improve Your Cash Flow
If you’re a contractor who needs cash flow solutions, you’re not alone. Cash flow gaps can make it difficult for construction companies like yours to cover costs, ranging from payroll to materials. In this webinar, you’ll discover five tips to improve your cash flow so that you can grow your business and increase financial flexibility.
Register for this webinar to learn:
- Why payment problems are such an issue in the construction industry
- What you can do to keep your business protected and growing
- And of course… top 5 ways to improve your cash flow
And if you have a question? Just ask–we’ll answer it live.
Speaker 1 (00:04):
My name’s Brandon Davenport. I’ve, uh, been at level set for years now. Uh, I am a payment expert that has held various different positions, uh, over here at the organization learning, uh, and really diving deep into payments, lean rights management, cash flow, being able to have a better understanding of invoicing processes. And, uh, there’s gonna be a couple of call to actions at the, uh, end of today’s session, uh, for you to get more targeted, uh, one on one time with myself or engage in different and variety ways with level set. So without further ado, I think it’s been 60 seconds, uh, at this point, uh, we’re gonna move forward. Uh, again, um, Brandon Davenport, uh, this is me talked a little bit about myself, um, and, and what I’m here to do, and, uh, really what it boils down to. And, uh, again, this is hosted by level set.
Speaker 1 (01:11):
We, we have a few things that we focused on as an organization, uh, the last 10 plus years. And, uh, for those that are already familiar with the brand, um, a quick little a nugget here, you can see, um, level set. Thousands of people used us across, uh, the country. Uh, we do a variety of different things, uh, related to lean rights, uh, doing research on projects that some of you all might already be aware of. And, um, we’re, we’re showing a, a graphic here of buried Nebraska. Uh, one of our customers, um, the, the bullet points you see on the right, like he utilizes to a degree, all of these different elements of ultimately getting paid faster. There’s this amazing story that, uh, the organization likes to talk about where there was a bankruptcy $90,000 on a project that, uh, they had worked on.
Speaker 1 (02:12):
Um, I believe it was the, it was the property owner that had filed for it. And Barry didn’t even have to file a lien or take any additional escalation measures to get paid. Uh, the reason why is because they’re already equipped at the beginning of the project, uh, they already had the resources available so that they were multiple steps ahead of everyone else going into that project. Didn’t bat an I didn’t sweat at all. And so again, today, five ways to improve cash flow, uh, a couple of agenda items, uh, that we’re gonna be talking about, uh, review ways to boost cash flow. I’ll go through each of the different ways, uh, how level site can help, what we’ve done with some similar contractors to you all, and then we’ll have a Q and a, uh, throughout. So, you know, I see some of the people that have engaged with us in the past that have joined today, Eileen, uh, Doug MUN, uh, Jim Martino, uh, Monique Dallas, thanks to everyone for showing up, uh, Theresa Johnson to you all have engaged with us before in the past, Andrew Cox, uh, Austin tuck. Thank you all, uh, so much for being here, um, throughout the conversation today, ask us your questions, uh, at any point in time. And, uh, we’ll make this as interactive as possible. I’ll answer any questions along the way.
Speaker 1 (03:40):
So in order to help frame up, uh, the conversation for today, uh, again, there’s five different main elements that we’re talking about, and we’re gonna go through ’em one by one, but I’m gonna hit on ’em all five real quick. It’s establishing and consistent accounting measures and practices. I’m gonna say that again, establishing consistent accounting measures and practices. Number one, number two, having some type of school of thought and system that you believe in when it comes to invoicing doing it regularly. Yes. But understanding why you’re doing it regularly. Number three, protecting your payment rights and lean rights throughout the course of a project people often when they’re first learning about legal subscribe to lean rights, understanding those a little bit, but there’s a lot more that goes into it, besides that establishing customer communication patterns so that people aren’t caught off guard and then five, uh, talking about materials, purchasing, and materials financing.
Speaker 1 (04:45):
So number one, establishing consistent accounting measures. So it’s all about measuring what goes in and out of the business, uh, at the end of the day, uh, that’s in it in its raw form, having an accounting system. I imagine based off of our attendees today, you know, some of the people that I called out, uh, for being here, uh, you’re probably doing either a cash basis, accounting methodology, or project completed, uh, methodology. That’s going to be, uh, a more liquid approach, uh, to getting cash in the door. And then in back out, some people don’t know this, uh, but if you’re a little bit of a larger organization, if you do over 25 billion in revenue over the course of a year, uh, becomes incredibly challenging to do a cash basis. And so you’re usually confined to an approval basis methodology or a completed contract, uh, methodology.
Speaker 1 (05:45):
And so because of that, you are confined to either, all right, I’m gonna get like really liquid cash flow by doing a cash basis methodology or a project completed methodology, or I’m gonna have incredibly lumpy cash flow because I may, I may be like a slightly larger organization. I’m starting to mature a little bit. And there’s pros and cons of both. Right. Like having liquid cash. Sounds great for sure. Uh, one of the benefits though, of doing an accrual basis or completed contract methodology that I’m sure all you have heard about is that, uh, because the com, uh, completed contract methodology isn’t until the end of the project. Uh, oftentimes, uh, if you, uh, time the project out correctly, uh, if you end a project in a following year, you don’t pay taxes on it, um, in that existing year, uh, allowing for you to be a little bit more strategic with how you’re managing your EBIDA.
Speaker 1 (06:48):
Additionally, we got change orders on top of it. Change orders are a whole another beast. Uh, it causes, you know, additional material costs. It causes additional labor costs, uh, as additional clauses get added into your original contract. If you are someone here that struggles, uh, to manage change orders and have it married to one of the four different accounting practices that I just mentioned, uh, get with me afterwards, uh, my emails, Brandon dot Davenport level.com. We’ll talk a little bit more thoroughly about how to make that as painless problems, uh, as painless as a process as possible. Number two, using a material price tracker, all we’re gonna have a little fun with this one. So I know some of you are sitting in on this webinar, like trying to learn something, try to improve the organization a little bit. Let me capture your attention just real quick. I want everyone here to put into the chat, what material they think over the course of 2022 has risen the most in material price.
Speaker 1 (08:07):
Nice. Lots of lumber, lots of lumber. Everyone’s saying lumber lumber, lumber, lumber, lumber, lumber. <laugh> uh, good one therea. Uh, oh, we got a concrete from Andrew. All right, switching it up a little bit. Let’s get a few more in there. Douglas pre metal buildings. Excellent. Nicole widespread metal. And what’s, what’s interesting, of course, is that, um, all of you that are joining today are, uh, probably, um, exposing which trade, uh, you all are, are working for, cuz y’all experience that pain the most. Yep. Another pre-engineered metal. Thanks Nicole. So I’m gonna share my screen here, uh, in just a moment, but before I do that, let’s get a, see if we can get a few more answers in the door. We got a lot already. We got another medal. Thanks, Maryanne. Appreciate you. Thanks for coming out today.
Speaker 1 (09:13):
What we’re gonna do is whoever it has the correct answer. Uh, and if there are multiple correct answers, we’ll draw a name out of a hat and we’ll send a, uh, $25, uh, Starbucks gift card. Or if you don’t drink coffee, um, something else that falls into that category. And so what you see here is a live material price tracker on the level set website. And so we have a few categories, cement lumber metal, miscellaneous prices, and then you’re able to get more granular after that. And so if we’re a bag of cement, this is, uh, I guess this is gonna fall into your category. Uh, Andrew 4 75 up to where it is today on average, or this is actually end of may. That’s a 5.2% increase in prices. We gotta Gary saying steel, thanks Gary. So going over to lumber. So you’re able to break it down into untreated, treated untreated treated.
Speaker 1 (10:20):
I base this off of treated lumber for two by four by eights and from January 1st over to where we’re at, obviously we had a huge spike, uh, in March, that’s actually putting us at a 13.8, 9% increase from the six to over $7 amount that we’re at so far in the year. So lumbers winning over the cement bags, moving down, we had several people voice their opinion on pre-engineered, uh, building products, metal products. And so I base this off of, uh, steel rebar specifically. No, it’s, uh, not gonna be, um, a catchall for our all of metal, but it least gives us, um, a good, uh, measuring stick. So 5 68 up to 6 28, that’s a 10.1% increase. So it’s coming in just behind lumber so far on the year. Um, so we got our lumber people that are still in the running and then any other miscellaneous items, I didn’t see asphalt roofing, drywall insulation.
Speaker 1 (11:34):
I don’t think so. Um, we’ll stop there cuz all of those end up being a little less than lumber. So you got it. Our lumber folks, congratulations. We have a bunch of people that put that down. It wasn’t popular choice. I’ll be drawing a name out of the hat sometime later today. And we’ll be you over a little gift card for participating. Thanks everybody. So going back over to our presentation, uh, the last bit and I, and I had a, one of our first, uh, call to actions, uh, when I mentioned, uh, being able to manage change orders and how they connect to your accounting practices. Another call to action is having access to reports that help you understand the financial health of your business. If you’re a little bit more mature, if you’re using, uh, an accrual basis or if you’re using completed contract methodology at this point, there’s a really good chance.
Speaker 1 (12:31):
You have a system in place for your income statement, balance sheet cash flow statement or your progress and works reports. If you don’t like what you have in place right now, again, my email’s branded.Davenport@levelset.com. I’ll help you walk through, uh, how to maximize those reports, uh, for your business. And so that you’re always able to have good visibility on what levers you need to pull within your organization. If you’re a little bit of a newer organization and you’re thinking, well, I’ve obviously heard of income statement, cash flow statement, balance sheet and progress and works reports, but I don’t have a good system put in place yet. Same call to action. We’ll spend some time afterwards, but again, this is just one of five ways to improve. Uh, something that my boss actually tells me all the times is like, you only move what you measure.
Speaker 1 (13:25):
If you don’t measure, you don’t know what levers to pull and therefore your organization’s not gonna be hitting your, your growth goals that you have for the year or for the future. Number two, uh, invoicing regularly. So invoicing is gonna be partially influenced by the accounting methodology that you subscribe to. Uh, but there’s some other elements to it that, um, people don’t take into consideration at face value. So, um, let’s get back into the chat as we move over to invoicing. And uh, if you’re able to get, uh, any kind of discount from, uh, a vendor that you use by paying earlier, uh, say yes in the channel or, uh, maybe even give us a percentage discount that you might get by paying earlier with a vendor. We give it 15, 20 seconds. Thanks Christine. Thanks for flying off the keyboard. 3%, 1%, one, 3%. Yep. One yep. One.
Speaker 1 (14:40):
Don’t be afraid to be contrarian either if you’re a no that’s totally okay. Don’t be afraid to put it in the, in the, in the, in the chat. I did figure it was gonna be almost all yeses somewhere between one and 3%. And that’s, uh, that’s about where we’re at Gary. We gotta know. Thanks for sharing Gary. I appreciate you. Um, the reason why suppliers, your vendors, whoever it is, equipment rental companies, whatever are offering that, right? It’s because they get paid sooner. It helps them improve their cash flow. And so the invoicing section of this and having consistent documentation and follow on is that the takeaways that you can apply the same thing to your own organization, if you aren’t already, we know that general contractors, property owners end up trickling payments down the chain, uh, on average on 87 days, it takes a while.
Speaker 1 (15:41):
Um, and so because of that, it’s okay to incentivize them if they do pay within 10, 15 days, whatever it is for you within a month to give them some type of discount. Uh, and so having a system that marries, again, not only your accounting methodology, but your payment rights and lie rights management system as well, because after you’re sending up preliminary notice, making sure that you’re sending your invoices timely fashion, being proactive, sets you up for a position where you’re able to collect payment earlier, but you gotta do it. You can’t just hope and pray that you’ll be able to do it. And, and that you’ll get paid on time now, uh, making sure that, you know, you do it based off of your billing cycle and that actually leads us into our set methodology. So this was number two out of five and over here at level set, uh, we were actually founded originally as a payment rights, lean rights management organization, and we have a methodology for protecting people across the entire country.
Speaker 1 (16:59):
Um, so I know some of you here, um, in the chat, we have a lot of people based outta California, Texas, Florida. I see some people in New York, Tennessee, uh, Colorado, we all pretty spread far out. But the point in the fact of the matter is it doesn’t matter necessarily what state you work in. There’s gonna be some type of lean right system and, and dogma that you have to, uh, effectively follow. So using the set methodology, it’s an acronym set, S E T it stands for setting expectations, exchanging documentation, and then T talking it out. So it is about sending preliminary notice. And so the E exchanging documentation that goes back to our invoicing slide right here, exchanging that required a documentation to set yourself up for success so that if you do need to talk it out and send that notice of intent to lean right before the mechanics lean deadline approaches, you’re able to put yourself in a position where you end up getting paid.
Speaker 1 (18:10):
One of our customers saw Zaya at R and L plumbing. Uh, he follows the set methodology to a T and, uh, he always gets so excited when he talks about the ability to go from communication to the beginning, uh, little nudge, little nudge, and then being able to remind them that, Hey, we are professionals. We do have our stuff together because we have our mechanics lean rights in place and Saul. He’s actually a salesperson over at R and L plumbing. And that’s common pushback that organizations have is that between accounting or credit and between your sales organization, sales doesn’t want you to necessarily, uh, send a new documentation or over invoice. But if you’re able to come to an agreement earlier on that, you’re gonna be a proactive organization. It’ll pay off dividends for you later on now, last but not least. How does this all tie in together with a few other elements?
Speaker 1 (19:21):
Well, we have our materials financing materials purchasing as well. You all just noted here, uh, in the chat, you know, one to 3%, almost everybody, uh, is getting some type of discount. What about your terms on average, if we get another and this will be my last ask of you. So again, thank you all. Let’s get one more go in here. What’s your average terms that you get with the vendors that you use? Maybe it’s 30, maybe it’s 60, maybe it’s even 90. If you got some really, really good suppliers that like you a lot, 30, 30, 30, 30, another 30 net 30. Yep. Thirty’s gonna be, yep. Thirty’s gonna be your most common. Thanks everyone again for participating. Appreciate it. And part of this, right, as you can tell, is that between seeing how your peers respond, um, you know, they might be across the country doing electrical work where you’re doing drywall work on the other side of the, the country is that you’re not alone. Yes. You probably aren’t getting paid in 30 days from your GC or from your property owner and yes, you are having to pay your vendor in 30 days. And so yes, construction in America over the last 200 years has made it so that the specialty contractor has to act like a bank.
Speaker 1 (20:57):
The good news though, is that it doesn’t have to be that way. So with our materials purchasing or materials, financing program, think of it. Um, think of it, just like your supplier, like think of your favorite supplier that you have right now that gives you a little bit more leniency, uh, with your credit terms. Maybe they give you, um, really good discounts for paying them up front. That’s exactly, uh, what we’ve become. So as you’ve built up that relationship over the course of time level set actually has become the supplier for specialty contractors all across the country, giving them 120 days. So they don’t have to act quite as much like a bank being able to say yes to projects. When otherwise you wouldn’t get the nod. We won’t do this, uh, question right here, but think to yourself, when have you been told no by a bank or by a supplier because they just didn’t know enough about your organization. They didn’t have enough history on you think back to that time and think about how it felt, not very fun or even think about when you needed a hundred thousand dollars worth of materials, but instead, uh, they started you off slower on 10,000.
Speaker 1 (22:28):
You weren’t able to take the job because of it. You had to go back and forth just like you always have done as a specialty specialty contractor with the GC renegotiating. So you could avoid any liquidated damages and schedule delays. It doesn’t have to be that way anymore.
Speaker 1 (22:52):
And so when we put a bow in all of this, this is the aesthetic op piece, right. May be a little bit more obvious, but maintaining great service and communication. I told this story about Saul earlier. He’s a salesperson at R L in the bay area, and he just made the commitment that I’m okay. Being over communicative, setting up broad expectations with my customer or with my customer’s customer. So I challenge everyone in here today that have stopped by and hung out. If part of it is the service piece. That’s preventing you from establishing a different accounting practice, or maybe invoicing more regularly, or even protecting your lean rights with a system that works for your organization. I, I challenge you to go have those tough conversations in your own company to say, Hey, can we all just maybe disagree for one moment and then commit towards a brighter future towards a system where we’re not having to chase our tails nonstop, getting paid by our customer, but then paying our supplier in 30 days,
Speaker 1 (24:12):
You have those tough conversations then. Yeah, of course, like you’ll be put in a position where you’re like Martin Estrada, like Jonathan Reed, like Alberto Polanco, like SA Zaya, or like Barry de broski that I showed you at the beginning of the conversation. Doesn’t have to be this way anymore. I really appreciate everyone’s time today. It’s been awesome. Looks like we still have three more minutes. I appreciate all the participation. We’re gonna draw names out again for that Starbucks gift card. Get a winner before we do that, though, if you wanna come off mute, raise your hand. Uh, Kara and I should be able to take you off mute, ask a question for the group. The floor is now yours. You can also put your questions in the chat too, if you don’t want to come off mute and ask in front of a large group of people.
Speaker 1 (25:34):
Uh, we got one. Perfect. Uh, let’s see here. So we got Gary, Emily come, I’m gonna just do it in chronological order. Uh, so let’s start with Emily, Emily. Um, the question here is here. I’m gonna answer it live. Um, what is the interest rate on the 120 days? And so it’s technically not an interest rate. Um, it very much does function similarly to an interest rate. It’s actually a financing charge, which sounds like semantics, Brandon, like, come on, you like cut to the chase, like is an interest rate. Is it not? It’s a financing charge that functions very similar to an interest rate. And so on the 120 days, what we tell everybody is that, um, anyone is welcome to come in and apply. We do it on a project by project basis and the most you would ever pay is 3% on a monthly basis or a 3% monthly charge and a, um, or I guess, yeah, that answers your question.
Speaker 1 (26:41):
Uh, the more and more businesses you could imagine you do with us, um, that drops, um, really quickly, uh, good question, Emily, Emily, if you wanna get together and, uh, talk a little bit more afterwards again, brandon.Davenport@levelset.com. I’ll be able to, to dive in. Um, but yeah, that’s the high level on the financing charts? Uh, Gary, uh, can you expand on the financing program? So connecting that between your question and Emily’s question, uh, that’s the basis of, um, of how the rates work of doing business with this, but, but think about it like this, you could take money from a lot of different organizations. If they are able to say yes to you, a bank, maybe you have a credit card, Gary, uh, that you put, uh, business expenses on. Maybe you used other alternative forms of financing in the past, like convertible notes or factory.
Speaker 1 (27:43):
You name it, the list goes on and on and on, and all those are like gonna be good opportunities for sure. The difference is that when you go back to level set and what we were founded upon our lean rights management expertise, our ability to prescribe good invoicing practices, our financing program and our financing team subscribes to these as well. So think about let it like, uh, lock an arms with a partner, arm, an arm, and you’re gonna wait into the deep end of a pool because we are literally the supplier on your project. Now, Gary. So we pay for a quote or an invoice on day one. So that supplier they’re happy, they get some type of discount that we pass off to you like a one, two, 3% discount, I think is what people said. So you get that discount. And what that does is it, it oftentimes offsets, uh, a lot of the cost of having liquid cash flow for your business and the cost of doing business with us.
Speaker 1 (28:53):
But last piece there to expand upon, again, it’s like locking arms with somebody that understands construction from day one. We’re literally the supplier on the, this project now. And so we have just as much vested interest as you as making sure that we get paid on time. It’s not like, um, if you were to take a, uh, a hundred thousand dollars line of credit out from a traditional bank, maybe like, uh, a local credit union or a regional bank in your area, if you don’t pay them back, well, they’re gonna collateralize on your car or they’re gonna collateralize on your office space and you won’t have that car or office space anymore. That’s not us cuz we’re on this project now as well as the supplier. I, I know that was a little verbose, uh, but I appreciate the patience. Um, Emily’s back over there and I understand that, Hey people, if you need to jump totally understand, I really appreciate you coming out.
Speaker 1 (29:51):
Um, you’ll all have my email, uh, at this point, uh, reach out if you wanna set up more time. Um, Emily, I’m gonna keep going though. Uh, cause we do have some good questions. Emily, is there a prepayment penalty if we pay in 15 or 30 days? Uh, for it instance? Um, yeah, no problem Theresa. Thank you. Uh, Emily. Um, great question. No, uh, there is no prepayment penalty at all. And so, um, you end up in a situation where, um, you have, uh, oh, thanks, Carrie answered it as well. It looks like, um, you, you end up in a situation where no, you don’t have, uh, a penalty. And so our customers that are using us for that, like relatively quick turnaround, 15, uh, 30 days, um, most likely they’re trying to grow, uh, pretty fast. So that 15 to 30 day cashflow turnaround helps them move.
Speaker 1 (30:51):
Uh, they call it material velocity. If those, those that are familiar with the terminology. So you can move material quicker and quicker and quicker and quicker and never sits, um, in your warehouse. And so that way you’re using your working capital for new projects or hiring more sales people, you name it at this point. Um, but again, no, no PR no prepayment penalty. Um, and we also, uh, even though it’s based off of a monthly finance charge, if you pay in 15 days, uh, you’re not gonna pay the full, uh, monthly finance charge. You’d only pay half of it. Or if you pay in a week, you’d only pay a fourth.
Speaker 1 (31:32):
Uh, let’s see over to you, Christine. So we have up to 120 days to pay off our loan with you. Uh, do you get that interest charge at the end of the month or does the interest start hitting at one 20? Great question. Uh, Christine. So I should have said this earlier, and so I’m glad you caught it. It’s a, um, uh, monthly finance charge that’s billed within weekly installments. So, uh, let’s say you’re one of our, um, customers that’s been doing, uh, business with us for a while. Uh, you’re doing siding and framing. Uh, so you’re buying a lot of lumber and let’s say you have a hundred thousand dollars, uh, invoice that you wanna finance through us. You’ve been doing a lot of business with us, so we give you a, a 2%, uh, monthly finance rate, um, instead monthly finance charge, excuse me. So that would be, uh, $2,000 per month. Uh, when you break that down into weekly installments, Christine, that ends up being $500, uh, per week until it’s paid off.
Speaker 1 (32:46):
Awesome. Kara, I appreciate the support there, adding my email. Um, yeah, no problem. Thanks for sticking around, hanging out for a little bit of extra time, everybody. Um, because the conversation has been good and mostly everybody has hung around, um, for the extra commentary and back and forth. I’m going to give it 30, 45, 60 seconds somewhere in that range for any last, uh, questions to keep the, uh, the conversation flowing. If you gotta go. I understand if I don’t get any other questions, uh, within the next 30, 45 seconds then, uh, one from there. So just a moment. Yeah, no problem, Gary. Yeah, no problem, Jim. Thanks for coming by. Appreciate you guys.
Speaker 1 (33:49):
Yeah, no problem, Monique Maryanne. Thank you. Thank you both as well. Really appreciate it. Uh, we’ll wrap up there, uh, with no more questions again. Thanks for coming out. You all understand the call to action. You all have my email at this point. If you need follow up, if you need an extra context, uh, you want to talk through some of the five steps that we talked about to improving cash flow. Just to wrap up one more time, those five things establish consistent accounting methodology and practices. Number two, after that, making sure that you subscribe to some type of invoicing system that’s regular and frequent. Number three, protect your payment rights, your lean rights more specifically, number four, materials, financing, materials, purchasing, putting a system into place where, uh, you’re gonna be able to make your working capital as liquid as possible. And then number five, like as a team, as an organization, disagree, and then commit to one system. When it comes to your communication with your customer, everyone’s gonna be a lot more happier. Um, a lot more happy, excuse me. Thereafterwards uh, putting you in a position where not only you can go hit your goals, but the team and the culture of your own organization has improved.
Speaker 1 (35:05):
That’s all that we got. Thanks everybody.