Can this one easy cash flow calculation save your construction business from disaster?
How stressed would you be if you had a cash flow deficiency pop up in the middle of the project? What if you could not only see it coming, but prevent it?
Join us live to hear Scott Peper, CEO of Mobilization Funding, share how a simple cash flow calculation can change the course of a project’s success. And if you have a question? Just ask–he’ll answer it live.
Register for this webinar to learn:
- Why mapping out a project cash flow on a weekly basis BEFORE THE WORK starts can improve performance and profitability on every project
- How to use a Cash Flow Calculator to estimate and track your project’s cash flow
- Why effective project cash flow management is the secret to organizational growth
Speaker 1 (00:04):
Welcome to can this one easy cash flow calculation. Save your construction business from disaster bid more, win big, and grow your business. So this webinar is all about cash flow. My name’s Johnny Finity. I’m a construction payment expert with level set level set is a construction software company. Our single mission is helping construction businesses get paid faster and improve their cash flow. One of the ways we do that is by, uh, creating content and hosting webinars like this and partnering with people like Scott pepper, who are experts in the field, um, and you know, creating these great partnerships to be able to deliver helpful content to you.
Speaker 2 (00:44):
Yes, Johnny. Thank you, man. I appreciate you guys having me on and, uh, we do share similar passions. We try to solve cash flow problems. Our mission is to help all those. We come in contact with, and obviously since we’re working with construction, cash flow, construction customers specifically, and, and manufacturers cons cash flow is the biggest problem in all small businesses, but it is certainly, um, one in construction as well. So really happy you guys let us talk and, uh, share some tools and information. I’m looking forward to our talk today.
Speaker 1 (01:19):
So again, if you’re watching on LinkedIn live, uh, and you want a recording of this webinar after the session scan this QR code, um, and we will email you a copy of this webinar, so you can have for free reference, watch the beginning if you missed it. Um, and we’ll have a Q and a session at the end. Um, or if you have a question during this webinar, just pop it in the chat. We’ll try to answer it as they come in. Um, for now we have a question for you, uh, if you’re on LinkedIn or you’re on zoom, put this in the chat, uh, what is your biggest challenge or your company’s biggest challenge when it comes to managing cashflow?
Speaker 2 (02:00):
That’s a good question. I’m looking forward to seeing what those, what people put in there, cuz we can definitely address those and more importantly, provide some direct access to tools and solutions to fix ’em.
Speaker 1 (02:12):
Yeah, there are a lot of common, common challenges we hear from our customers. I’m sure Scott hear the same. Like all the contractors you talk to, there are some common challenges, but I’m curious to see if anybody, uh, in this, this webinar has something specific we can, we can address. So a roomy says collecting, collecting AR that’s a, that’s always a big one collection cycles, uh, payment speed. Uh, Ron says retention for retainage, uh, which, you know, on a big project can take months or years to collect, which can really like dig into your cash flow. Maria says getting clients to pay on time. That’s when we hear time and again, and we’ll definitely talk about that in this webinar a little bit. Yeah. Um, a roomy says too much money going out before coming in. Yeah. That’s exactly what this cashflow tool that Scott’s gonna be talking about today is designed to, to measure and manage.
Speaker 2 (03:07):
Yeah, these are great questions and, and they’re very common. And so here, what I’ll, I’ll give you guys a couple things today. Um, starting with this neither Johnny or I, although we both probably think fairly highly of ourselves and our companies, um, neither of us will be able to change how retention is paid in cash flow. And we definitely won’t be able to make your customers pay you faster on this webinar. But if we could do that, we would just send those out on email and the world would be solved in no time. But what we can do is show you how you can mitigate around some of these things and handling upfront how you handle it, but also going in eyes wide open of what you can and can’t do, and then planning for some. Um, so some, some planning for some of these problems.
Speaker 2 (03:49):
It, what if my customer doesn’t pay me on time? What does that mean? And if you have those tools and you’re armed front, you can make good decisions, um, upfront on what jobs you wanna take, how you want to take. ’em how you build your schedule. Um, et cetera, cetera, all the things that are within your control. We’re gonna focus on today at that. So you can solve and prepare and be in the best position you can for when and if those things do happen. Um, alright cool. Well, let’s, we’ll address those after in some more detail and see if a couple other pop up, but let’s, let’s go through some basics first. So what, what is cashflow? It’s such a common term. Everyone talks about it. And again, we’re gonna, I’m gonna, I’m gonna really focus here mostly and primarily on how this relates to construction.
Speaker 2 (04:33):
So it may keep it simple, but cash flow is the most simplistic answer. It’s really, it’s just the total money that comes in your business and the total money that comes outta your business. Now that’s what it is for your business. What is it by project? Well, how much money comes into your project and how much money has to go out of your project each and every time, right? That’s just money spent versus when you receive, what is it? Across a bunch of projects. So you can see cash flow, depending on what you’re talking about is the same, but it also is very specific to each and individual thing. So how your project cash flow, uh, runs might be different than how your entire business cash flow runs. And so we’re gonna talk about both, um, the cash coming in real simple, those are your sources of cash cash going out.
Speaker 2 (05:16):
Those are the uses of cash, right? And it, it, some of these things are different than income. Might. A lot of people think my sources, oh, that’s just income. No, it’s not because, uh, money from lines of credit can be a source of cash, but that’s not necessarily income. So income is a source, but it does. Sources are not only income. And then your uses of cash can also be anything, project related, material, labor, et cetera. Or it could be debt service. It could be rent. It could be overhead so uses. Aren’t just expenses either. So there’s things like that to talk about. All right, let’s hit the next slide. That’s basic cash flow 1 0 1. All right, we’re gonna nail it down to projects now. So why would cash flow management matter to your project? All right. Simplistically, when we’re sitting in the middle of these jobs and we’re looking at working with clients and we’re working with some general contractors, we’re working with a lot of subcontractors and we’re working with material suppliers and people in between, we get a good vantage point of how the project itself is cash flowed for everyone, the whole overall water flow.
Speaker 2 (06:21):
So what we’ve noticed is obviously if a developer has a problem with their bank and they’re building a hotel and the bank has an issue with the project overall, that’s gonna impact everyone all the way down the waterfall. It’s gonna impact the project, which impacts the general contractor, which impacts the sub, the first tier sub, the second tier sub. And obviously if the subs are impacted, then the material suppliers are impacted. So that’s the first thought about why cash flow matters and that flow of a project cash matters just as much to a business. So going down to the subcontractor side, your cashflow is the single greatest risk to your ability to perform, pay your vendors, pay your employees and ultimately earn your profitability. So that’s why project cashflow matters so much. Of course your vendor relationships count on it. If you can’t pay your suppliers on one project, it might be hard for you to get, get supplies and materials for the other projects you’re working on.
Speaker 2 (07:17):
So they can carry over to individual things. Your employees count. Obviously you gotta make payroll. Those are some of the biggest stresses we hear about from everyone. I bet you, if I pull that chat up right now and ask everybody, Hey, what’s the biggest risk not getting paid. First thing that comes to mind is payroll. And I’m sure everyone has spent many sleepless nights and starting on Monday, Tuesday and Wednesday chasing your money down because you know, you gotta make payroll on Friday. So this cashflow tool and why it matters is very important and critical to those items. So we’re gonna talk about that. And then as an owner of a business or a leader or a manager of a business, you know, you’re sleep at night matters most too. I mean, you wanna be able to put your head on the pillow, go to sleep at night, knowing that you got your, your team, your family, their families covered.
Speaker 2 (08:01):
It’s not just about paying bills, but it’s about everybody’s families and their individual needs too. All right, next slide. So estimating and tracking your project cash flow. I have this, this phrase of thoughts that I’ve used that, um, I, I think first of all, commercial contractors and subcontractors specifically are incredibly resilient when it comes to dealing with cash cashflow matters. Uh, first and foremost, I’m just gonna tell you guys right now, big kudos to you. You should not think of yourself in any other way, other than extremely resilient. And here’s the reason why, if I took the cash flow cycle that you guys tolerate and deal with, and I applied it to almost any other industry, the business owners in that industry would be bankrupt within, within minutes. For example, can you imagine if a restaurant had all their customers come in for an entire month feed, ’em buy materials, buy the food, pay the chefs, make payroll, and then they could only invoice every customer, those 30 days that came in at the end of the month.
Speaker 2 (09:02):
And then all those customers had another 30 days to pay ’em how many restaurants would we be able to go to by the end of this month? Probably none. Okay. So give selves some credit just realized that it’s, it’s the environment you’re dealing with, which of course, all those things went into the chat right there. Those aren’t the things we can control. We can’t change that environment right now. Not yet. Anyway, hopefully we can over time and we’ll talk maybe about that at the end, but there’s many things that you can do that are in your control. And so what, what you, what we’ve realized that a lot of people are very good at is they have a very sophisticated way of coming up with their estimates, for what the projects they’re gonna do. When I say estimates, what your expenses are gonna be, um, how much material costs, what your labor is.
Speaker 2 (09:47):
And you also have a very good idea of the schedule you want to keep, and you build that those cost estimates along with that schedule, and then you add some type of profit and overhead and margin onto that and put a bid in, and then you win that bid. And everything’s good. And in theory, if you could do all that work in one week and invoice the entire project at the end of the week, what the profit you have on your bid and the amount of cash you outlay that week is probably pretty accurate. The problem is, of course that’s not how construction works. You know, and usually these projects are a couple months or sometimes they’re years or longer. So what the third piece, that’s key, that’s always missing from a lot of contractors and what we’ve built here on this cashflow tool, we’re gonna show you is how much money do you actually have to invest into the project though, like real cash before you actually can figure out, um, what you’re before you can execute it.
Speaker 2 (10:42):
So, for example, if you have a million dollar job and you have $800,000 of cost, well, you don’t necessarily have to invest $800,000 into that job because you’re gonna invoice week our monthly and you’re gonna get paid. But what is important to know is how much of that 800,000 has to go out at first before you actually do. And that’s what this cash flow tool’s gonna show you where that $800,000 needs to be spent and how much upfront, just like someone said there in the chat earlier. And it’s, it’s understanding that week by week and then marrying that up to how you’re gonna get paid, um, and what you’re gonna invoice on a monthly basis. So, alright, we’re gonna do, uh, let’s see. Yeah. Estimate track cash flow. Okay. Makes, okay. So the big things on the cash tracking cash flow are gonna give you the ability to make those decisions and adjustments that you normally are making week to week on the job.
Speaker 2 (11:35):
When you start to realize, Ooh, I gotta order this material, but I don’t have enough money yet. Or I gotta, um, I gotta, I’d love to put two crews on this project, but I’m not sure I can afford the labor. Uh, what, how much am I gonna bill this month? Maybe there was a weather delay or not all those decisions you have to make on the fly. Based on some assumptions, you’re gonna be able to look at the entire project in one spreadsheet, with cash and cash out to make those decisions ahead of time. So if you can forecast ahead, know, Ooh, it’s gonna cost me a half, a million dollars of cash. I have to invest in this project based on my payment terms and my supplier. And when I wanna order material, obviously this supply chain issues. So people are ordering things a lot sooner now than you would before, but you might not be able to get it onto the project. So, um, you can’t invoice until get on the project. So the other thing is that, and we just wanna make sure you’re gonna make the money you think you are in terms of profit. Uh, so let me, uh, switch Johnny. This is the part I’m gonna switch
Speaker 1 (12:32):
Over here now. Yeah. Let’s jump into the tool.
Speaker 2 (12:35):
Yeah. Think of the tool here. We’re gonna go rid this. Okay. So this project cash flow tool is on our website. It’s a hundred percent free. Anyone can use it anytime you do not have to be a customer mobilization funding in order to use this tool. So, uh, if everybody can see my screen here, I’m sharing Johnny. Is that coming through okay for you?
Speaker 1 (12:58):
Yep. Looks good.
Speaker 2 (12:59):
Okay. Go to mobilization. funding.com up in the top right hand corner. You’ll see resources go down to cash flow tool. Click on that now. Um, I’m not gonna do that. I actually prepopulated a lot of this here now, because what I’m gonna do now is show you you’re gonna toggle and answer just some basic questions, but what’s gonna produce, this is a spreadsheet that it’s gonna show you exactly what you need to do and how you want to do it. So I’m gonna just show you this quickly and how easy this is to fill out. So basic details, name, email, business name. We do not market to you. We only get your email so we can literally email you the spreadsheet and a tool. The, uh, the actual spreadsheet information. You fill out what the project is, where it’s at, the contract value, the how much payroll, you have, your subcontract, payroll, material, equipment, miscellaneous expenses.
Speaker 2 (13:54):
What’s your retainage. How many weeks is it gonna take you to finish the project? Do you invoice your customer monthly, weekly, et cetera. These are all drop down menus. So you can put in whatever you need to here. And then from the time you submit your pay app, how long does it take your customer to pay you the name of your company? I just put H ABC HVAC contractor. And what I’m gonna show you guys here too, is actually a real customer of ours. It’s an HVAC contractor working on a big giant hospital, um, what their, what they expected their margin to be how much money they’ve received off the contract. Do they have joint checks? Yes. And what their margin is. Okay. And the margin is based off the contract value and the total of the expenses you put in.
Speaker 1 (14:42):
All right. So Scott, it looks like you can, you can do this for projects that are already in process, right?
Speaker 2 (14:47):
That’s right. Yep.
Speaker 1 (14:48):
We create the cash flow projection for, for any project, even if you already started it three weeks ago.
Speaker 2 (14:54):
That’s right. So you’re putting some basic information here as pay apps, schedule what you estimate your pay apps are gonna be April, may, June through you’re. Then, then it gets to payroll, direct subcontracts and material. Before I go into all these columns, all I’m gonna switch over here. And I wanna show you what this end spreadsheet looks like. So that while I’m looking at this sheet here, you can see exactly what this tool does for you. So I’m gonna switch over to that real quickly here. And I wanna show you guys now the cash flow tool. Okay? Once you answer all these questions, this is what gets emailed to you. So real basic stuff here just gives you the information on the sheet up here. This is what you’ve typed in up here is what your invoice, your customer. This is where your pay apps go.
Speaker 2 (15:40):
So your schedule, this particular project started April 1st. And it goes all the way out week by week. Each column in this sheet is a week, right? And this is the start date of the week, week 1, 2, 3, 4, 5, 6, all the way through. These are the expenses in this section. So here’s your sources up top and then of cash. This is your uses of cash. And then this section is gonna show you your cumulative amount of cash spent on the project week by week, but also cumulatively across the project. So you can actually see how much cash do I have to invest in this project. Now, the reason I showed you the tool first is because most important to know is this information that populates into here automatically is purely off of the information that you submit onto the form. So this sheet shows if you’re gonna invoice in April, this is where you input, how much you invoice your customer.
Speaker 2 (16:39):
If you, your weekly payroll is $16,400, then you’re gonna put your weekly payroll. It populates for you. If you have to pay your vendors in 30 or 45 days, it’s gonna show you when you need to spend them money to pay your vendors. Okay? So for example, real basic down here, this, this is the amount of money you’re receiving under this week, which in this case is zero. This is how much money you have to spend this week, which in this case is almost $22,000. So, so far after the first week, you’ve invested $22,000 into this project. And over the course of the first month, you’re basically spending your weekly payroll and some miscellaneous expenses, which are happen to be per diem and hotel for this job. And you can see cumulatively over each week. You build up to a point of which you are spending $87,000 at the end of the first four weeks.
Speaker 2 (17:34):
You now invoice your customer $200,000, but because you don’t get paid for 45 days, none of that money’s coming in either. So you spend another $22,000 all the way through. So you basically get about to week 10 on the job. Now in week 10, you’ve invoiced $600,000, and you’ve spent $200,000. Now everybody’s been in this situation before, and this is exactly like one of the comments we’re in this section, I’ve invoiced 600. I’ve spent 200. If every, if my customers just paid me right now, you’d be up $400,000. Exactly problem is doesn’t work that way. So you’re now going out here two more weeks before you start to receive this first $200,000, which doesn’t get paid to you till week 12. Okay? In this week here, now right here, it’ll show you, this is the cash received from your pay apps. So you invoice the end of April.
Speaker 2 (18:38):
You’re basically paid six weeks later, which is 45 days. Now here’s an interesting thing. I wanna show you guys about this tool at the end of this spreadsheet, it’ll show you Ooh, frozen here, what the total of your project is. Okay. So your total project is 3 million, 964,000. This 5% retainage. And I know a lot of you have 10 in the state of Florida on a, on a hospital or government project. It’s only 5%. That’s just a state law. So that’s one of the reasons why it’s only 5%. So the amount you’ll actually be paid net of retainage is 3,766,000 total expenses are almost two, 2 million, 600,000. And so you have a profit on this project of 1 million, 169,000 or 31%. Now, if I could see everybody in this audience and ask everyone to raise their hands, how many people would love a 3 million, a four, almost a $4 million contract with a 30% margin.
Speaker 2 (19:48):
I bet a hundred percent of subcontractor’s hands would go in the air because it looks awesome. And it is, it’s very awesome. As long as you finish it. And as long as you stay on track and get paid all your money, that’s exactly what you’ll make now, why this tool is so good. It’s cuz most people, without this tool, you run straight into that project. You know your estimates, you know what you’re gonna invoice and you know what your margin is perfect. I’m gonna hammer this job. No problem. But here’s what happens because you’re paid in 45 days. And because you’re trying to pay your own, your material vendors and your subcontract labor, every 30 days, this cumulative cash flow here in road 27, that goes across. This tells you how much cash you invest into this project before you receive any money or even after you receive money, but continue to have to pay in.
Speaker 2 (20:38):
So in this particular instance, you can see by week 11, before you’re paid any money, you have $937,000 of cash that you have to invest in this job right here. And that’s coming from the subcontractor labor that you’re gonna pay. You want to pay them in 30 days. So you’re paying them 30 days after you, after they finish in April, that’s 450,000. And then you have some material payments that you have to pay, which is another 200, 2000. So there’s $650,000 of your subcontract, labor and material that you’re paying for on this job that are driving the majority of this 937,000. So there’s two choices here. You could say, okay, no problem. I got a million dollars in the bank. I can invest it into this job. I have a line of credit of a million dollars. And so all you, I just know that I’m gonna need to do spend $937,000.
Speaker 2 (21:37):
Okay? Problem. No problem, problem solved. You might say I don’t have that. And so I need to rework how I’m gonna pay my subcontract labor. I can’t pay them in 30 days. I have to marry up when I pay them to, when I actually receive the money, the cash you have on a hand, whatever you need, you can start to make those decisions now. So now think about it. You’re 10, 11 weeks into a job making decisions about what’s gonna happen 10 or 11 weeks into it before you even started. And you can get yourself in a really good spot. And so that’s what this tool will do. And more importantly, it’ll show you that even though you have an awesome margin on a great contract, you wanna know that you’re gonna have to put out 930, $7,000 before you receive any money. So now here’s the next scenario. You’ve now completed three months of this work. Okay. You’ve invoiced 200,000, 400,000 the second month and 841,000, the third month. So, so far we’re at 1.2 and a half, 1,450,000. You’ve invoiced. You’ve only received 190,000 and you’ve spent almost a million dollars.
Speaker 2 (22:55):
That is a critically important thing to know before you run into this job. So you can manage that. And that’s what this tool will do. So you’ll see, even after you receive the 200, you’re still paying vendors, you’re still making your direct pay. The high point of this job is actually in week 15 here, where you’ve now in, had to invest a cumulative amount of a mil. 1 million, $300,000 into this job is if you don’t make any adjustments to your payments, okay, keep going throughout. You’ll see here. This is all red, which means what does this mean? It means that you have spent more money on this project than you’ve received. And so in this great job that has a 31% margin that you’re gonna make almost 1.2 million on you’ll at the highest point have had to invest 1 million, $444,000 in this job. And this job is not cash flow positive until week 29. So that means you have to go 30 weeks into this project using a hundred percent of the funds that you receive on this project and an additional $1,444,000 of new cash before you ever have positive cash flow.
Speaker 2 (24:16):
And so looking at it, this is why this cash flow tool is so important to combine. Remember, there’s three things we talked about before you, I think contractors do a great job estimating what their total costs are gonna be. They do a great job knowing what their project schedule’s gonna be. And this is the third and most and most important, that most important part that typically is missing. How much cash do I actually have to use before I become cash flow positive? And as you know, if you, if you, if you go into this estimating that you’re gonna be cash flow positive after the first or second pay app, you’re gonna have a real big upside out problem and a real problem in your business. If you don’t have that much money to put into. So what can you do now that you have this tool? You can start to play with the spreadsheet and move these subcontractor payments around to when you’re, when they’re paid. For example, if you take this, pay this payment right here and you zero, you, you take this, copy it, move it out to here, paste it in there, delete this.
Speaker 2 (25:24):
You can see how much it smooths out the cash flow, right? You actually get cash flow positive here in week 25. Let me back up to here. And let’s just say, you’ve moved this one to when you are also paid,
Speaker 2 (25:51):
You also smooth out your cashes. So now instead of 900, some thousand dollars here, you only have 300, 4,000. So you can start to make these decisions. And the question is, oh, can I pay my subcontractor when I’m paid? Is that a possibility I’d love to pay ’em in 30 days, but I can’t. So you could start to make those decisions. If this was a material supplier, can you get material financing? If it’s labor supplier, can you borrow the $450,000 to pay them in 30 days and then get then pay the, pay the financing partner back when they, when you’re paid the 841, and what’s the cost to do that. You can start to make some real good choices and decisions, at least seeing what your options are and how it’s going to impact this project. So I’m gonna go back to the tool. Hopefully you guys can see here now, the power of this tool, not just what your estimate tells you here, how you’re gonna make, but how you actually get to incur these costs and earn the income is a real critical and key piece. All right. So back to the two. Yeah.
Speaker 1 (26:52):
What I love about that, what I love about that tool, Scott, is it, it just makes it so easy to see where all your money is coming and going out and how moving little things around can have such a huge impact on your, your cash flow over the course of the project. Even, you know, you moved like a subcontractor payment back by a few weeks, and all of a sudden you were in the black for a couple of weeks in the middle of the project, which I think would be amazing to someone on a $1.3 million profit job. Um, and if you, you know, when you think about it, in terms of like Maria’s question or the her biggest challenge with cashflow at the beginning, she said, getting clients to pay on time. If you are like, this is assuming that you are getting paid every 45 days, uh, as you expected to, but as probably everyone on this call knows like getting someone to pay on time. According to the contract, even within 30 days, uh, is, is a, a real challenge. Um, and so every, every time a payment is delayed, it increases that cash flow burden increases the amount of money that you need to have on hand before the project starts in order to get through it. So getting, getting your customers to pay faster is a, a huge part of managing this, this cashflow burden.
Speaker 2 (28:04):
Yeah. I mean, you make a good point. Like, so just look here, like just to see how this works, but like, let’s just move all the payments up two weeks. Assuming your customer pays you two weeks sooner on everything. Let’s just see what this, just watch what happens here. So this comes in at three 80, remember the high point of this job was, um, 1 million, four
Speaker 1 (28:48):
It’s. So it’s so satisfying to see those numbers turn from red to black.
Speaker 2 (28:52):
Yeah. And that’s, what’s cool about it. You really start to like, it’s really powerful to be able to figure this out. And you can also, when you run a number, a sheet like this, I mean, imagine walking into your material supplier and saying, Hey, look, this is why I need different payment terms or Hey, my co to your customer, Hey, this is why I need you to pay me in, uh, in, in 30 days instead of 45. And I need you to fight with the developer and the owner to do that. And because here’s what happens if you don’t, I’ll never be able to perform and, and, or you’re gonna need to give me 1,000,001 million, $444,000. So like, just, just think about this job here. And we run through this now, John, I, all I did was move every payment from 45 days to 30 days. What you invoice to your customer. I haven’t changed anything else. And all of a sudden now the high point of this job is 747, 707, almost $800,000 in week 13.
Speaker 2 (29:53):
And the next high point is $950,000 in week 17. So instead of being, uh, I think this was a million, I think this was almost a million dollars instead of a million dollars by week 13. It’s only 800, I say only, but that’s still $300,000 less instead of 1 million, 444,000, it’s only 9 59, that’s $500,000 less. And your cash flow positive in week 23 instead of week 29, which is six weeks sooner. And not only cash flow positive, but you go from, you know, only having about a hundred. You, you go from 9 59 1 week, you receive that 800. Then you’re only managing a hundred seventy two, one ninety four, two sixteen to two 60. That that little five week period, there is a much more manageable outlay of cash at quarter million dollars overall. And then, and then you’re up $516,000 versus being out 1,000,004 and 900, 800. I mean, those are just huge numbers.
Speaker 2 (30:58):
And so just to give everybody an idea, when we got this contract, somebody might think, oh wow, that’s awesome for you, Scott, as a lender, you guys can fill that gap, lend a million for that must make you guys a fortune. N no, because we, we would never lend into this project because it’s, it’s not good for us to lend that much money because it’s not good for the customer to do this project either. And we showed the customer, they don’t, they don’t have a million million, five to just invest in one pro one, one project that’s $4 million. No, but what they did do is they invested the time to fill this out, to take this tool. And then they went and solved the problem themselves, and they got their, they got these payments adjusted. They were able to show the general contractor, Hey, look, this is how critical it is to get paid.
Speaker 2 (31:42):
In 30 days, they went to the actual, this, in this case is a hospital. The hospital’s gonna pay now within, within a, within 30 days, which means the GC gets paid faster, which means the sub gets paid faster. So the subs actually help the GC get paid even faster. And then in addition to that, they move some of the subcontract with aver around. And instead of us making, instead of us not being able to make a loan, we’re gonna fill the gaps for them, which turned out to be about a $400,000 loan, just so they can make some miscellaneous payroll and make some stuff which worked out great. And more importantly, they’re actually entering into this job eyes wide open with a, with a actual shot to succeed versus getting out there 16, 17 weeks being completely upside down on cash, not realizing what just happened and saying, Hey, I got 1,000,003 out there and I owe only 400,000.
Speaker 2 (32:32):
I just need my customer to pay me. And that obviously doesn’t work. You can’t make them pay you faster. They just, it just doesn’t work that way. But you can use this ahead of time. So anyways, let me show you now how to fill out the rest of this tool. So you can actually see what happens here and how easy it is. So that spreadsheet seems complicated, but we designed this tool to, to be able to be filled out the exact way with the exact information that all contractors have. Again, they know what their estimated payments are gonna be on a monthly basis based on their schedule, right? So you know what? You are planning to invoice your customer and you know what your payroll and subcontractor expenses are. So all you’re doing here is your estimating. What your pay apps are gonna be. I’m starting the job in April.
Speaker 2 (33:18):
This is what I think I’m gonna invoice at the end of the month, based on my schedule of values, may June, July cetera. And this is real easy to fill out. You can use the toggle arrows, or you can just go in here and type it in and hit, enter and move on the next one. And the next one and so forth. This will auto calculate what you’re invoicing to make sure it marries up to the contract total that you put in on the very front page. So it’s got its own checks and balances in there too. So then it moves on to payroll. Do you have direct payroll? This is just a simple yes or no. If the answer is yes. When do you pay it? Is it very, no, you pay it every week. Okay, cool. So you type in weekly, you put in your direct payroll amount, how much you’re gonna pay over that course of that 25 weeks gives you your estimated payroll.
Speaker 2 (34:08):
Again, when you get the spreadsheet, if you’re gonna have more payroll in the beginning and less payroll at the end or in the middle, once you get to the sheet, you can auto adjust each one of those weeks. But for the purpose of at least getting the 410,000 in the right line item, you can edit that. You put it in here like this. And then when you get to the spreadsheet, you can make those changes. All right, this is the real cool part. So when it comes to your subcontractors and think about subcontractors as any of your labor providers, not necessarily material and equipment, cuz they have their own section. You can think you each one of these line items for every subcontractor you can put in its own invoice. So in some of the cases, each subcontractor might have their own amount. You have to pay them each month, which is what this is here.
Speaker 2 (34:55):
Okay. So if you’re going in here, you can see exactly how much you have to put in what it looks like. Um, you can add a subcontractor payment in here, so you’d go, okay, this is gonna be installation. Same as you’ve already put in it’s for sub labor. It’s gonna be for this month. This is my August pay app. So I’m gonna put this in for August. It’s gonna be due on August 5th, add another subcontractor up. Yep. This is gonna be for installation. This amount is only, you know, gonna be 300,000 instead. And this one’s due on, you know, September 7th, the land, right. You toggle down and you click next and it moves on. Now you’re on your materials item. So I do have material. I’m gonna put hardware in. So you got one material for hardware. What do you currently owe the customer? Nothing.
Speaker 2 (35:49):
So you put zero, you can put whatever you owe them for this job or for another job. And to Johnny’s point, just like, um, if you’re in the middle of the job already, so you’re filling this out in the middle of the job, then you that’s where you can enter some of that information. Here’s what I have to pay them. Here’s when I ordered it, I have 30 day terms. So it’s gonna be due on the, on June 6th instead. So let’s say you con go back and convince your material supplier to give you 60 day terms. Well, in that case, you just go here, you move this out to July 6th. And then in the spreadsheet it will auto populate that even though you order this a hundred, 2000 on in may, you don’t have to use the cash until July. So it’ll help you estimate those things.
Speaker 2 (36:31):
If you have another material order, you just add another material order in here, the material type, this auto populate, who knows maybe this is, you know, I dunno lumber for whatever reason, no balance. You know, this particular invoice is only gonna be, you know, a hundred thousand. You’re gonna order it on. Um, let’s say June 30th and it won’t be due now till August 26th. You’re in move on. You can always add your next. You can go back. If you need to, to add another material order. If you hit that button, you know it, you can cancel it off. Just keep moving. Do you have equipment rental? Yes. I gotta rent this machine. It’s cost me 43,000. I’m gonna order it on May 6th. I gotta pay for it. June 6th. Boom. I’m done. Okay, cool. Do I have a bond? Yes or no? If you, yes. You fill in the bond premium when it’s due.
Speaker 2 (37:34):
If it’s no boom, no skip that section miscellaneous expenses. So what we filled out in here is this is kind of like your, uh, the runs, the home Depot that you might have or um, per diem hotel expenses. If the town’s, if it’s out of town or travel, this is the section where, you know, it’s just other expenses. And so you can put in the name of that expense, what your total is. Um, you can add as many of these as you want all the way through. I mean, you can put in, you know, hundreds of these and all populate to the spreadsheet based on how you guys put ’em in. So real simple, real easy to use, just log through tag through this, and then it comes into a review phase. And so it’ll tell you on your, on here in this review quickly, before you look through it, okay, here’s my total invoice or pay submission all the way through the project.
Speaker 2 (38:29):
It kind of, it kind of maps out that spreadsheet for you. It gives you the summary of all the information that you’ve detailed into here, what your pay app schedule looks like, your payroll, the subcontractor payments that you built in the materials equipment, et cetera. And when you’re done and you have everything in here, you hit submit. And then literally two things get emailed to you. The spreadsheet that we already went through and a PDF of the information you submitted here, and then you have ’em in your email to do whatever you want with them. It’s all there. And that’s it. That’s the tool, you know, candidly, to let you guys know, we came up with this tool because as we were trying to make loans early on in the early days, we, we needed to know what, what the margin really was. What are the uses of cash?
Speaker 2 (39:20):
How much, how much does it cost? Is it, can we make a loan on this project? And what we realized was a lot of contractors had all that information in their estimate, but they didn’t really know what it was week to week. And once we started making loans to customers and then when we would make these, we’d make these sheets and then as each week went by, we would update them with the actuals we became. Um, it became such a good tool for them that they, they never wanted to not have the tool ahead of time, whether they were borrowing from us or not. So we would build these cash flow models with this spreadsheet, just for the customers, for other projects that they didn’t even need loans for because it gave them the ability and comfort to basically move, move on to the job.
Speaker 2 (40:01):
And then obviously we have some other tools that we add to this. If there is a loan or they do need material financing, or they need payroll financing, or we’re making a loan on the project, we can start to show them how much, okay. If you borrow X amount of dollars over this period of time, as you’re paid and you make payments back to the loan, what is the cost of the loan built into here? Does it impact your margin from 31% down to 30% or 28? Or, or what can you pay if you pay your material supplier early, because you do have material, do you save any money? So we built the tool and we said, oh, it has so much value that we might as well, just put it on our website and let anyone and everyone use it. Um, and much like level set.
Speaker 2 (40:42):
Our mission like level sets is to make sure that customers can just live a better life, get paid faster, really at the end of the day it’s it’s. So you guys can sleep better at night. I mean, that’s what it’s really all about. You wanna have a better night’s sleep because you can reduce your stress and control the things you can control in an environment full of things you can <laugh>. And so this is our way to, uh, give back and do our part in helping people in a tough complex way, have an easy tool where they can make some great decisions.
Speaker 1 (41:18):
Speaker 2 (41:18):
It. Scott, Johnny, that’s my, uh, that’s that’s my tutorial on the tool itself.
Speaker 1 (41:26):
All right. Uh, well, we’ll jump back into the presentation real quick and close it out, uh, with a few options to actually, uh, reduce cash flow shortages or cash flow problems. Once you have this spreadsheet out, you know, exactly how much cash you need at the maximum, if everything goes according to plan. Um, and it, you know, on that example that we looked at that contractor needed $1.4 million at the maximum, uh, in cash to be able to, to make their way through that project actually complete the contract, uh, and to be able to make 1.2 million in profit. Um, and it, I don’t know how many people on this, you know, how many people on this webinar have 1.4 million sitting in the bank. Um, if you do, you’re probably not on this, on this call. Um, and even if you did, you know, putting all of that into one project means you don’t have any bandwidth for other projects.
Speaker 1 (42:18):
Um, right. And so there’s reducing these cash flow shortages, um, minimizing the amount of cash you need to put into a project and, uh, managing those, those ebbs and flows of cash flow is important, not just to make it to a single project, but to manage multiple projects at the same time and grow your business, take on bigger projects. Um, so some of these options include, you know, like, like people said in the beginning, one of the biggest challenges getting paid faster, you know, if there’s one thing that you can do to help your company get paid faster, improve your cashflow on your projects, it’s protecting your lean lights. Now this doesn’t mean filing mechanics, lean on every project that your mechanics lean think of a mechanics lane as a process that starts with just notifying your customer, the owner, when you start a job saying I’m on the job in some states, that’s actually legally required in order to be able to file a lien if you need to.
Speaker 1 (43:12):
But following those steps in the mechanics lean right process is actually incredibly effective and reduces the need to ever file a, a mechanics lean at the end because it, it shows a level of professionalism to your customer. They know they’re taking you seriously. They know you expect to get paid on time, according to the contract, um, in order to prevent a lean on the project. And that’s such, such a powerful, it’s a contract’s most powerful payment tool. Um, and it’s one of the best ways to, to improve cash flow over the life of a project is get paid faster. But if you, you know, there, there are other options like financing your material purchases. It’s one thing that level set has, has financed over a million dollars in material purchases on projects and counting, um, basically paying the supplier. If you have, you know, $200,000 in lumber, you need to buy for a project levels that will pay the supplier directly and give you 120 days to repay that amount.
Speaker 1 (44:08):
So when you, when you think of that spreadsheet, that, that Scott was just looking at, you know, pushing a material purchase a $200,000 material purchase back from 30 days to 120 days, how much cash that would free up in that cash flow over the life of the project. Uh, and then not just material purchase, but, but financing. One of the things that mobilization funding does, you know, is financing other job costs like labor, um, and, and all of those costs pushing them back, being able to free up cash at the beginning and not having to have $1.4 million in the bank in order to, to do a 4 million project just pushes that makes cash flow. It makes your cash flow so much simpler, could put you in the black earlier, um, and, and make, reduces your stress overall in a project. Um, fact, we put factoring invoices on here because it is, it is an option. You know, once you submit an invoice, there are companies that will give you a certain amount of cash for that invoice. Um, it’s only, it only works after you’ve invoiced. Um, and it’s, it’s, I dunno, Scott, how do you feel about, about factoring?
Speaker 2 (45:17):
You know, I think factoring is a good tool if used in the right spot. We, we don’t, we’re not a factoring company. We do work with factoring companies. A lot of our customers come to us and they already have a factoring company, but they’re starting a new job and they’re not at invoice yet. They’re like, I need money now. Not when I factor, um, the biggest hurdle. I think the factoring is, is the stigma attached to it in construction, as it relates to the, the way it’s viewed by general contractors, um, factoring in order to purchase an invoice, which is really what factoring is. There’s some things that your con your, your customer needs to sign and execute on a monthly basis. Oftentimes, um, like they have to say, I owe you that money. I owe the, I owe them the money. I, I will not pay, I will definitely pay that money. And if I don’t, I’m liable to pay the factoring company instead of them. So it, it does change some of the initial contract uh that’s between the general contract and the sub, and that’s the main issue that they have with it. Um, so that’s why some of those hurt are hurdles. Um, the other, the other thing is, so I think, but when used appropriately, I think it’s okay. If you have a good relationship with your GC, you could, you could certainly look at it as an option. And obviously
Speaker 1 (46:28):
Speaker 2 (46:29):
Could, yeah. You use that tool and say, okay, if I invoice at the end of the month, can I get, you know, 70 or 80% of that invoice a week later, what does that do to my cash flow model? You know, and you can start to look at that. Yeah. With the cost,
Speaker 1 (46:43):
One of the big downsides that I’ve heard, and it depends on the factoring company, but one of the biggest downsides is you lose control over the invoicing process for a lot of companies is like the factor the factoring company takes control of the invoicing and invoices. You know, the GC has a relationship now with another company that they have to communicate with about payment rather than you directly.
Speaker 2 (47:04):
That’s right. Here’s the biggest problem with factoring for our, uh, subcontractors. And I’ll tell you, here’s the biggest issue. There are like less than five construction factoring companies that know what they’re doing with construction, but there’s probably 5,000 factoring companies, not that many, but there’s, there’s, there’s hundreds of factoring companies. And so if you, if you’re a subcontractor and you partner with a factoring company to do construction, even if they approve you, and even if they say they’ll do it, and you give up the assignment to your, your AR your accounts receivable, and they don’t understand construction, which most don’t, because think about it, you guys know how complicated construction is, and they start to get nervous or scared because they don’t know what’s going on and they shut you down. You’re now in a much more difficult situation as a contractor working with a factoring company.
Speaker 2 (47:56):
So if you do go with factoring, make sure you use one that really understands construction. The sales rep for the factoring company that says, oh yeah, we do construction factory. We do construction factoring. They don’t trust me most construction, most factoring companies. They dip their toe into construction factoring and assume it’s just like everything else. Like they’re buying a home Depot receivable from someone that delivered lights there, you know, or, or Walmart, or all the other traditional places factoring is. And they put their toe in the water to do construction factoring, and then they lose their leg. And the construction company gets hurt too. So it’s very important that you work with a construction factor that actually knows what they’re doing in construction, because, um, you might fool them or they might fool themselves on the way in, but halfway through it, all of a sudden they won’t factor your con your, your, um, your invoice and they get nervous and they stop factoring. And now you’re kind of host. So just make sure, you know, what you, you, who you’re working with. And
Speaker 1 (48:53):
Speaker 2 (48:53):
Exactly. You can reach out to me or Johnny. We can help you figure out who those people are.
Speaker 1 (48:58):
The last thing we put on here, you know, just avoiding bad financing options is important. When you see that you need $1.4 million to complete a project, and you’ve got $300,000 in the bank, you might, you know, you really want that job. You’ll take any money. You can get, you go to the first option you see often that’s, you know, I know Scott, you’ve seen a lot of merchant cash advances becoming really popular in construction, but they, they they’re so expensive and they end up being expensive in the long term and hurting you, hurting a lot of contractors more than they ever help.
Speaker 2 (49:30):
Yeah. I mean, they are expensive loans. Um, anyone that knows me at all or files anything I put online, I mean, I definitely just crush merchant cash advances because they’re not geared to help construction. They’re a great tool for other businesses. I mean, if you are a restaurant and you get paid daily or weekly, great, you know, use the merchant cash advance. But if you’re a co, if you’re a construction company and you get paid monthly alone, that’s given to you that takes money out of your account on a daily or weekly basis. It just fundamentally isn’t gonna work. I mean, that, there’s nothing else that, you know, as be said, now, you may be in a pain point this week and I gotta make payroll. And you know what, here’s why I get really mad at the merchant cash advance companies, because they’ll swoop in and they’ll give you the money, knowing for sure that it’ll help you make payroll that week.
Speaker 2 (50:17):
But they also know for sure that it’s gonna hurt you two weeks later, three weeks later, or a month later. And they still do it. And that’s the part that really pisses me off the most about it. Cuz I, to those companies all the time they call us, they want us to refer people to ’em. And so I know what they’re doing and thinking about, and I just keep educating, like, why are you guys lending into construction? This doesn’t help them. You know, it doesn’t, it won’t help. You can postpone a real problem for 4, 5, 6 weeks. But ultimately all you’re doing is kicking that can down the road because if you’re getting that money, debit it outta your account every week, you’re just pulling more and more cash out. And then the part that gets me the most about ’em is they call you that six week later and they give you another one, which is, makes it even worse. And so anyways, so there’s other options. They might not be as easy as just sending in some bank statements and getting a quick deposit, but there are certainly people that can care much more about your business and I can promise you that’s how we are. And I know that’s how level set is, and, and others in the world that are working on construction, but I promise you it’s not merchant catch advances. So that’s my, uh, 2 cents on that.
Speaker 1 (51:24):
Yeah. Uh, we’ve got, I think we’re, we’re already a little over time, but we’ve got, you know, eight more minutes left in the hour. If anyone has any questions, you know, pop ’em in the, uh, in the chat on zoom or if you’re watching on LinkedIn live, uh, put ’em in there and we’ll, we’ll do our best to answer with the time we have left. Um, if you’re on LinkedIn live, you can scan this QR code and we will email a recording of this entire webinar to you in case you missed any portion of it. Uh, Scott did an amazing walkthrough of the tool. Uh, I, I hope everyone goes and, and puts at least one project in and just plays around with it. Just to see what happens if you change different, you know, different factors, whether it’s it’s who you’re paying or who’s paying you when money’s coming in and going on on a project, just to see how big of an impact it can actually have on your cash flow. Um, and we’ve also included, we will email in addition to the, the recording of this we’ll email out this presentation, which include links to the tool to connect with Scott on LinkedIn, uh, to sign up for their, their newsletter built for growth. Their YouTube channel. They put out a lot of great educational videos on improving cash flow as well.
Speaker 1 (52:36):
Um, and also links to, to level set resources. Actually, just today we launched our construction financial management course taught by Steven Peterson. Who’s a longtime financial advisor to construction companies, and he literally wrote the book on construction finance. He’s a professor at Weber state university, um, and taught this great 12 lesson course on, on the fundamentals of finance and accounting construction. Um, you can go to this link and sign up. It’s totally free. You earn your certificate, uh, and get a, a solid grounding in the, the fundamentals of construction, accounting and finance, um, materials, financing, lean rights management, learn everything you need to know about that. And also we have weekly webinars just like this, uh, on a variety of, of payment and financial topics, legal topics, uh, protecting your, your right to get paid and, uh, your ability to improve cash flow. Um, one question coming in, uh, a roomy says so many things change in construction that last for months or years, a projection before a project starts and reality usually don’t match for such a long period. What would you say about that, Scott, in terms of the cash
Speaker 2 (53:48):
Flow? It’s a great point. And that’s exactly what I was talking about when I said, we, this start with this project, um, we start with the cash flow of the project as determined. And I can tell you 100% of the time, it doesn’t go exactly dollar for dollar that way, but week by week, we turn those projections into actuals and then we reforecast the next week. So if you know your labor, maybe, maybe the job’s gonna last a little longer. Maybe the payroll was higher one week and lower. The next, you can just adjust those payments out on the spreadsheet and everything just keeps auto-populating for you. So you’re, you’re exactly right. You project it. And if you see some crazy anomaly in there, like you’re gonna be upside down a certain amount of dollars. You can start to make those adjustments before the job starts, but it doesn’t mean that you’re not gonna make little tweaks week by week as you start to execute the job and actually finish, um, each week and how much payroll you had or each week, and maybe another trade is slowing you down. So the material order you thought you were making on June 6th, you’re not gonna really make till the end of June, you know, all those things. You can just adjust on that sheet very easily once you have it done in there. And so, um, you, you make a great point. You’re a hundred percent correct. Um, and that’s how you use the tool to effectively do exactly what you’re talking about there and still make good decisions as you’re going midway through the job.
Speaker 1 (55:15):
Yeah, I think, uh, there’s nobody on this call that has probably ever produced an estimate that turned out to be entirely accurate by the end of the job, you know, change orders, different site conditions, you know, everything changes, but that, uh, a tool like this, like the cash flow projection tool helps you plan in advance for, for thi things that are within your control. You know, change orders for the most part are out of your control. You know, they’re gonna come. Um, but this helps you plan for the things that are within your control.
Speaker 2 (55:44):
Speaker 1 (55:49):
Great. Well, if you do have any other questions, feel free to contact, uh, Scott or myself, um, we’ll will include our emails in the, um, in the email that goes out to you with this recording, with the slides, with all of the links to all of these resources, um, feel free to, to we’d love to hear from people in the field. So if you’ve got a question about cash flow about how to use the cash flow tool, um, you know, reach out to Scott or myself, um, we’re, we’re always happy to help. We love talking to you.
Speaker 2 (56:20):
Yeah. There’s tons of great content on everyone’s site. Please use it. It’s all free. Um, and connect with us on LinkedIn. I’d love to keep up with you guys. And we, anything we do is always gonna end up there somehow, um, or we at least know about it. So we appreciate it. And thank you, uh, level set for letting me come on here and showcase the tool to your audience and team Johnny and Justin, you guys have been awesome. So I appreciate our partnership very much. I appreciate what you guys, uh, let us do back and forth. And, um, this is just another great example of it. So thank.