Construction Cash Flow

Cash Flow for Contractors: How to Get Paid in the Construction Business…On Time Every Time

In a recent survey of small and medium sized contractors, 72% said they were bogged down with cash flow problems and did not have enough cash to pay themselves regularly every month.

If you’re going to run a profitable contracting company (and have cash left over at the end of the month), you’ve got to know what you’re owed and how to collect it. Construction accounting does not have to be hard, but it does have to be right.

Here’s the 10 rules that will drive better collections and higher profits for contractors:

  1. Document your accounting policies and procedures. Ensure consistency by writing down the steps to entering bills, invoices, payroll and other common tasks. Good accounting is the bedrock on which you build a profitable contracting business. Don’t cut corners. And remember that accounting staff come and go, but documentation is forever.

  2. Create budgets for every job. Setting a target and measuring progress keeps project profitability a top priority. Make the budget part of the accounting system to show actual vs. budget and expose issues before they become serious problems.

  3. Allocate expenses and payroll by job This is essential to understanding true costs and profitability. Set up a fool-proof process for coding expenses to the job. This requires properly documenting the process and making sure the right people are doing the coding.

  4. Recover the cost of equipment. Every contractor should set a clear methodology to burden each job with the cost of capital equipment. Capital equipment – tools, trucks, etc. — has a useful life measured in operating hours, so make sure that cost is captured as part of the cost of doing each job. Add this to your budget and revisit the burden calculation any time you purchase new equipment.

  5. Track everyone’s time electronically. There are plenty of mobile apps available to collect time sheets in the field. (TSheets is our favorite.) If you’re using a paper timecard system, you’re
    losing time and accuracy. If you need certified payroll for a government job, there are payroll apps for that too.

  6. Manage change orders. One undocumented change order can cost you the profit from an entire job. Properly document change orders and get your customer’s formal written approval. This simple step is the easiest way to assure you make a profit and the best way to increase total revenue.

  7. Know the billing cycle. Construction billing timetables are very regimented – sub contractors submit invoices by the 20th, GC’s send a pay app to owners by 25th, owners fund GC’s by 10th, GC’s pay subs 15th to 20th. Make sure you have your invoices (or apps or draws) submitted on time. Subs should particularly watch that deadline of the 20th so the prime contractor can bill the project owner by the 25th. Whether you use a pay application, draws, or a schedule of values, cash flow relies on accurate and timely.

  8. Submit the right info. Commercial GCs love to complain about subcontractors who don’t submit the right paperwork to get paid. The most common problems: subs don’t use the correct forms; they don’t show the retainage deduction; they bill for change orders that have not been approved; and they don’t provide W9s or certificates of insurance for General Liability and Workers Comp coverages. Check these items off your list once and for all.

  9. Track your retainer. Retainage, typically 5% to 10% of the project cost, is supposed to be held back from each invoice and collected after the project is complete. Contractors need an automated reminder system to make sure the project owner has released the funds. And if your retainage is not paid, be aware that your Lien Rights typically expire 90 to 120 days from the date you last did improvements to the property. A contractor’s lien is a powerful tool to ensure payment since the bank won’t close on the final loan until all liens are dealt with.

  10. File lien releases on time. Lien releases are required by the bank/lender or the GC to get paid. There are different varieties of lien releases – Conditional, Unconditional, Conditional Partial, Unconditional Partial and more. Releases are a pain in the neck but are also a critical step if you want to get paid.

It’s not enough to build a great building or finish a beautiful job on time: you’ve got to get paid! Construction billing and collections is part of the cash flow game. When you play by the rules, cash comes in on time – and will be in the bank when you need it.

photo credit: Jeanne Menjoulet Manufacture de la mode en construction via photopin (license)

Secrets to an SBA loan

SBA Loans: 4 Secrets to Getting Approved

Secrets to an SBA loan

Last month I attended a conference where some of the area’s best SBA loan brokers and lenders were discussing the official SBA loan guidelinesand the unwritten rules that help small businesses get an SBA loan.

Here’s the 4 “SBA Secrets” that stood out to me:

1. Bigger Banks are Not Better SBA Lenders

The whole reason for taking out an SBA loan is to get better terms and more flexibility, right?  Big banks will tell you that they make more SBA loans than any other lender — but ignore that. Big banks are not flexible, nimble, or even very interested in who you are and why you need a loan.

Instead try out either a loan broker or a non-traditional lender.

Personally, I love the broker approach. A great broker like my friend Steve Mariani at Diamond Financial can not only assess whether you have a good chance at a loan, but they can put the best face on your application, connect you with the best lender, and walk you through the process… all in record time at very little cost to you.

Non-traditional lenders are also great sources for SBA loans. Skip the line at Wells Fargo and deal directly with an SBA specialist and/or a smaller, local lender who is hungry for your business – or a national company that specializes in SBA debt.

The best relationships often start with lenders who are loaning their own money (called Portfolio Loans), or who are building their entire business around business lending (LiveOak is one that comes to mind).

2. It’s Faster Than You Think

There is no rule that says an SBA loan must take a long time to close. In fact, we’ve seen loans approved in 3 days and closed in 45.  (That’s a lot faster than, say, the last mortgage I did on my house!)

If you’re in a hurry, a good broker will be able to place you with a lender that specializes in your industry.  That simple step will save you weeks of time and multiple headaches.  Any lender who knows your industry will not waste time tracking down pointless data or asking dumb questions.

3. …But it’s Harder Than You Think

Speaking of dumb questions… be prepared for plenty of them, even from a great lender.  Understand that a lender will only qualify for the SBA Guarantee on your loan if they perform adequate (read: exhaustive) due diligence on you and your purchase.

The list of required documents is going to be long, and the follow-up questions will be numerous.  Be prepared with your personal financial statement, a list of all assets, tax returns, and more.  Your company (or the seller’s company if you are a buyer), will also need all those things and more.  Financial statements, certifications, environmental impact studies, audits, contracts, vendor bills, etc. 

But wait – and this is the sticky part – you may also have to explain each item’s impact on profitability, and show where it appears on your tax return.  For example, that new piece of equipment you have – is it leased or purchased?  Capital lease or operating lease?  What depreciation schedule did you use? How much more usable life does it have?  Any maintenance records or warranties?

See what I mean?  Endless questions. Prepare for the worst by getting a CFO or financially minded manager involved from the start.

The worst thing that could happen is that you get so caught up in the loan documentation that you take your eyes off running the business.  This is no time to lose a good client!

4. Watch Your Add Backs

ProForma Income Statement
Online Banking

You already know that the SBA will want to see your financial statements, so get started making them look great. 

Show off your company in the best light possible by “re-casting” your income statement and balance sheet. You can legitimately remove (or “add back”) any one-time or non-operating expenses…to a point.

For example, If you took the whole staff on a cruise for team building, you should pull those travel costs out of the income statement in order to show how profitable your company can be without extraneous spending.

Then re-cast the income statement for the bank by clearly listing those “Add Backs” at the bottom under your EBITDA line.

Legitimate add-backs include:

  • Depreciation, Amortization and other non-cash items
  • Interest Expense, including on unpaid credit cards
  • Bank fees for over-drafts and unusual or poor banking practices
  • Fines or Penalties
  • Lawsuit expenses
  • Personal Expenses that are truly non-work related, and more. 

Push the limit where you can, but don’t expect to add-back everything.  You will not convince a lender, for example, to review 150 different credit card receipts just so you can add-back the cost of your “executive board meeting” in Hawaii.

And you won’t get credit for your cell phone or car expenses because the new owner will probably also need a cell phone and a car. You might however, get credit for something like a home office expense or a country-club membership , so work with your broker or banker to push the limit.

Bonus Tip:  Don’t Say the “Key” Word


SBA loan applications will ask you to write up a rough business plan, including an org-chart that names the employees and their titles or roles.  Be careful!  If you introduce Jill Smith as a “Key Manager”, it is likely that the SBA will ask Jill to personally guarantee the loan.

This is a ridiculous request, but one that can be avoided by simply stating that YOU are the only “key” employee.  If you’ve used the word “key” in your management discussion, take it out.

These 5 tips and the SBA overview PDF provided will take you a long way toward getting an SBA loan approved. If you need more help, consider calling FuseCFO — we’re happy to jump in.

And In case you missed the hyperlinks above, here are the two must-read resources mentioned in this article.