Spring 2009 issue of Horizons

Raise Your Expectations CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

might negotiate a front-loaded billing schedule so as to accumulate enough cash to get the company through the critical phases of the contract. It’s also important for a contractor to continually evaluate the company’s own internal billing schedule. The billing schedule should be created prior to the start of the project and submitted to the customer monthly. The customer is then prepared to pay specific payments at specific times. This schedule should decrease payment disputes and accelerate payments for the contractor, providing the cash flow needed to stay overbilled. The management of receipts and payments (while staying within payment terms) can enhance cash flow for a construction company as well. For the contractor, this might include delivering large invoices in person, personally collecting checks, getting to know the customer’s billing department policies and personnel and following up frequently. Every construction company should incorporate bill collection into its daily task list and maintain it consistently as a priority. As construction progresses, strong cash flow becomes even more important. Change orders should be dealt with and monitored carefully. If a change is needed in the scope of the project, it is critical that everyone is on the same page to avoid a hit to the company’s cash flow. If the company communicates clearly and keeps accurate records, there will be fewer disputes related to costs and billings emanating from change orders. At project’s end, one major factor that could prevent a contractor from collecting final payment and retainage is the quality of the finished project. It is critical that all punch list items be completed as soon as possible to speed up collection efforts. If the customer is dissatisfied, chances are, the contractor won’t receive a full or timely payment. Throughout the full length of the project, the contractor and his crews should focus on meeting the initial terms of the contract as well as the final expectations of the customer. There are other ways for contractors and construction companies to improve cash flow, including cutting back on unnecessary spending, looking for applicable

tax breaks, taking advantage of purchase discount arrangements whenever possible, and performing a leasing versus buying analysis on all major acquisitions. These tools and others should be incorporated into a frequently updated cash flow projection.

Questions? Contact:

Frank Hogg, CPA Partner-in-Charge Contractors Services Group 314.290.3413 frank.hogg@rubinbrown.com or Greg Paulus, CPA Partner Contractors Services Group 314.290.3228 greg.paulus@rubinbrown.com

Success in the construction industry is not always simply about getting the contract. Success begins with a mindset: Can the company perform the job on time and at or below budget with no lingering cash issues?

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