3 Tips To Managing Cashflow

By Amy Farrell of Common Sense Solutions

First to Start and Last to Leave

Whether you’re an excavating contractor, do utility or concrete work, or are any type of specialist who moves earth, you have unique needs that other contractors don’t.  Often you are one of the first crews on the job site and one of the last to leave – which can also mean one of the last to get paid!  This makes it critical for you to tightly manage cash flow.

There are three often overlooked areas where you might be able to squeeze out some more cash:  Payroll, Pay Estimates, and Your Equipment.

Here are three tips for better managing cash flow:

  1. Payroll, Payroll, Payroll

Recently I was training a new hire on payroll.  This individual had managed payroll in previous jobs but never for a construction company, let alone an excavation contractor.  My trainee asked, “How difficult can it be?  It’s just entering hours and producing a payroll check.”

Yes, it is a lot of work, but recording payroll correctly can make a huge impact in cash management.  There is more to payroll than just entering hours and paying people.  I quickly shifted from a training mentality to educating this new person on what goes on behind the scenes and why it is important.  First and foremost, employee time sheets are allocated to jobs and tasks which drive a multiple of other things impacting cash flow.  If you want to improve cash flow through payroll processing, here are a few things to keep in mind:

  • Make sure certified payroll is setup correctly at the beginning of the job. Hard-earned cash flies out the door when fines are levied — not to mention back pay for employees.  Plus, payments get delayed when certified reports aren’t submitted correctly.
  • If you deal with unions, set up can be complicated. And if not done correctly, can result in major fines during an audit.
  • Are you tracking appropriate worker comp rates? Reports exist to make sure the right amount is being calculated and paid.  If not, the company could be paying more than necessary.
  • Depending on the job requirements, a monthly utilization report may be required to break out the diversification of employees working the job.

There’s more to payroll than data entry and validation when it comes to cash flow.  As you know, labor is a critical part of job costing; hours worked equal dollars out, ultimately driving profitability.  The quickest way to lose money on a job is by not having field people productive.  Are you giving your PM’s reports and the ability to make adjustments quickly?  These adjustments can make or break the job.

At this point, my payroll trainee looked overwhelmed, wondering what she had gotten herself into.  I reminded her we were training on a software program built to handle all the complexities of construction payroll and she would be just fine.

  1. Better Tracking Pay Estimates

I distinctly remember the first site contractor I helped implement new construction software.  We made it through the first hurdle of getting a union payroll out the door and were moving on to job billings.  I asked to see a copy of their invoices, and was presented with a simple, typed invoice for a small dollar amount.  I asked to see the rest and they were all the same.  I almost started to hyperventilate over the dollars amounts.  We just finished the first payroll and I realized these invoices were not going to cover it!

In a panic I asked, “How do you get money?”  The answer was, “I get a check sent to me and then I put in the bank.”  It took several more probing questions to learn that this contractor gets a pay estimate from the customer\municipality, and this pay estimate was driving the monthly invoicing.

Allowing the customer to determine the amount to be billed is like playing a sport and not knowing the score until the end.  You don’t have the opportunity to make adjustments at halftime.

Since that first implementation, I have worked with other contractors who use pay estimates as a guideline to determine the amount to be billed each month.  However, in these cases the pay estimate is an important tool.  Billing is driven off the units completed by the field team.  Once the payment is confirmed, the detail is used to track the units paid.  This allows the contractor to generate an invoice showing units completed per their paperwork, and units paid per the customer.  The best of both worlds!

  1. There’s Money in That Equipment

A couple of years ago I was working with an owner who did excavation work , and managing equipment was a struggle for him.

  • Problem #1. Project managers take a piece of equipment and leave it on the job “in case they need it”.  They are often under the impression that company-owned equipment has no cost impact to the job.
  • Problem #2. The company spent more money in rental equipment that year, even though there was equipment not being used for a good portion of the time.
  • Problem #3. At the end of the year when it’s time to make capital investments, it’s hard to know what to purchase or what major repairs need to be made.

I love to solve problems and immediately started asking questions and outlining what we could do.  First, equipment needs to be allocated to the job as an expense.  This expense should be applied when the equipment is sitting on the job and not being used.  Without getting accurate cost to the job, there is false sense of profit, not to mention how it impacts work in progress each month.  Mechanics should allocate their time to equipment, and vendor invoices should be allocated to pieces of equipment as well.  A good software program will even break down different types of cost such maintenance, major repairs, tires purchased, etc.

I went back to see the owner after he implemented software to manage his equipment.  He was able to cut his equipment rental by half, and was thrilled to be able to see the actual cost of maintaining his equipment.

The above three points are only a few of many when it comes to making your projects more efficient and profitable.  Yes, running a profitable excavation business is hard work.  But good construction management software can help make it easier.

Join us for a free webinar on Thursday December 3 to take a look at a program we’ve been implementing for earth moving contractors for over twenty years.  We look forward to showing you how ComputerEase + Deltek can easily handle your specific business needs.

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    “Implementing new software can be intimidating and a bit overwhelming; with ComputerEase that is not the case.   With the same resources you can get more details on your jobs and equipment with minimal impact on your day to day processing.    ComputerEase makes it easy to customize the level of detail your reports can generate.  Essentially providing the owner with the valuable information they need.”

    Nancy Lach, Alessio & Sons Co.