Executive Summary: Cash flow is vital to a contractor’s survival. Taking advantage of setting unit prices in a bid, and also knowing cash strangle points is imperative for business owners and project managers.
Here’s a video. The first ten minutes of this video (presented by this article’s author) is a great presentation on bid unbalancing and typical contractor cash flow. [QR]
Bid Unbalancing: Why? The three primary reasons to unbalance your bid are to improve your position on a project in cash, cash, and cash. A typical cash flow has contractors funding projects months in advance and can see a contractor cash funding entire projects.
The video goes through an example of a typical million dollar project lasting ten months. You can put as many zeroes on this example as applicable to the size of your company.
Typical Cash Flow – Timing of Expenses. Many owners (owners of contractor companies or projects owners) have no idea of the timing on payments contractors must make to, or for, the:
- Insurance carrier – premiums usually paid at the beginning of the coverage for the full year’s policy period.
- Bond – it’s the very first invoice contractors receive on a project and due immediately.
- Labor – due weekly/bi-weekly throughout a project.
- Accounts Payable (A/P) – due thirty (30) days after the date of invoice.
- Fuel – often times due weekly and often times can be automatically withdrawn from a customer’s bank account.
- Subcontractors – if managed well by the contractor, this is paid when paid.
Typical Cash Flow – Timing of Payments. Increasing the amount of each of your payments as well as the frequency of payments is vital.
Invoicing aggressively by explaining your costs of bond, insurance, or even moving your staff to a project site, may help get more money released earlier. During the project, making sure to bill change orders timely and if possible to “overbill” quantities if these change order payments are protracted.
Two other tips in the video include including cost of money (i.e., interest on money you are providing to the project) in your bids as well as bond costs on each change order proposal submitted to a client.
My Story. This article, and the video linked above, are all things learned over my career as a construction executive and as a company owner.