Cash Flow

Discussion in 'Hardscaping' started by SVA_Concrete, Mar 30, 2011.

  1. SVA_Concrete

    SVA_Concrete LawnSite Senior Member
    Posts: 467

    I hear this term a lot and I'm no business genius, looking to start a discussion.

    The term Cash flow to me means the cash coming into and out of the business on a day to day basis. I assume most in the maintenance world think of it as weekly (just by what I hear).

    For my business we are 100% project based, we only get paid per the contract draw schedule. maybe it is weekly, generally it is bi-weekly, sometimes it takes 45 days to get paid from a job (commercial work).

    It seems like the cash flow issue is a cash management issue? help me with the details that I am foggy on/ missing.

    I pay my employees every 2 weeks. the reason is this: If an employee can not manage his/her money for 2 weeks, do I really want him/her managing any aspect of my jobs? I have noticed that the most successful folks around me generally don't get a weekly pay check, it may be 6 months (waiting for a real estate deal) and generally the least successful folks around me get paid daily.
     
  2. PatriotLandscape

    PatriotLandscape LawnSite Bronze Member
    from MA
    Posts: 1,209

    Cash Flow is the flow of cash in and unfortunately out of our bank accounts.

    We use our small maintenance division, contract management and lines of credit to manage our cash flow. we also pay bi-weekly and that is also because of cash flow.
     
  3. SVA_Concrete

    SVA_Concrete LawnSite Senior Member
    Posts: 467

    its all so vague -- this big fancy cash flow phrase.

    i have heard of guys that pay weekly to help manage cash flow.

    how does maintenance help manage cash flow is what i am curious of.
     
  4. DVS Hardscaper

    DVS Hardscaper LawnSite Fanatic
    Posts: 6,406

    Managing cash flow and having cash flow are 2 different things.

    Construction work is very risky. You can price a job and price it to walk away with a 22% net profit. Well, something goes wrong or you leave something out and you walk away with a 5% net profit. This happens. It's reality. So now, you don't have money to pay your monthly business insurance premium. This scenerio has nothing to do with your fiscal responsibility traits.

    Maintenance work is guaranted income. It's my opinion that the maintenance income will cover the company's entire overhead expenses. Then, any installation / construction work generate's the owner's salary and the company's profit. Whereas without maintenance work - you're relying on a luxury service that is subject to recession, etc. to cover all the operating costs. That's risky.

    If you read about the companies profiled in Lawn & Landscape - *nearly* all the companies profiled offer maintenance work in conjunction with their installation. There is a reason for this :)

    I frequently see on this forum where guys say "I wanna get out of maintenance and start doing hardscapes". In my opinion, that is the wrong way to go. Keep the maintenance work AND start doing installation. When there are slumps in the economy - you NEED the maintenance work to pay the Bill-In-The-Night.

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  5. vtscaper

    vtscaper LawnSite Member
    Posts: 159

    Even though maintenance is only 30% of our revenue it produces a much higher percentage of cash flow that we can count on month in a month out. you can easily get hemmed up waiting for payments on large jobs, not bidding right or just not having a profitable job. However scheduled maintenance (assuming it priced right) can provide an exact amount of cash flow and profit coming in EVERY month. We rely heavily on our maintenance cash flow when considering purchases, new hires whatever.
     
  6. SVA_Concrete

    SVA_Concrete LawnSite Senior Member
    Posts: 467

    5% net profit is still net profit and should be above all expenses -- correct?

    my point of view is a company should be financially solid enough that loosing money on one job shouldn't cause a missed insurance payment for one month. this could be my over optimism. shouldn't the size of jobs the contractor takes on directly correspond to the financial stability of that company?

    i suppose our bread and butter concrete work (builder work, slabs, footings, driveways) would be equal to the cash flow maintenance guys see. the nice higher end patio work is just icing on the cake so to speak. (in this day and age not too many large flowers on the corner slices :)

    i do see a benefit to lawn maintenance in that you are involved with a customer base on a weekly basis and will have more chances at getting your foot in the door for additional work at the property.
     
  7. DVS Hardscaper

    DVS Hardscaper LawnSite Fanatic
    Posts: 6,406


    Don't get net profit mixed up with gross profit.

    Also, you mentioned "all expenses". That's a broad term. Are you talking the DIRECT job expenses (gravel, seed, Labor, fuel, pavers, etc), or are you talking the INDIRECT expenses (telephone, insurance, advertising, etc)?

    Even a .5% profit will enable you to cover all the direct expenses related to the job at hand.

    But it won't allow you to pay any indirect expenses.

    All it takes is for someone to forget something. And the profit is gone.


    I have a buddy whom I've known since we were both 12. He has a small concrete business. Last year things got bad for him due to the recession. A builder had an entire neighborhood under construction. He beat my buddy up on price. My buddy accepted the work and the prices. Last year he had the most work he's ever had. All his bills were paid and he had cash in the bank. Even though he was working for almost nothing, this created a short term cash flow.



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  8. SVA_Concrete

    SVA_Concrete LawnSite Senior Member
    Posts: 467


    I understand net and gross profit as this:

    Gross profit = all sales revenue - direct cost of goods/services

    Net profit = gross profit - all indirect expenses (taxes insurance interest etc.)

    So to me 5% net profit is still not a money loosing scenario where 5% gross profit can be a money loosing scenario.

    i am formulating more on the cash flow...... cotd....
     
  9. dtriv89

    dtriv89 LawnSite Member
    Posts: 110

    I'm by no means a business genius, and I haven't been in the industry as long as a quite a few of the guys on here but to me maintenance is essential. I don't do a ton of it, but enough to pay the bills so if installations fall off for a period of time I've got something to fall back on. Another big reason I'll never completely get out of maintenance is I've landed a handful of jobs in the past year where the homeowners’ didn’t even get another quote, they asked me and me only since they deal with me regularly for maintenance. You’re able to develop a relationship with your maintenance clients where you’re the one they’ll call for anything they need. Also while you’re out on your maintenance routes people see your truck around which is like free advertising. If you plow snow in the winters, maintenance is a great way to get your foot in the door for that as well.
     
  10. PatriotLandscape

    PatriotLandscape LawnSite Bronze Member
    from MA
    Posts: 1,209

    Cash flow is managed in every contract signed. For the most part you should be ahead of your direct and indirect cost on a job. This is what progress payments are for. The last check amount should be minimized to reduce your exposure on any job.
    Posted via Mobile Device
     

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