You just can’t have one without the other. If you want to improve cash flow and cash management, you need to control the bidding, billing and collection process. To control the bidding, billing and collection process, you need a system in place that you follow religiously, and competent, detail-oriented accounting help. An industry-oriented accounting package helps, as well.
Meeting all the conditions mentioned above can be tough, but it is do--able by every contractor, no matter how big or small. Performing at less than the standards outlined spells trouble and, hence, cash flow problems. This hurts smaller contractors the most. In other words, it pays to find out how to run your business and what processes to follow if you hope to make reasonable profits. To do less increases your risk of failure tenfold.
Create an efficient accounting system
Having a system in place is really the key to proper bidding, job management, expense accounting, billing and collection. The process should be seamless, with the right accounting software in place and administrative staff with a basic knowledge of the contracting business. Daily checklists should be in place for review by the owner or manager to see that all steps to properly account for billable work have been compiled. Keeping up with the daily accounting should be a standard job requirement and it should be reviewed daily by management. Repeated failures to comply with this standard should be grounds to replace the field and administrative personnel with other people.
With the “daily” requirements met, it is an easy process to proceed to the billing function, compare it to the bid documents, prepare an invoice, have it approved and mail it out once or twice per month. Sounds too easy, doesn’t it? Well, it can be if you keep up with the daily paperwork and know that it is complete and reasonable.
Some of you think you cannot afford to run your business this way. Yes, you can, and yes, you must. The alternative is much more costly. Can you possibly know what or how you are doing without having complete, timely, prepared job cost records to review before a job gets out of hand? What you save by having better control of your business more than offsets the costs associated with having and keeping better accounting and business records.
Keeping records current has another benefit, as well; it helps with the bidding process. Knowing your costs are properly allocated to a job makes it a lot easier to be competitive on the next bid for similar types of work.
Wouldn’t it be nice to bid the next opportunity knowing you have a good chance of getting the job and actually making a buck in the process? It sure beats the alternative.
Every size contractor has the opportunity and ability to run their business in this manner. In its simplest form, this system requires: