How do you juggle cash, debt and credit?

Q:  In building, and especially for small businesses, successful cash flow management depends on careful alignment of debtors and creditors. What strategies do you use to ensure you, your suppliers and the taxman get paid on time?

Firm: John Stevens Homes
Principal: John Stevens
Location: Rotorua
Staff: 2 carpenters

When building for future homeowners, I don’t ask for any upfront payments, I send them a payment claim every month for labour and materials. This way, money comes in once a month and I pay my staff and suppliers on the same basis.

So far, this hasn’t proved a problem. If they didn’t pay, I wouldn’t turn up to work the next day. However, most of my clients are friends, or friends of friends, so that makes a difference.

A large portion of my work is building spec houses to be sold once they’re complete. This means I need to have the money in the bank to fund the project, but it also means I don’t need to deal with homeowners until they pay the full amount in exchange for the keys.

Spec houses seem to do really well in Rotorua – the last one sold before the paint had even dried!

Firm: Coppins Construction
Principal: Zane Coppins
Location: Onehunga, Auckland
Staff: 2 carpenters

To ensure good cash flow, I never wait until after the job to request payment. For jobs that are $20,000 and under, I ask for a 50% deposit and the balance within seven days of completion. For jobs over $20,000, I ask for fortnightly payments of an agreed amount.

Before every job, l have a meeting with my customer and go through every aspect of their job and the contract. This way, both parties know exactly where they stand and what to expect. It also pays to put your charge-out rate into the contract, in case of unforeseen circumstances or work outside the scope of the contract. Ensure you document any extra work done and advise your customer that it’s outside the scope of the project before starting the work. This is extremely important, as I’ve found this to be the cause of most disputes.

Having multiple accounts also helps cashflow. BNZ allows me to have up to ten accounts, so, when an invoice comes in, I take a percentage out of my business account for tax, GST and ACC. This helps me avoid thinking I have more disposable income than I do.

Firm: Breen Construction Company
Principal: Lindsay, Trevor & Peter Breen
Location: Central Otago
Staff: 95 FTE staff

Cash flow is vital to the success of any construction company and, if not managed, could easily tip you up.

The first thing you need to do is get your payment claims out on time. If you’re late with the claim, you can’t put pressure on the debtor. Payment claims should be made in accordance with the Construction Contracts Act (CCA) and then follow up on the dates that the CCA sets out.

Basically, you need to get your money in on time to pay the subs because, even if you haven’t been paid, you still have to pay them.

The smartest money management move that we made was to get a good, industry-specific accounting package that helps us manage our claims, our debtors and our creditor payments.

Because this information is in the accounting package, we can do monthly checks on our debtor’s position, creditor’s claims and job performance.