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Cash flow presentation

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KatzAbosch

Michael Gentry presented on cash flow management for construction and real estate companies. He discussed why the timing of cash inflows and outflows is essential, and how strong cash flow strategies like billing in excess of costs and maintaining credit lines can help companies avoid vulnerable positions. Gentry also covered analyzing job cash flow status, projecting cash flows, establishing collection and payment policies, and routinely analyzing cash levels. The presentation provided construction companies with strategies to properly manage cash flow and keep their businesses operating smoothly.

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Construction & Real Estate Bootcamp Cash Flow Finding and Controlling Its Direction Presented by: Michael Gentry, CPA, CCIFP, CCA May 12, 2015 Sheraton Baltimore Hotel North
Michael L. Gentry, CPA, CCIFP, CCA Mike Gentry, a Shareholder with KatzAbosch, joined the firm in 1998. Mike serves on the firms Board of Directors and as Co-Chair of the Construction Services Group. He has provided accounting and tax services to contractors and construction firms for more than 15 years. In addition, he services closely-held family businesses in the real estate, automotive and franchise sectors. A dedicated professional, Mike holds the prestigious distinction of Certified Construction Industry Financial Professional (CCIFP), a certification held by less than 30 professionals in Maryland and less than 850 professionals in the United States. He is also a CCA, Certified Construction Auditor. This nationally recognized certification is sponsored by the National Association of Construction Auditors. He applies his knowledge of the latest trends and changes in the construction industry through writing articles helping clients achieve their financial and personal goals. Mike provides a full range of accounting and tax services for clients, including: Tax planning Financial reporting Assistance in obtaining bonding and financing Business valuations Business succession planning Estate planning Job cost systems evaluation Software consultation Industry specific advice and assistance to construction and real estate companies
Introduction Cash A must Starts with decision to bid Contract terms
Learning Objectives Why all balance sheet items are purely timing issues Why the timing of when cash inflows and outflows occur is essential to properly managing your company How strong cash-flow strategies keep companies from being vulnerable
Why all balance sheet items are purely timing issues waiting to affect your cash balance Assets: Current Assets Fixed Assets Other Assets Liabilities: Current Liabilities Long Term Liabilities Equity: Owners Equity Retained Earnings
Why the timing of when cash inflows and outflows occur is essential to properly managing your company Inflows Daily Exercise Billing & Collection Policy Receivables and retainage Collections are a right not a privilege Timely and aggressive billing/requisitions Deposits Auxiliary sources Adequate credit lines Long-term financing and or Leasing Partners or Shareholders
Why the timing of when cash inflows and outflows occur is essential to properly managing your company Outflows Elective procedures Timing of payments Paying within terms Early payment discounts Labor intensive work Retainage Purchases of fixed assets Unplanned expenditures Triage
How strong cash-flow strategies keep companies from being vulnerable to dangerous cash-flow positions that could lead to their demise Strong cash-flow strategies Billings in excess of costs and estimated earnings (Overbillings) Job borrowing Dangerous cash-flow positions Costs and estimated earnings in excess of billings (Underbillings) Job financing
Analysis of Cash Status of Completed Contracts Contractor Job Cash Status Report 9/30/2014 Completed Contracts: Amount Cost in Cash Contract Billed to Accounts Retention Cash Contracts Accounts Retention Paid Net Number Date Receivable Receivable Collected to Date Payable Payable Out Status 2138 272,000 32,000 240,000 200,000 200,000 32,000 2129 690,000 40,000 34,000 616,000 710,000 710,000 74,000 2133 980,000 980,000 750,000 15,000 735,000 (15,000) 2138 1,900,000 1,900,000 1,610,000 1,610,000 - 2147 420,000 21,000 399,000 260,000 10,000 250,000 11,000 4,262,000 72,000 55,000 4,135,000 3,530,000 15,000 10,000 3,505,000 102,000
Revenue Analysis of Job 2201 Contractor Revenue Analysis 9/30/2014 Costs & Billings Estimated Estimated in Excess of Estimated Cost in Gross Estimated Gross Profit Costs and Contract Total Total Gross Percent Contracts Profit Revenue Contract In Excess of Estimated Number Contract Costs Profit Complete to Date Earned Earned Billings Billings Gross Profit 2201 2,000,000 1,750,000 250,000 50% 875,000 125,000 1,000,000 1,008,000 - 8,000 What conditions might exist that are causing this contract that appears to be profitable and billable to be negative in cash flow? How do you know its negative cash flowing??
Analysis of Cash Status of Uncompleted Contracts Contractor Job Cash Status Report 9/30/14 Uncompleted Contracts: Gross Amount Cost in Cash Net Profit Contract Billed to Accounts Retention Cash Contracts Accounts Retention Paid Cash Flow Recognized Job Job Number Date Receivable Receivable Collected to Date Payable Payable Out Position to Date Borrowing Financing 2112 258,000 51,000 25,000 182,000 189,000 68,000 15,000 106,000 76,000 36,000 40,000 2114 9,400 9,400 5,300 5,300 4,100 500 3,600 2117 206,000 36,000 21,000 149,000 153,000 35,000 6,000 112,000 37,000 24,000 13,000 2135 112,000 27,000 85,000 97,000 34,000 63,000 22,000 19,000 3,000 2167 135,000 121,500 13,500 - 80,000 30,000 50,000 (50,000) 12,000 (62,000) 2201 1,008,000 375,000 75,000 558,000 875,000 242,000 22,000 611,000 (53,000) 125,000 (178,000) 2213 495,000 165,000 49,000 281,000 311,000 40,000 6,000 265,000 16,000 57,000 (41,000) 2,223,400 775,500 183,500 1,264,400 1,710,300 449,000 49,000 1,212,300 52,100 273,500 59,600 (281,000) Must be in the Bank
Top 5 Best Cash Flow Practices 1. Project Cash Flows 2. Know what you are getting into 3. Establish a healthy line of credit when times are good 4. Have policies and procedures in place for collections and payments 5. Routine cash analysis of job cash status
Michael L. Gentry, CPA, CCIFP, CCA Shareholder, Co-Chair of Construction Services Group KatzAbosch 9690 Deereco Road, Suite 500 Timonium, MD 21093 (410) 307-6440 Direct (410) 207-2451 Mobile mgentry@katzabosch.com E-mail www.katzabosch.com Web site Presenter

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Cash flow presentation

  • 1. Construction & Real Estate Bootcamp Cash Flow Finding and Controlling Its Direction Presented by: Michael Gentry, CPA, CCIFP, CCA May 12, 2015 Sheraton Baltimore Hotel North
  • 2. Michael L. Gentry, CPA, CCIFP, CCA Mike Gentry, a Shareholder with KatzAbosch, joined the firm in 1998. Mike serves on the firms Board of Directors and as Co-Chair of the Construction Services Group. He has provided accounting and tax services to contractors and construction firms for more than 15 years. In addition, he services closely-held family businesses in the real estate, automotive and franchise sectors. A dedicated professional, Mike holds the prestigious distinction of Certified Construction Industry Financial Professional (CCIFP), a certification held by less than 30 professionals in Maryland and less than 850 professionals in the United States. He is also a CCA, Certified Construction Auditor. This nationally recognized certification is sponsored by the National Association of Construction Auditors. He applies his knowledge of the latest trends and changes in the construction industry through writing articles helping clients achieve their financial and personal goals. Mike provides a full range of accounting and tax services for clients, including: Tax planning Financial reporting Assistance in obtaining bonding and financing Business valuations Business succession planning Estate planning Job cost systems evaluation Software consultation Industry specific advice and assistance to construction and real estate companies
  • 3. Introduction Cash A must Starts with decision to bid Contract terms
  • 4. Learning Objectives Why all balance sheet items are purely timing issues Why the timing of when cash inflows and outflows occur is essential to properly managing your company How strong cash-flow strategies keep companies from being vulnerable
  • 5. Why all balance sheet items are purely timing issues waiting to affect your cash balance Assets: Current Assets Fixed Assets Other Assets Liabilities: Current Liabilities Long Term Liabilities Equity: Owners Equity Retained Earnings
  • 6. Why the timing of when cash inflows and outflows occur is essential to properly managing your company Inflows Daily Exercise Billing & Collection Policy Receivables and retainage Collections are a right not a privilege Timely and aggressive billing/requisitions Deposits Auxiliary sources Adequate credit lines Long-term financing and or Leasing Partners or Shareholders
  • 7. Why the timing of when cash inflows and outflows occur is essential to properly managing your company Outflows Elective procedures Timing of payments Paying within terms Early payment discounts Labor intensive work Retainage Purchases of fixed assets Unplanned expenditures Triage
  • 8. How strong cash-flow strategies keep companies from being vulnerable to dangerous cash-flow positions that could lead to their demise Strong cash-flow strategies Billings in excess of costs and estimated earnings (Overbillings) Job borrowing Dangerous cash-flow positions Costs and estimated earnings in excess of billings (Underbillings) Job financing
  • 9. Analysis of Cash Status of Completed Contracts Contractor Job Cash Status Report 9/30/2014 Completed Contracts: Amount Cost in Cash Contract Billed to Accounts Retention Cash Contracts Accounts Retention Paid Net Number Date Receivable Receivable Collected to Date Payable Payable Out Status 2138 272,000 32,000 240,000 200,000 200,000 32,000 2129 690,000 40,000 34,000 616,000 710,000 710,000 74,000 2133 980,000 980,000 750,000 15,000 735,000 (15,000) 2138 1,900,000 1,900,000 1,610,000 1,610,000 - 2147 420,000 21,000 399,000 260,000 10,000 250,000 11,000 4,262,000 72,000 55,000 4,135,000 3,530,000 15,000 10,000 3,505,000 102,000
  • 10. Revenue Analysis of Job 2201 Contractor Revenue Analysis 9/30/2014 Costs & Billings Estimated Estimated in Excess of Estimated Cost in Gross Estimated Gross Profit Costs and Contract Total Total Gross Percent Contracts Profit Revenue Contract In Excess of Estimated Number Contract Costs Profit Complete to Date Earned Earned Billings Billings Gross Profit 2201 2,000,000 1,750,000 250,000 50% 875,000 125,000 1,000,000 1,008,000 - 8,000 What conditions might exist that are causing this contract that appears to be profitable and billable to be negative in cash flow? How do you know its negative cash flowing??
  • 11. Analysis of Cash Status of Uncompleted Contracts Contractor Job Cash Status Report 9/30/14 Uncompleted Contracts: Gross Amount Cost in Cash Net Profit Contract Billed to Accounts Retention Cash Contracts Accounts Retention Paid Cash Flow Recognized Job Job Number Date Receivable Receivable Collected to Date Payable Payable Out Position to Date Borrowing Financing 2112 258,000 51,000 25,000 182,000 189,000 68,000 15,000 106,000 76,000 36,000 40,000 2114 9,400 9,400 5,300 5,300 4,100 500 3,600 2117 206,000 36,000 21,000 149,000 153,000 35,000 6,000 112,000 37,000 24,000 13,000 2135 112,000 27,000 85,000 97,000 34,000 63,000 22,000 19,000 3,000 2167 135,000 121,500 13,500 - 80,000 30,000 50,000 (50,000) 12,000 (62,000) 2201 1,008,000 375,000 75,000 558,000 875,000 242,000 22,000 611,000 (53,000) 125,000 (178,000) 2213 495,000 165,000 49,000 281,000 311,000 40,000 6,000 265,000 16,000 57,000 (41,000) 2,223,400 775,500 183,500 1,264,400 1,710,300 449,000 49,000 1,212,300 52,100 273,500 59,600 (281,000) Must be in the Bank
  • 12. Top 5 Best Cash Flow Practices 1. Project Cash Flows 2. Know what you are getting into 3. Establish a healthy line of credit when times are good 4. Have policies and procedures in place for collections and payments 5. Routine cash analysis of job cash status
  • 13. Michael L. Gentry, CPA, CCIFP, CCA Shareholder, Co-Chair of Construction Services Group KatzAbosch 9690 Deereco Road, Suite 500 Timonium, MD 21093 (410) 307-6440 Direct (410) 207-2451 Mobile mgentry@katzabosch.com E-mail www.katzabosch.com Web site Presenter

Editor's Notes

  • #10: NET STATUS = FORGOTTEN MONEY THIS COLUMN SHOULD BE RENAMED ON THE B/S AS PROFIT RECEIVABLE. INDICATES A RETENTION RELEASE PROBLEM. DO YOU KNOW HOW TO CLOSE OUT A JOB? WARRANTY WORK FOR FREE? WHAT IS THE REAL PROBLEM? Job 2129 = AM I REALLY DONE IF A/R IS STILL UNPAID
  • #11: PRELIMINARY ANALYSIS OF THIS JOB SHOWS IN PROFITABLE AND OVERBILLED. WOULD YOUR AUDITOR AND CFO BE OKAY WITH THIS? WHAT ABOUT THE STOCKHOLDERS? WHAT ARE SOME REASONS WHY WE ARE NOT BEING PAID: POOR JOB PERFORMANCE NOT DOING PRODUCTIVE WORK UNAPPROVED CHANGE ORDERS (WORK PERFORMED) CONTRACT TERMS IN OWNERS FAVOR POOR NEGOTIATIONS WITH OWNERS ON TERMS TOO BUSY DOING WORK TO BILL
  • #12: JOB BORROW = SHOULD BE IN THE MONEY-MARKET ACCOUNT! JOB FINANCING = IS COSTING US INTEREST ON OUR LINE OF CREDIT; RED FLAG FOR PROBLEMS ON JOB! LETS REVIEW JOB 2201