My wife just said, ??quit chasing your tail asking these cash flow questions every day and just keep your head down and keep working.?
Work smarter, not harder.
Brad,
I'm not sure I follow your concern.?ÿ I usually use just the generic concept of cash flow (money coming into and leaving a business).?ÿ There is a serious accounting concept of cash flow which uses the idea of time valued money for accounts out, but seems to boil down to the same thing - is more money coming in than going out.?ÿ Perhaps that time valued money on as yet completed projects is your concern?
From your current post and the linked earlier post, it sounds like you have good cash flow.?ÿ You are receiving retainers and getting paid final balance within 30 days and have increased your gross billings significantly over time.?ÿ That cash flow sounds like it could be improved by completing the backlog of projects you have or raising rates to (maybe) not have as many projects.
I would ask is your concern with (1) work flow and project completion or (2) with the actual numbers attached to money coming into and leaving the business?
I'm not a financial adviser nor do I play one on TV, but it occurs to me that your problem may not be a cash flow issue at all but rather a production issue. Being a one man band you're faced with a good many distractions in just running day to day operations. Answering the phone and other correspondence, billing, drafting, research. What if you were to triage on your production strengths and outsource some of the more time consuming but mundane tasks to a helper of some sort. Ideally a party chief or some other bright and hungry yet responsible individual who you could delegate to. Working smarter rather than harder is great and all, but being very?ÿ efficient is the ticket in my book. If you could bump up your turnaround time by 20% by delegating some of your work load, that might provide you with the cushion you're looking for. Just a suggestion. One man can only carry so much so far for so long. Those distractions may be killing your efficiency??ÿ
Just because I'm paranoid, doesn't mean they aren't out to get me.
I would ask is your concern with (1) work flow and project completion or (2) with the actual numbers attached to money coming into and leaving the business?
(1) I think, yes.
(2) On an annual basis, no. ?ÿOn a monthly basis, yes. ?ÿFrustration.
adjusted gross income?ÿ(AGI) is an individual's total gross income minus specific deductions
Cash flow is being controlled by the banking industry
We always have to pay our expenses completely by the end of our survey and I would estimate the average time between sending in our work to Title Companies and our receiving payment for the project is 30 days later.
Today I was asked by a Title Company to change my certification on a survey made in 2015.
While it is true that ALTA and other types of surveys require special and very wordy certifications, in Texas for a simple mortgage survey all that is requires is "Surveyed on the ground by:" followed by my name, license number, firm number if one exists, address and phone number, my signature and a crimped seal over my name. I then rub the impression of my seal on the paper with a red pencil and scan in 24bit color at 600dpi to create a digital file that has been approved by 99.99% of receivers with one or two that insist upon hard copies that take a week to get delivered to them because I have to go to town (4mi away or 7mi away) and purchase envelopes and postage and mail which goes either to Shreveport, Dallas and then to Texarkana or DesMoines, Iowa and back to Texarkana and on to the actual town and rural carrier and to precipitant.
After closing that title company waits 3 days to mail my check that I usually receive on a Saturday or next Monday and gets deposited into my bank a week after closing.
By that time we have invested into our next several surveys for this same process to start over.
The thankful and worthy clients that appreciate what I do come by and pay me as soon as the ink has dried.
0.02
An easy cash flow issue example can be found in crop production.?ÿ You spend on fuel, tillage, seed, planting, fertilizer, herbicide, harvest, repairs, some labor, trucking, storage and many other things spread over a period of four to nine months before you have the opportunity to sell the production.?ÿ Even then, storing for some additional period may provide a better net return.?ÿ So, it all goes out, out, out, out, out, out, out before anything comes in.?ÿ Eventually, if markets go well, you have enough on hand to actually pay all of the outgo.?ÿ Banks get rich off of those who do not have the reserve to meet the outgo.?ÿ In addition, certain advantages come to those who have enough on hand to make early purchases, in larger quantities, to get lower unit prices on the input side.
The same sort of thing happens with a busy survey business.?ÿ I do my best to pay my bills when they arrive.?ÿ That only works if that reserve is setting there available for use.
So the money is there it's just coming in at a different frequency and magnitude because of the project size you've chosen to take on.?ÿ The payments will be larger than in the past but come in less often because it's taking you longer to complete and deliver.?ÿ On its face that shouldn't be concerning so long as you are comfortable with the boom bust pay cycle.?ÿ In my business model, what you're describing is when I would hire; 3-4 months of backlog consisting of repeat Clients with projects of increasing size.?ÿ Either that or I would evaluate if there is something I can do to improve my efficiency via process or technology.?ÿ If you're solo now and don't want to change that, is there something you can change about the way you're delivering on your contracts that will improve throughput??ÿ?ÿ
If you have a backlog of 4-5 months, to me it means you are not fast enough. I believe than in order to turn a profit, you should be able to finish a job faster than the other guy. Even for large jobs, turnover to the client should be done within 30 days. Most of my larger jobs (100 hectares) are completed within 30 days of fieldwork & plans are completed 10 days at most after fieldwork.
The faster the client receives the deliverables, the earlier they can process your invoices, which adds to your cash on hand account. I might also point out that the longer your crew stays on site, the faster your cash flows out. I once had a job that was supposed to be completed within 30 days of field work which stretched out to 2x estimate. Got caught up in several typhoons.
See my post from last October, 2019:
https://surveyorconnect.com/community/business-finance-legal/solo-business/paged/5/#post-508043
Things have not really changed much. ?ÿI charge more than most any firm in my region. ?ÿI get 50% retainer fees. ?ÿI increased my rates 10% again this year. ?ÿI increased my AGI in 2019 from 2018 by 65%!
My current backlog remains about 3-4 months. ?ÿI am busy & productive most every hour of most every day (generally all 7).
Why is cash flow still a struggle for me this year?
Getting work and getting paid are not equal.
?ÿ
How many outstanding invoices do you have?
is there something you can change about the way you're delivering on your contracts that will improve throughput??ÿ?ÿ
Key question, thank you. ?ÿI do not have a quick answer, other than, work more hours per day.
Brad
A recurring problem of my own is that I love starting a project.?ÿ Enjoy most of the middle part, too.?ÿ But, I hate the wrap up.?ÿ Must have the wrap up to get paid, but, still I will procrastinate on that part.?ÿ Have four projects in that status right now.?ÿ Probably $15,000 of billables just waiting for me to wrap them up.
That is the crux of the cash flow problem I create for myself.?ÿ Cannot blame anyone else.?ÿ That's the curse of being a small shop.
So, it all goes out, out, out, out, out, out, out before anything comes in.
I know some farmers of each variety you described (have saved to cover the initial outlay or have to borrow to get the season started).?ÿ One of those groups is usually much more stressed out than the other.
That is a great example of a classic cash flow problem that I would bet several survey companies face (paid employees, supplies paid for, vehicle, insurances, equipment, etc. and then waiting for client to pay the bill).?ÿ However, Brad has indicated getting a retainer up front, so I'm still having trouble seeing where a cash flow problem is occurring.?ÿ With a 50% retainer, he should have collected enough in the retainer to cover most of the upfront costs.?ÿ Just seems like there is something else happening that needs to be discovered.
I have some friends/colleagues nearby who face cash flow issues due to not collecting retainers or having to much going out the door while waiting on clients to pay.?ÿ In the long run, they do just fine, but short term, they stress about when money will be in the bank.?ÿ They seem to miss out on that important part pointed out by holy cow about banks getting rich off those who are having to borrow against future money they expect to collect.?ÿ Setting aside operating capital is just as valuable to a business as it is to an individual to alleviate stress and save money by not paying to borrow it.
I normally have around 60k in receivables at any give time, mostly due to billing procrastination.