Cash Flow Finding and Influencing It s Direction Tony Stagliano National Director of Construction Industry Services CBIZ MHM, LLC

Transcription

1 Inaugural CFMA Southwest Regional Conference Long Beach, CA September 13-15, 2015 Cash Flow Finding and Influencing It s Direction Tony Stagliano National Director of Construction Industry Services CBIZ MHM, LLC

2 Biography of Presenter Tony Stagliano, CPA, CCIFP is nationally recognized as a leading authority and expert in construction accounting and taxation. Licensed to practice as a CPA in Pennsylvania, he is a National Director in CBIZ MHM, LLC where he serves as Eastern Region Director of Construction Industry Services. He is based in their Philadelphia, PA office. A graduate of Villanova University Tony is a frequent presenter at the AICPA, CFMA, AGC/CFMA and CICPAC Annual Construction Conferences. He also writes articles for CFMA Building Profits publication. Tony is a founding member of CFMA s Philadelphia Chapter and the Construction Industry CPA Consultants Association (CICPAC). Tony has chaired CFMA s Education and Accounting and Reporting Committees. He is past CFMA national Secretary and Executive Committee member. Tony is a recipient of CFMA s national Debra Hahn Memorial Award and Danny B. Parrish Outstanding Leadership Award. Tony has co-chairs the CCIFP Examination Development Committee for several years and he co-authored the all day CCIFP Overview course.

3 Anthony R. Stagliano, CPA, CCIFP National Director of East Region Construction Industry Services CBIZ MHM, LLC 401 Plymouth Road, Suite 200 Plymouth Meeting, PA (610) Direct (610) Fax (215) Mobile web site Title of Presentation 3 7/20/2015

4 Introduction Cash A must Starts with decision to bid Contract terms Beware of the recovery Influencers Cash flow tools

5 Learning Objectives Why all balance sheet items are purely timing issues waiting to affect your cash balance 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 to dangerous cash flow positions that could lead to their demise The prescription for a healthy cash flow and why the diagnostics for discovering a possible cash-flow problem is predictable

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7 Lost Opportunity Cash Flows: Cash Vs. Financial Profits Chart Components: Job Duration Financial Profitability Line Net Cash Flows Line Job Borrowing = Net Cash Flows in Excess of Financial Profitability True Cost of Financing is Negative Cash Flow Amount AND Margin Not in the Bank

8 Who Are The Stakeholders In The Cash Flow Process? President/Owner Chief Financial Officer Estimators Project Managers Superintendents Mechanics

9 How Do Presidents/Owners Influence Cash Flow? Sets Corporate Culture (Communicate) Major Asset Acquisition Capital Structure Personal Needs Ego Projects Pricing/Billing Policy Non-productive Family on Payroll Growth Can Kill a Company Fraudulent Culture!

10 How Do Chief Financial Officers Influence Cash Flow? Manages the Cash that Flows Short-term Investments Treasury Function Collections (Who call? When? What Do You Do When the Customer Won t Pay?) Manages Payables (Take Discounts?) Over-Reliance on Lines of Credit

11 How Do Estimators Influence Cash Flow? Which Jobs to Bid (Go No Go) Assumptions When Developing Bids (Is Cash Flow Considered?) Choice of Vendors & Subcontractors Unbalanced Bids Schedules of Values

12 How Do Project Managers Influence Cash Flow? Does Joe Know What is Important to the Company? Scheduling Job Activities When Should Non-Critical Job Activities Be Scheduled? Processing Change Orders Undocumented Work for Free (or Kick-Backs?) Billing Is Timely Billing a Priority? Review Sub/Supplier Collection, Approval, and Job Costing (Document Imaging or TEXTURA) Negotiating with Subcontractors

13 How Do Superintendents Influence Cash Flow? Labor/Equipment Management Hoarding Equipment GPS Technology Material Requisitions Too Early Theft! Too Late Labor Standing! Production-Only Decision Making Identifying Change Conditions The Superintendent is the Eyes of the Company for Extras and Change Orders! Safety / Risk Management

14 How Do Mechanics Influence Cash Flow? Equipment off line If it s broke we can fix it Parts inventory

15 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

16 Where is Cash Trapped in Your Financial Structure? Underbillings Idle Equipment Pending Change Orders Accounts Receivable Retentions Inventory Other Assets Accelerated Debt Amortization

17 How Do We Effect Change in Cash Flow? It Must Start at the Top Change Corporate Culture Define Where Cash Flow as a Priority is against other company objectives. Cash Flow Training for all Stakeholders Compensation Plans that reward cash flow

18 Why the timing of when cash inflows and outflows occur is essential to properly managing your company

19 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

20 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 (CIE) Job borrowing Dangerous cash-flow positions Costs and estimated earnings in excess of billings (BIE) Job financing

21 CFMA Contractor Job Cash Status Report 6/30/2015 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 ,000 32, , , ,000 32, ,000 40,000 34, , , ,000 74, , , ,000 15, ,000 (15,000) ,900,000 1,900,000 1,610,000 1,610, ,000 21, , ,000 10, ,000 11,000 4,262,000 72,000 55,000 4,135,000 3,530,000 15,000 10,000 3,505, ,000

22 Revenue Analysis of Job 2201 CFMA Contractor Revenue Analysis 6/30/2015 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 ,000,000 1,750, ,000 50% 875, ,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 if it s negative cash flowing??

23 CFMA Contractor Job Cash Status Report 6/30/15 Uncompleted Contracts: Gross Amount Cost in Cash Net Profit Contract Billed to Accounts Retention Cash Contracts Accounts Retention Paid Cash Flow Recognize d Job Job Number Date Receivable Receivable Collected to Date Payable Payable Out Position to Date Borrowing Financing ,000 51,000 25, , ,000 68,000 15, ,000 76,000 36,000 40, ,400 9,400 5,300 5,300 4, , ,000 36,000 21, , ,000 35,000 6, ,000 37,000 24,000 13, ,000 27,000 85,000 97,000 34,000 63,000 22,000 19,000 3, , ,500 13,500-80,000 30,000 50,000 (50,000) 12,000 (62,000) ,008, ,000 75, , , ,000 22, ,000 (53,000) 125,000 (178,000) , ,000 49, , ,000 40,000 6, ,000 16,000 57,000 (41,000) 2,223, , ,500 1,264,400 1,710, ,000 49,000 1,212,300 52, ,500 59,600 (281,000) Should be in the Bank

24 Job # 2201 Job Financing Contract Amount $ 2,000, % Total estimated costs 1,750, % Gross Profit $ 250, % Percent Complete: Total cost to date $ 875, % Total estimated costs $ 1,750, Billed to date $ 1,008, Less: Accounts Receivable $ 375, Retainage Receivable 75, (450,000.00) $ 558, Cash Collected Cost to date $ 875, Less: Accounts Payable $ 242, Retainage Payable 22, (264,000.00) 611, Cash Paid Out (53,000.00) Net Negative Cash Flow Position Gross Profit earned to date $ 125, Gross Profit Recognized to Date $ (178,000.00) Job Financing

25 Job Borrowing Job # 2201 Contract Amount $ 2,000, % Total estimated costs 1,750, % Gross Profit $ 250, % Percent Complete: Total cost to date $ 875, % Total estimated costs $ 1,750, Billed to date $ 1,008, Less: Accounts Receivable $375, Retainage Receivable 75, (450,000.00) $ 558, Cash Collected Cost to date $ 875, Less: Accounts Payable $442, Retainage Payable 22, (464,000.00) 411, Cash Paid Out 147, Net Cash Flow Position Gross Profit earned to date $ 125, Gross Profit Recognized to Date $ 22, Job Borrowing

26 Week Beginning: XX/XX/XX Sample Eight-Week-Ahead Cash Forecast Wk 1 Wk 2 Wk 3 Wk 4 Wk 5 Wk 6 Wk 7 Wk 8 Totals INFLOWS: Receivables $110,000 $1,500,000 $800,000 $2,000,000 $500,000 $500,000 $1,500,000 $1,250,000 $8,160,000 Investments maturing $550,000 $250,000 $100,000 $0 $50,000 $25,000 $100,000 $50,000 $1,125,000 Fixed asset sales $75,000 $0 $0 $0 $25,000 $0 $0 $0 $100,000 Interest/Dividends $20,000 $10,000 $5,000 $20,000 $25,000 $10,000 $7,500 $10,000 $107,500 S-T Borrowings $200,000 $0 $0 $0 $200,000 $0 $0 $0 $400,000 Other Inflows $15,000 $20,000 $5,000 $7,500 $10,000 $8,000 $12,500 $10,000 $88,000 Total Inflows $970,000 $1,780,000 $910,000 $2,027,500 $810,000 $543,000 $1,620,000 $1,320,000 $9,980,500 OUTFLOWS: Payables $665,000 $500,000 $525,000 $500,000 $250,000 $375,000 $400,000 $475,000 $3,690,000 Payroll $700,000 $600,000 $700,000 $700,000 $550,000 $700,000 $650,000 $675,000 $5,275,000 Drafts $40,000 $30,000 $10,000 $20,000 $5,000 $25,000 $10,000 $15,000 $155,000 Capital Purchases $0 $0 $0 $15,000 $0 $0 $0 $20,000 $35,000 Sched loan payments $300,000 $0 $0 $0 $300,000 $0 $0 $0 $600,000 S-T loan paydowns $0 $0 $0 $250,000 $0 $0 $0 $0 $250,000 Other Outflows $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Outflows $1,705,000 $1,130,000 $1,235,000 $1,485,000 $1,105,000 $1,100,000 $1,060,000 $1,185,000 $10,005,000 Net Cash Flow ($735,000) $650,000 ($325,000) $542,500 ($295,000) ($557,000) $560,000 $135,000 ($24,500)

27 Week Beginning: XX/XX/XX Sample Weekly Cash Forecast Monday Tuesday Wednesday Thursday Friday Totals Projected Actual Projected Actual Projected Actual Projected Actual Projected Actual Projected Actual INFLOWS: Receivables $50,000 $185,000 $0 $450,000 $100,000 $785,000 $0 Investments Maturing $100,000 $250,000 $50,000 $100,000 $50,000 $550,000 $0 Fixed Asset Sales $0 $0 $75,000 $0 $0 $75,000 $0 Interest/Dividends $0 $0 $0 $20,000 $0 $20,000 $0 S-T Borrowings $0 $0 $200,000 $0 $0 $200,000 $0 Other Inflows $0 $0 $0 $0 $15,000 $15,000 $0 Total Inflows $150,000 $0 $435,000 $0 $325,000 $0 $570,000 $0 $165,000 $0 $1,645,000 $0 OUTFLOWS: Payables $40,000 $50,000 $250,000 $200,000 $125,000 $665,000 $0 Payroll $0 $0 $125,000 $175,000 $400,000 $700,000 $0 Drafts $5,000 $10,000 $5,000 $10,000 $10,000 $40,000 $0 Capital Purchases $0 $0 $0 $0 $0 $0 $0 Sched Loan Payments $0 $300,000 $0 $0 $0 $300,000 $0 S-T Loan Paydowns $0 $0 $0 $0 $0 $0 $0 Other Outflows $0 $0 $0 $0 $0 $0 $0 Total Outflows $45,000 $0 $360,000 $0 $380,000 $0 $385,000 $0 $535,000 $0 $1,705,000 $0 Net Cash Flow $105,000 $0 $75,000 $0 ($55,000) $0 $185,000 $0 ($370,000) $0 ($60,000) $0

28 Sales Forecasting Schedule Expressed in thousands Contract Current July August September October November December Project Price Backlog Project A Adds./CO's 1, Billings Contr. Bal. 1, Project B Adds./CO's 2, Billings Contr. Bal. 1,995 1,827 1,774 1,526 1, New Contracts - Jul.. Adds./CO's N/A 2, Hard Bid Billings Contr. Bal. 0 2,900 2,755 2,523 2,262 1,943 1,595 New Contracts - Aug. Adds./CO's N/A 0 2, Hard Bid Billings Contr. Bal ,900 2,755 2,523 2,262 1,943 New Contracts - Sept. Adds./CO's N/A 1, Negotiated Billings Contr. Bal. 0 1,250 1,187 1, New Contracts - Oct. Adds./CO's N/A 0 1, Negotiated Billings Contr. Bal ,250 1,187 1, Sm. Contr./Service Adds./CO's N/A Billings Contr. Bal. 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Total Monthly Billings 1,161 1,417 1,794 1,969 2,068 2,144 Changes in Net WIP 100 (120) (90) (110) Net Monthly Billings 1,261 1,297 1,844 2,179 1,978 2,034

29 The prescription for a healthy cash flow and why the diagnostics for discovering a possible cash-flow problem is predictable Prescription for a healthy cash flow 20-Point Prescription Diagnostics for a possible cash flow problem 30-Point Diagnostic

30 Cash: THE LIFEBLOOD