Last month in this space, I reviewed a series of market projections for 2014 from Harvard University as well as the industry’s leading associations.
Cash Flow Analysis
The financial breakdown of the Turcotte fire-restoration project.
Martin Woods wasn’t bothered by the trickle of negative cash flow at the start of the Turcotte job."Fifty percent of the time we can get into negative territory [on insurance projects]," says Woods, often at the start of the job. "A lot of times it’s because they want to get going." Woods willingly starts the work when he knows the insurance company is one that will pay him.
Some of the early expenses on the Turcotte project were routine, covering emergency work right after the fire and a carpet analysis used in the estimate. Woods considers such upfront costs a spike to win the bigger job. He also invested in cabinet samples made in his millwork shop to show the Turcottes what they could do when they rebuilt their house. "That’s what sold the job for me," says Woods.
But when cash flowed out of the Turcotte job at midstream, Woods was all over his employees. The contract specified a 30% payment at the start of work and several big payments at completion of key production phases, including insulation. Because insulation was delayed by the unanticipated electrical upgrade, Woods was left with no income on the job for seven weeks running.
At the weekly production meeting, Woods hammered salesman Tom McCarthy and foreman Mike Roche with questions on whom they had called and what they had done to push the job ahead. "We kept getting roadblocks," says Woods. A sub would get sick, an inspector would be late. Meanwhile, Woods decided to move forward with other aspects of the job to ensure completion within six months as promised. The next $47,730 payment did not arrive until April 9, after a $7,335 deficit had accumulated.
In a situation like this, "we’re the ones who suffer," says Woods. When he has to finance a job using the company’s general funds or its line of credit (at 9% interest), the cost comes right out of his bottom line, Woods says. He covered the Turcotte job with general funds.
Woods strongly believes that a smart businessperson makes a project pay for itself. On the Turcotte job, Woods says he could have structured the contract differently and stayed ahead of expenses by requiring smaller percentage payments every two weeks as long as the job was progressing.
Net profit on this large project was 4%. Although Woods generally aims for 8% to 10%, he says, "We can do bigger jobs at a lower net profit."
Woods Restoration Services Inc.
When the Smoke Clears