Remodelers can be overwhelmed by statistics, projections, and guesstimates as to what the future holds for the industry.
Cash Flow Analysis and Budget History
'I’ve never had a problem with cash flow,' says Matt Plaskoff. It’s easy to see why because MPC's accounting system leaves little chance for expenses to overtake revenue on jobs.
Usually Matt Plaskoff asks for a 10% deposit when the construction contract is signed. The Waldorf project was a bit different because the extended start-up process led Plaskoff to request a flat $10,000 deposit to hold a space on MPC’s production schedule. From the moment that deposit went into the bank, however, cash flow on the job remained in the positive column.
Once construction begins on a job, Plaskoff bills clients on a weekly basis. Bills are keyed to percentage of job completion, which protects MPC from becoming overextended on project expenses. "We try to anticipate completion of work," says Plaskoff. If drywall is 75% done on a Friday, for example, MPC might bill for 80% completion for the next week.
Most clients pay promptly. If their checks arrive in a pattern -- the Waldorfs paid basically biweekly -- Plaskoff knows what to expect and manages the account accordingly. "We try to be reasonable [about payments]," he says. If payments are late, the project manager reminds the clients. After 14 days, late-payment notices go in the mail. MPC’s system calls for work to stop seven days after notices are sent, but Plaskoff has never had to shut a job down.
MPC’s accounts payable clerk monitors cash flow, so the subs are paid what has been collected for their work every week, says Plaskoff. Often the subs receive the full amount due. "Even if we give a partial payment to the subs," he says, "it’s still under the net [30 days for remittance]," which makes the subs happy and avoids late-payment fees. If there are any early-payment discounts to be had from suppliers, MPC uses them.
Change orders take a toll on profits because they push work into a stop-and-start mode, Plaskoff says. The Waldorf job generated a net profit of 9.2% -- maybe a percentage point or two lower than it might have yielded without dozens of change orders. Still, says Plaskoff, "I’m comfortable with what we did."
Project Spotlight: Remodeling Rescue