Cash Flow Analysis

Analyzing the cash flow of one kitchen remodel.

June 04, 1999
Payment Schedule:
9/10 $1,500
9/28 $8,000
10/20 $25,000
11/23 $15,000
12/9 $25,000
1/6 $6,000
2/15 $5,615

Stronghold Construction co-owner Joan Stephens is a "self-taught" bookkeeper, but her home-grown cash flow system gets an A. It’s built around the fact that "almost all our bills are due the 10th of the month," she says. Stephens asks clients for 10%, 15% or 20% down when the contract is signed (bigger volume jobs get a smaller-percentage down payment). She generally schedules progress payments for alternate Fridays, asking for "bigger chunks" around the 10th of the month to cover the bills.

"If there’s a big delay" in production, "I’ll call and tell [the clients] a different date when payment is due," Stephens says. Client Diana Humphrey also bent the payment schedule on her job -- but in surprising ways.

Humphrey owed $10,000 Oct. 22 and $15,000 Nov. 5. Because she would be out of town on those dates, she paid $25,000 Oct. 20. "She paid us before the payment schedule; that doesn’t normally happen," says Stephens. Humphrey owed $5,000 Nov. 12 and $10,000 later in November but, planning around travel, she arranged to pay $15,000 Nov. 23. Once again juggling payments and travel plans, she arranged to make the $25,000 December payment a few days after the due date; "not a problem," says Stephens.

The date for final payment, due at project completion, slid from Dec. 15 into January as Stronghold waited for new cabinet doors and a new refrigerator to arrive. And this time travel by Stephens affected the payment schedule. She was away at the end of January, so she prepared the final bill in early February.

Cash flow stayed well in the black throughout the Humphrey job, easily covering expenditures. A warranty fund -- 2% of job cost -- remains in a Stronghold bank account unless it’s needed to cover call-backs or emergencies.

Though Joan Stephens’ cash accounting system has a good track record, Stronghold hired a "bona fide bookkeeper" last fall. "My billings were getting too far behind," Stephens explains. "We’d gone past the limit of what I could do myself." Besides, she says, the new bookkeeper "knows the more traditional way of doing things."

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