Even on time and materials jobs such as the Smith project, Bob Connelly always asks for an initial payment. "We want a mobilization amount at the start of the job so we are working on the homeowner’s money, not ours," he says. If everything goes well, cash flow stays ahead throughout the T&M job roughly by the amount of that starter payment.
The job yielded a gross profit of $43,736, or 19%. Net profit was 9%.
Connelly calculated John Smith’s $35,000 first payment May 1994 to cover the lumber materials bills. Once work began, he invoiced Smith for labor and materials expended, plus markup. Cash flow hovered comfortably around the $30,000 mark until October, when the bulk of all the framing invoices came in, amounting to more than Connelly had expected. Briefly the job showed a negative balance. "We invoiced as soon as this happened," says Connelly, and cash flow quickly bounced back. Smith received two bills in November and again in December to cover routine T&M, plus two add-ons that were billed as separate projects.
Generally, Connelly likes to keep at least 10% of the company’s volume as a cushion to cover blips on the cash flow screen. With that reserve, he’s also able to pay bills promptly. "We don’t miss discounts," says Connelly.
With this project, it was Smith who wanted to reap the discounts from early payment of the lumber bills. Connelly agreed to pass along those savings if Smith would front the money.
In addition, Connelly says, "I allowed the homeowner to buy a few things directly." Appliances, granite counters and kitchen flooring were purchased directly by Smith with no margin for the company. These concessions cut into profits, but Connelly defends them. "The last thing I want is for anyone to think we are taking advantage of them," he says.
R.L. Connelly & Sons
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