The Schedule of Values (SOV) can be your friend. Creatively structured, it can significantly improve your cashflow.
Firstly, it’s important for your salespeople to understand that it’s not all about gross profit (aka their commission) and that having your cash sooner means you, the owner, have to borrow less and your risk is mitigated.
Once they are primed to optimize cash here are some tips for your SOV.
1. Keep it simple
Make it easy for your customer. The fewer the line items the better.
2. Create a separate line item for “General Conditions, Submittals & Administration Costs”. It is then not unreasonable to bill as much as 50% of this upfront ensuring earlier payment.
3. Have a separate line item for “Preconstruction Costs”.
A lot of time gets invested in creating these bids and your customer recognizes that fact. Again, not unreasonable to bill ALL of this upfront as tis work has already been completed.
4. Bundle labor and materials together
Having one number for both elements makes it easier for you to place a higher upfront weighting. The customer is not going to do their own math
5. Front-load things that go first
One idea would be to separate the key elements into subline items. We mentioned bundling labor and materials. Now create a bundled number for these:
- Ceramic tile and labor
- Resilient tile and labor
- Carpet tile and labor.
Tile may be installed weeks or months before resilient and carpet as
- Additional trades and activities work post tile and pre-resilient and carpet
- Tile can be installed before heating and air have been put in.
Therefore, you should have the ceramic tile and labor be as high as possible so you can legitimately bill it first.
6. Don’t sweat the details
The customer really only cares about the final number. They don’t need to see all the detail. For example, if you are creating a multi-unit bid, each unit or apartment might have slightly different layouts and material and labor content. Using an average is OK rather than copious detail. This saves time in bid prep, makes it easier for your customer and the final number is what they will look at.
As ever, Revenue is Vanity, Profit is Sanity & Cash is KIng