Most of you have had to pay attention to your cash position and your cashflow in 2020 and 2021.
PPP provided some protection
But our benchmarks show many of you are acting like banks and not flooring companies.
You are loaning your customers lots of cash and not charging them any interest!
That money should be in your pocket, not theirs!
In last week’s Flooring by the Numbers Podcast we highlighted the problem of underbilling.
In a flooring company of some $15mill in revenues, it is not surprising for us to find underbilling of $1-2 million.
No, not a typo.
Your level of underbillings tells us a lot about the quality of your customer relationships
The Customer Relationship Litmus Test
We describe our customer relationships in very subjective ways. “they are good to us”, or “easy to work with”, or “been our customer for 5 years”.
The objective way to measure the quality of your relationship is the degree of underbilling.
If you are fully billed or even overbilled it tells you your customer trusts you. You are clearly in close communication with them because you are confident they will accept the bill and pay it.
We know, if you are like the average of the 60 commercial flooring companies we have worked with, you are significantly underbilled.
Why does this happen?
a) It is not tracked in a helpful way. Overbilings and underbillings are thrown into the same bucket.
So if you have $1mill in overbillings and $800,000 in underbillings most reports say you are $200,000 overbilled. So no problem.
Wrong! You have $1million you should have billed and that money should be in your pocket.
b) The people who have the most control of underbilling don't feel the pain of it. (You the owner do)
c) You don't know what to bill because you don't know how much cost you have incurred to date so you err on the conservative side. This is exacerbated by timing issues. You prepare your bill somewhere between the 18-22nd of the month. By the time the bill gets to the GC you have incurred yet more costs which are not included in this month's billing.
3 ways to get your cash faster:
1. Separate over and under billings in your reporting. Stay focused on the underbill amount. Remember the litmus test–if that underbill is high your relationship is low so you need to go make some calls or revisit your client relationship strategy/team
2. Track your actual costs (so you know % completion) and forecast your cost to the end of the month and add them in. A great metric to track is your purchase orders–they will tell you what costs are in play and you can use them to forecast the additional costs.
3. Get your customer involved in you billing process. Especially for the larger jobs. Sounds like work? The time spent correcting billing errors and chasing cash far exceeds the time to do this right.
We have built a powerful yet easy to use tool to help you. The WIP Calculator
THE WIP CALCULATOR & TRAINING
This free tool can be used by a Project Manager, a Coordinator, or an Operator in one of two ways:
1. Tactical Approach: Individual job snapshot – every job is a business
2. Strategic Approach: the 30,000 ft perspective – how is the entirety of WIP looking across your business
The tool will:
- Calculate your WIP
- Compare your proposed and budgeted values to current, actual values
- Show you how to optimize your profit and cash flow
- Give what-if scenarios enabling you to model different strategies from optimizing costs and securing change orders you are owed.
Beyond the example provided within the tool itself, we’ll also give you a free training video on how to use the tool.
You can get your FREE download here: FREE CALCULATOR AND TRAINING FORM BELOW
PS Make sure you listen to our podcast this week and next on how to optimize your cash–check out our podcast page here: podcast.flooringbythenumbers.com