If you are an architect or builder who owns a privately held business, your responsibilities are many. But the single most critical element of your ongoing success — the lifeblood of your business — is positive cash flow. One way to ensure it keeps flowing is to carefully and systematically manage both your business and personal cash flows.
Money moves constantly from both your personal and business checking accounts. The predictable, controlled movement of money from your personal account into your business capital account is a part of managing any growing business. It is what I refer to as the revolving door. And it’s not a bad thing.
Do you have a system for controlling your cash flow? Is it a written plan? Could you teach it to someone else to manage on a monthly basis? Do you create separate personal cash flow reports and one for each of your businesses? If you answer yes to these questions, you are doing just fine. If your answers are no, you may want to begin building a system for managing your personal and corporate cash flows. Following are several steps toward doing this.
Step one. Commit to monthly updates and reviews of a series of cash flow reports. Consider who on your team you will train to create, update and review personal and corporate cash flow reports. Commit to training someone in your organization that is capable of being responsible for producing and updating a one-page electronic spreadsheet that quickly and accurately shows you what cash is coming in and out this month, next month and for the next year.
I have trained my bookkeeper, establishing written parameters for deciding when and where to look for the sources of cash-in, and forecasting where the money will be allocated. My bookkeeper is now my comptroller and she prepares her recommendations on how to manage cash flow on a monthly basis. She prepares seven business cash flow reports (one for each construction company I own) and one CEO cash flow report so we are constantly monitoring what money is moving through my revolving door.
Step two. Assemble the proper tools to get the job done. If you were doing a quality site inspection of one of your homes under construction, you would bring with you a measuring tape, a blueprint and perhaps a level. If you were about to design an elevation or floor plan, you would go to your drafting table where all the essential tools are assembled. This same organized approach to creating and monitoring your cash flow can be achieved if you begin with these six basic elements:
- Commit monthly time to cash flow reporting. You must commit to spending dedicated, focused time with the person who will create these reports. Even if you are a financial wizard, you need not be a lone ranger when it comes to handling your money.
- Be able to use software such as Excel or similar electronic spreadsheets.
- Reconcile checking account balances for your personal and business accounts.
- Know sources of cash-in, including but not limited to personal capital; approved construction funding; buyer deposits; and stage payments expected.
- Know the sources of cash-out, including but not limited to what you will need to pay for each construction project and your current accounts payable; staff salaries; office and overhead expenses; retirement plan funding; and perhaps most importantly, repayment of CEO capital account.
- Maintain a carefully estimated job-cost report for each project which shows with great accuracy how much of the total budget to date you have spent and how much you will need to complete the job.
Step three. Start now and let the system evolve. Cash flow projections are by nature constantly changing. Do not expect to do one and be finished. Plan on systematically managing both your business and personal cash flows and you will form a firm foundation for growing your design/build business.
Jay Grant is president of Grant Homes, a residential design/build firm in Mendham, N.J. Grant’s business focuses on controlling and developing land for the construction of luxury custom and speculation homes. His focus on design has been a key component for 20 years of satisfied clients, and his strict attention to costs and weekly cash flow reporting has resulted in industry-leading profit margins.