Contractors Center Point

Managing Working Capital Can Help Improve Cash Flow

Cash Is King. I am sure you have heard that saying before. But in business it is very true. Understanding the sources and uses of cash can help any business ensure that cash is available to buy necessary equipment, hire personnel and cover operational start up expenses just to name a few examples. The following post will give a number of tips that can be used to understand and manage cash flow in order to maintain strong working capital for future project.

1. Understand What Drives Your Cash Flow - Reviewing balance sheets and income statements are very important but reviewing and understanding your cash flow report will help your construction business better understand the sources and uses of cash during specific time periods. This will help in better understanding how your cash flow is being used and whether your construction business is building or draining cash.

2. Actively Management Cash Payments - Take advantage of discounted payment terms if cash flow allows. 2% discounts if paid in 10 days can reap serious cash flow rewards over a one year period. If cash flow is tight, consider bartering for services or delaying payments as long as the payments are within terms. Use of credit cards is an option but must be done with caution as failure to pay the credit card bills timely will continue to drain cash flow.

3. Manage Monthly Expenses - Review recurring expenses to ensure they are needed or can be reduced. Manage peaks in workload through the use of LEAN office services, outsourcing or using temps. Consider changes in lease agreements for vehicles and equipment and review regularly monthly service plans on cell phones, internet, etc.

4. Have Other Sources of Financing Available - In the event that cash on hand does not cover investment needs for equipment, etc., ensure that other sources of financing are available to help with short term cash flow needs. Other sources of financing could be lines of credit with financial institutions or ready ability to borrow with other lending facilities.

5. Collect Receivables Timely - Ensure that clients stay within payment terms will ensure that you are not financing their project. Offer discounts where necessary to collect cash faster. Ask for partial payments up front or larger initial payments on projects. Offer different payment options such as credit cards. There is no risk to you of the customer overdrawing their account or delay caused by mail service from checks.

6. Review Collection Process - Look for ways to better improve the collection process. Understand customer perferences for billing. Can the bill be emailed versus mailed? Is all contact information for the customer up to date to ensure timely receipt of the bill. Ensure that all required information per the customer is on the bill to eliminate confusion and delay on payment.

7. When Necessary, Send Late Receivables to Collection - Don't wait until it is to late on delinquent receivables to collect, use a reputable collection agency to step in an collect receivables when they meet the credit term limits. This will let customers know that late payment is not acceptable.

Using these tips to better manage cash flow will help improve working capital within your construction company. To learn more about this post, please contact the construction professionals of McKonly and Asbury, LLP.

 

Lean Construction Methods Let Tower Rise Fast in Downtown Orlando

That new apartment tower going up near the county courthouse in downtown Orlando is growing so quickly, it's as if Jack buried a bean there and a concrete stalk sprouted.

The SkyHouse high-rise will top out in just a few weeks at 23 floors. If it stays on track, the building's 320 units will open to renters in October, only 13 months after the first dirt was shoveled aside. It takes that long just to build some custom homes.

The tower's builder, Batson-Cook Co., isn't pushing workers to rush; the job has gone quickly because of something called the "Lean" method, which is dedicated to ridding the construction process of waste, especially wasted time. Work schedules have been drawn so that nobody is left waiting on someone else.

"There are a lot of people who say you can't do that," said Randy Thompson, Batson-Cook executive vice president. "Well, you can, and it works great."

At a height of 249 feet, 8 inches, SkyHouse will become downtown's 11th-tallest building, according to the building-data service Emporis GmbH. People who live or work near the city center have marveled at how quickly the tower at Rosalind Avenue and Livingston Street has risen since the start of construction in September; the structure already sports a lot of its glass skin.

Of course, there hasn't been anything to compare it with in quite a while: the $63 million SkyHouse is the first downtown high-rise to be built since before the Great Recession.

In the years since then, a revamped approach to construction -- the Lean method -- has been taking root in the nation and is now apparent in Orlando, at both SkyHouse and another big local project. Boiled down, it's about being better, faster and cheaper.

Georgia-based Batson-Cook, owned since 2008 by a big Japanese company, Kajima, is adhering to concepts drawn generally from automobile manufacturing and specifically from Toyota Motor Corp.'s obsession with eliminating "muda" -- or waste of motion, material and time -- using the "Lean" method.

A more conventional approach was used to build SkyHouse's foundation, which consists of 300 piers, each made by drilling a 75-foot-deep hole and filling it with concrete.

But the tower's rapid rise from those piers is the result of well-oiled pattern of repetition made possible by dividing the job into smaller-than-ordinary bites.

The typical way to construct such a tower would have been to complete each 15,000-square-foot floor before starting on the next one, said Curt Rigney, a Batson-Cook project executive. Workers would erect floor forms, lay out reinforcement steel, and set up the initial wiring and plumbing fittings, which would take four days to complete. The floor's concrete would be poured and finished on the fifth day.

The waste in that, Rigney said, is that the concrete finishers are idle for the first four days, while the forms, steel and utilities crews are idle on the fifth day.

At SkyHouse, each floor is divided into three sections of 5,000 square feet each. Starting early each day, the forms, steel and utilities workers prepare one of the sections for a concrete pour that occurs late in the afternoon, when about 17 concrete trucks snake their way to the job along city streets.

With that approach, "workers do the same thing every day at the same time," Rigney said.

It's more complex than that; several sections are in various stages of progress on any given day. But the result is that the basic structure of each floor is completed in three days, not five.

By taking smaller bites of work, crews are in constant motion and constantly on each other's heels. "Waiting is 'muda,'*" Rigney said.

Ideally, another result of such tight turnover is improved quality. Because the job is an endless loop, in which every crew is quickly followed by another crew, it becomes clear who ran late and made a mess, and whose work was on time and spot-on.

"This is pretty intense," said Tim Archbold, a 25-year construction worker, who operated an enormous boom Thursday evening that belched out a 5,000-square-foot, 7-inch-deep layer of concrete, covering a dense maze of steel bars, cables, wiring and plumbing that wasn't here 12 hours earlier.

Carl Giovenco, a Batson-Cook project manager, watched the rubber-booted ballet of a few dozen workers lay down that 170 cubic yards of concrete. There was little talking, much less shouting.

"This is going off without a hitch," he said.

This post was written by the Orlando Sentinel and first seen in the Engineering News Record (ENR) Daily Wire on Tuesday March 12th. LEAN concepts continue to drive efficencies in many industries with construction being no exception. To learn more about the many concepts of LEAN, visit the LEAN Accountants Blog of McKonly and Asbury LLP at www.leanaccountants.com.

Alert: Employers Required to Use Revised USCIS Form I-9

The U.S. Citizenship and Immigration Services has revised the Employment Eligibility Verification Form I-9, which all employers are required to complete for each employee hired in the United States. “The revisions to Form I-9 contain formatting changes and the inclusion of additional data fields,” according to the Department of Homeland Security Notice published on March 8, 2013, in the Federal Register. “Employers are required to use the Form I-9 to verify the identity and employment authorization eligibility of their employees.” Employers must use the new version of the form for all new hires and re-verifications, effective immediately. Employers may continue to use previously accepted versions (rev. 02/02/09)N and (rev. 08/07/09)Y until May 7, 2013. After May 7, 2013, employers must only use the new version.

Construction Fraud Series - Part 2 - Types of Construction Fraud

According to the Association of Certified Fraud Examiners’ 2012 Report to the Nations on Occupational Fraud and Abuse, construction companies endured a median loss of $300,000 per incident. There are three basic types of accounting fraud: asset misappropriation, financial statement misrepresentation, and corruption. As a CFM, you should be aware of the differences.

Asset misappropriation occurs when an employee uses the company’s assets, such as cash or inventory, for any reason other than the asset’s intended purpose. Types of asset misappropriation include check forgery, larceny, and inventory theft.

For example, Subcontractor X sells plumbing services to its customers. The subcontractor’s A/P clerk has the ability to input invoices and print checks from the accounting system. She occasionally prints checks to herself, then inputs a fake invoice in the accounting system to make the check look like it was paid to a legitimate vendor.

What makes this potentially fraudulent? The A/P clerk is misappropriating the company’s asset for her own benefit and representing to the company that the check was written for the vendor listed in the accounting system, not herself. Subcontractor X is relying on this representation for its own internal purposes.

Financial statement misrepresentation occurs when an employee falsifies items in the company’s accounting records or financial statements. This could be amounts in the balance sheet or income statement, or disclosures in the financial statement notes.

Suppose Subcontractor X’s corporate division manager is under pressure to increase his division’s operating income. Instead of looking for areas where the division could operate more efficiently, he decides to code certain supply expenses and repair and maintenance expenses as fixed assets in the company’s accounting system to make it appear as if his division’s operating expenses are less than they actually are. Similar to the last scenario, this employee is misrepresenting his division’s expenses to the company. Users of the financial statements may rely on this information for various reasons, so the company may be damaged by these actions.

Corruption is more often associated with government officials than employees of a corporation, but corruption can occur in both types of organizations. Types of corruption schemes include kickbacks and bribes. If Subcontractor X’s purchasing agent periodically receives nominal payments or lavish gifts from one of the company’s largest vendors without the company’s knowledge, this could be a kickback. This employee may be more inclined to give more business to this vendor, even if it is not in the best interest of the company.

Awareness is the first step in fraud prevention. Be sure you are aware of these three types of fraud in order to protect your business.

This post was first seen on the CFMA Newsletter. The post was written by Marcelle H. Piglia and Robert Berger of Anders Minkler & Diehl LLP. Both can be reached at mpiglia@amdcpa.com and rberger@amdcpa.com or 314.655.0170. 

To learn more about fraud prevention and awareness contact the construction professionals of McKonly and Asbury, LLP. 

Use of BIM Dramatically Increases

The use of building information modeling by architects, engineers, contractors, subcontractors and owners in North America is rapidly advancing, according to new research by McGraw-Hill Construction. The research, which will be published at the end of November in The Business Value of BIM in North America SmartMarket Report, compared results from similar research in 2007 and 2009.

Highlights include:

• The percentage of companies using BIM jumped from 17 percent in 2007, to 49 percent in 2009, to 71 percent in 2012.
• For the first time, more contractors (74 percent) are using BIM than architects (70 percent).
• All users report increased business benefits from BIM including better profits, more accurate documentation, less rework, reduced project duration, fewer claims and the ability to offer new services.
• Almost 40 percent of BIM users are heavily committed to it, doing over 60 percent of their work in BIM. This group has surged by 44 percent since 2009.
• As a sign of its increasing acceptance and maturity, almost half (49 percent) of BIM users have five or more years experience using it.

“This unique multi-year trend data demonstrates clearly that BIM is taking hold in the design and construction industry because it has proven business value,” said Stephen Jones, senior director at McGraw-Hill Construction and lead author of the research. In August, ASA encouraged its members to participate in MHC’s BIM survey. ASA will make a copy of the report available to ASA members when it is published. McGraw-Hill Construction partnered with ASA and 13 other construction associations in the United States to conduct the survey.

To learn more about BIM or other construction related matters, please contact the construction professionals of McKonly and Asbury, LLP.

Using Communication to Be an Effective Leader

A leader accomplishes results through others using only one tool: Communication. Yet, as George Bernard Shaw observed, "The problem with communication is the illusion that it has taken place."

Under the best of circumstances, effective communication is challenging. Most words have multiple meanings. One’s words seemingly can be contradicted by a person’s tone of voice, or gestures or body language. And, no matter what you intend with the words you choose, your intent is virtually irrelevant the moment you send out a message. That’s because all meaning is interpreted in the mind of others; and people often infer meaning from words and actions that no leader ever intended. It’s the listener who decides what the message is.

No wonder some people prefer to deal with numbers all day!

Unfortunately, many leaders undermine the already complex challenge of communicating effectively by using communication techniques that just about guarantee failure. Most of the very smart and otherwise competent people who engage in self-defeating communication practices don’t know why their communication, which at first glance appears skillful, is serving them so poorly.

Consider this: In “relating” to her accounting staff, a CFM says to them, “You know what would be great? If you got the month closed by Thursday at 2.” Then Thursday afternoon comes. There’s no sign of urgency in the accounting department. Two o’clock passes. The closing is nowhere near complete, and the staff does not seem the least bit concerned.

What went wrong?

For one thing, the manager addressed her staff casually. It sounded to them like she mentioned an idea she had. She thought closing the month on Thursday afternoon “would be great.” It’s likely that no one else joined her in sharing that vision of greatness. From the staff perspective, there was no buy-in, no commitment. They merely witnessed a boss fantasy. Easy enough to ignore.

Effective leadership communication is predicated not only on announcing an end goal, whether it’s a hard declaration or a soft pedal, but gaining the commitment of everyone who must contribute in order for that goal to be realized.

This post was first seen in the CFMA Update. The post was written by Don Blohowiak, PhD. To learn more about this post please visit www.cfma.org or contact the construction professionals of McKonly and Asbury, LLP.

Profit Is Not a KPI

Sales, revenue, and profit are three of the most common financial indicators that CFMs monitor. Regularly examining this type of information is critical to assessing company performance and trends. However, it is also important to recognize that this type of data is historical and more of a lagging indicator than a leading one.

To accurately determine how these financial measures can be improved, both GCs and subcontractors must determine the key performance indicators (KPIs) that impact those outcomes. In this way, contractors can influence these variables, address issues, and create intentional outcomes.

The more a KPI can deliver information in advance, the more opportunity a contractor will have to correct problems. Furthermore, it is important to recognize that no one KPI can tell the whole story.  Multiple KPIs that relate to all critical business variables should be collected and reviewed. The key to finding your KPIs is to look at successes, find out what went right, and create metric expectations that make similar outcomes likely.

The first example of this type of analysis is related to the buyout process. When a GC wins a new project, it should immediately begin the process of fixing the costs. Most often, this is done through a buy-out process where subcontractors are formally contracted. KPIs that measure how quickly the work is bought out can be identified. Does it take a few days, a week, a month, or more? Similarly, GCs can monitor the final quantity of work that is bought out. For the profitability of a project to be maximized, should it be 60% bought out, or 90% bought out at a particular point in time? A baseline and/or goal for these types of KPIs can be helpful in driving change.

A subcontractor may also use the project schedule as a measure of its performance. A KPI that captures the timeliness of buyout of materials and the efforts that ensure an accurate work schedule can be extremely valuable drivers of success.

This post was first seen in the CFMA Update dated October 2nd. The writers of the post are Shane Brown and AJ Steger, partners with EKS&H. To learn more about this post visit www.cfma.org or contact the construction professionals of McKonly and Asbury, LLP. 

Construction Fraud Series - Part 1 - MBE and WBE Fraud

You have likely been to a seminar or other event that discussed fraud. Many of those discussions include falsifying invoices/checks and petty cash theft. However there are many types of fraud unique to construction contractors that you should consider and be aware of.  We are providing you this multi part series on construction fraud to help you think about unique fraud that could directly impact your business.

If you are reading this article it is likely that you deal with or have dealt with federal and state construction contracts in some capacity. Federal and state contracts keep a lot of contractors growing and prosperous. With the aging of America's infrastructure these contracts are not going away any time soon!  If you are familiar with these contracts you also know they are heavily regulated and monitored by the awarding agencies. There have been several recent cases prosecuted by the federal government in which contractors (general and subs) have not adhered to the policies set forth in the contracts.  One particular requirement in federal and state contracts is a requirement to subcontract with Minority Business Enterprises (MBE) and Women owned Business Enterprises (WBE). The specific cases that have been prosecuted include instances where the MBE's or WBE's did not perform the work as required in the contract with the government. But rather the general contractor had performed the work themselves and represented to the government that the work had been performed by the MBE or WBE.

Contractors new to working with the federal or state government may not realize the severity of not adhering to these requirements. A quick search on Google will show many cases recently that have been prosecuted by the government for failing to adhere to these requirements. The government is monitoring these contracts and IS prosecuting. If you have contracts with the government you should have someone on your team responsible for monitoring such parts of these contracts. You're subcontracting process should include controls to ensure that you are contracting with appropriate MBE's and WBE's if required by your contracts. The process should also include verifying these businesses are performing the work that you have stated they would do as part of the contract.

To some organizations these contract requirements may seem relatively small or not important, however, your company could be at risk for large fines and penalties for potentially defrauding the government. Many contractors rely heavily on federal and state contracts for a large portion of their annual revenue. Such prosecution may even result in suspension and debarment from contracting with the federal government. The outcome would be much more severe than a one time penalty. These requirements should be taken seriously by your organization. You should have processes in place to monitor and control these requirements if stated in your contracts with a government agency.

For more information on this post, please contact the construction professionals of McKonly and Asbury, LLP.

Reducing Risk for Businesses with Medium-Size Fleets

In a typical fleet, 20% of the drivers will be involved in some type of loss in any given year. Whether the damage is a cracked windshield or a totaled vehicle, what initially seems like low-cost claims management may not actually be low cost. In the long run, it could result in more expensive repair bills, longer downtime while the vehicle is out of service, and lower resale value if not repaired to the highest quality standards.

Avoid hassles and minimize downtime by having systems and procedures in place to handle claims. This includes:

• identifying quality repair facilities,
• negotiating payment terms for repaired vehicles,
• arranging replacement vehicles,
• disposing of totaled vehicles,
• tracking and monitoring repair invoices,
• issuing checks to reimburse drivers for out-of-pocket repair expenses, and
• making sure that all recommended repair work is necessary and done correctly.

Still, there can be surprises, such as hidden damages discovered during repairs. Therefore, not only is it advisable to document all work being done on the vehicle (including additional repairs that could affect the final cost and/or length of downtime), but it is also important to maintain detailed loss history reports for any claims.

Some of the most common contributing causes of collisions include worn tires, worn out brakes, and broken mirrors that compromise optimal vehicle performance and control. Although there is no way to prevent every collision, performing routine maintenance and improving driving behavior can significantly reduce the number of collisions that happen “by accident.” For a business with a fleet of vehicles, the costs of routine maintenance and driver safety programs are minimal compared to the expense of either replacing a vehicle that has been totaled or settling a workers’ comp claim for an injured driver.

This post was written by Connie Albright. Ms. Albright is an Assistant Vice President, Loss Control Department, National Claims and Compliance for Enterprise Fleet Management. She can be reached at 314-256-5125 or connie.s.albright@efleets.com. For more information on the construction industry, please contact the construction professionals of McKonly and Asbury, LLP.

‘Lean’ Construction, Prefabrication/Modularization, and BIM Are Keys to Productivity, FMI Reports

Construction firms of all sizes are recognizing that reduction of waste — such as defects, overproduction, and waiting — is becoming “an essential strategic imperative,” according to FMI Corp. “Efficiency is quickly becoming the mantra across construction organizations,” FMI reported in its white paper, “The Science of Efficiency and Productivity: Construction 2.0 in the New Normal,” released on July 11.

FMI examined how “lean” construction, prefabrication and modularization, and building information modeling are affecting the construction marketplace. “There are many misconceptions about these new tools and processes,” FMI said. “The first is the belief that only large, sophisticated contractors can benefit from construction systems such as prefabrication or elaborate modeling systems such as BIM. In all cases, there are levels and gradations from which contractors of all sizes can benefit.” FMI said that 77 percent of respondents to its 2012 Productivity Survey experienced some level of productivity enhancement as a result of their “lean” initiatives. “For contractors that achieve as low a net income as 2 percent to 3 percent, a 5 percent to 10 percent improvement in labor productivity has the ability to double the bottom line dramatically,” FMI noted.

Dramatic changes in the design of projects, FMI said, have had “one of the most influential changes” on contractor productivity: “Interestingly enough, the groundswell in this design enhancement has been led by trade contractors, not by the designers. Recognizing the need to compensate for poor or inadequately designed structures and systems, contractors assumed the reins of this three- or four-dimensional design tool to control their risk and delivery higher quality finished projects.” FMI said that 63 percent of the survey respondents have engaged in a project on which BIM was used and that 62 percent said they experienced some increase in their labor productivity relating to the application of BIM. “From a strategic perspective, firms must make a serious commitment to the long-term use of BIM,” FMI said. “Many firms view the costs associated with rework, inefficiency and poor coordination as enough motivation to consider integration of such a system.”

FMI added that prefabrication and modularization are revolutionizing the construction industry. “Many contractors are examining their projects from the perspective of what they can prefabricate rather than what they cannot,” FMI said. FMI noted that 69 percent of survey respondents have engaged in some sort of prefabrication on their projects, 98 percent of which achieved at least a 1 percent labor savings.

To learn more about this report, please vist the FMI website at www.fmi.org . To learn more about LEAN, its terms and concepts and how it can benefit the construction industry, please visit McKonly and Asbury, LLP’s LEAN Accountants Blog at www.leanaccountants.com.