boost cash flow at your architecture or engineering firm

Presented by Gary Eisenkraft, CPA & Axium

How to Boost Your Firms Cash Flow in Cash Strapped Times

“The times they are a-changin…” (Dylan)

Outline

• Effective billing and collection procedures

• When to send bills and when to pay bills

• Accounts receivable aging

• Cash requirements

• How to specifically approach lending institutions

• Key criteria banks use to evaluate you firm

• Which banks are most likely to say yes

• Types of financing

(c) Eisenkraft CPA & Consulting Services

When Do We Bill?

At least monthly.

Some firms bill semi – monthly or upon project phase completion.

Be consistent. Get your clients into the habit of paying.


You’ll Need Time & Project Reports

T & T = Time and Talent = $$$


There Are No Excuses for Failing to Record Time Contemporaneously

Happening at the same time

We want info on demand!


Know Your Clients’ Payment System

Relationships:

• Who approves?

• Who writes checks?

• Who signs checks?

• When Does it happen?


Who Collects?

Bookkeeper / Controller

Project Manager

Principal

Legal


What is WIP?

Unbilled work in process.

Income on P&L, Asset on balance sheet.

(Should be small or you may have problems.)(


Aged Accounts Receivable

How fast are we getting paid?

Average Days in Accounts Receivable =

(Total of Monthly End A/R / 12) ____________________

(Ann. Fees & Exp. /365)(


Annual Avg. A/R =

$450,000

________________

$3,500,000 / 365


We’re Paid in An Average of:

Annual Average A/R = 47 Days


How Old Should our Receivables be?

30 Days or less: Very Good

31 – 60 Days: Average

More than 60 days: Trouble!

More than 90 days: Collection Doubtful


Will Our Clients Pay?

Dunn and Bradstreet (dnb.com)D

References

Letter of Credit


Other Tips

Try billing in equal installments.

Bill reimbursables separately.

Write bills using clear, understandable language that reflects contract language and terms.

No surprise packages:

Don't accumulate charges.

Discuss unusual amounts and overages ASAP before invoicing.



Break #2 - Questions?


Collection

The squeaky wheel gets the grease.

Make the uncomfortable call.

Log names, numbers and times.

When will payment arrive?

Lawyers are expensive and litigation is maddening.

Borrowing

Use short-term borrowing for current assets.

Use long-term borrowing for fixed assets.

Maintain banking relationships.

Shop for rates and terms.


Lines of Credit

Can provide:

Needed cash by covering late payers.

Financing in lieu of contract pre-payments.

But…

Interest adds to overhead and lowers profit.


The Three C’s

Collateral

Capacity

Character


Accounts Payable

Negotiate discounts for prompt payment.

2%, 10 days = 30% per month = 360% per year!


Working Capital

WC = Current Assets – Current Liabilities

Current Assets: Those available to meet obligations due within one year.

Current Liabilities: Obligations to be paid within one year.


How Much Working Capital Do I Need?

The ratio of Current Assets to Current Liabilities

should be at least 1:1

The amount of WC should also be 2 to 3 months of cash required


Top 5

1. Run your numbers frequently! (Weekly budgeting and cash flow, monthly historical financials)(

• Bill at least monthly for all work done and expenses!

• Use short-term borrowing (LOC) for receivables, work-in-process and other current cash needs, only!

• Maintain at least 1:1 ratio and 2 months of working capital.

• Keep good time records.


About The Presenter

Eisenkraft CPA & Consulting Services

271 Madison Avenue

New York, NY 10016

(212) 689-2655

www.EisenkraftCPA.com

[email protected]


Gary Eisenkraft is the principal of Eisenkraft CPA & Consulting Services in New York City. His firm specializes in creative businesses, including design, architecture and marketing professionals. He is a member of the Taxation of S-Corporations and Pass-Through Entities Committee of the New York State Society of Certified Public Accountants.

Mr. Eisenkraft has spoken to various groups on topics of interest to the business and creative communities. His writing has been published in the New York Times, IDSA Innovation and Focal Point.

boost cash flow at your architecture or engineering firm

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