Construction & Real Estate Bootcamp

Cash Flow – Finding and

Controlling Its Direction

Presented by: Michael Gentry, CPA, CCIFP, CCA

May 12, 2015Sheraton Baltimore Hotel North

Michael L. Gentry, CPA, CCIFP, CCAMike Gentry, a Shareholder with KatzAbosch, joined the firm in 1998. Mike serves on the firm’s Board of Directors and as Co-Chair of the Construction Services Group. He has provided accounting and tax services to contractors and construction firms for more than 15 years. In addition, he services closely-held family businesses in the real estate, automotive and franchise sectors. A dedicated professional, Mike holds the prestigious distinction of Certified Construction Industry Financial Professional (CCIFP), a certification held by less than 30 professionals in Maryland and less than 850 professionals in the United States. He is also a CCA, Certified Construction Auditor. This nationally recognized certification is sponsored by the National Association of Construction Auditors. He applies his knowledge of the latest trends and changes in the construction industry through writing articles helping clients achieve their financial and personal goals.

Mike provides a full range of accounting and tax services for clients, including:

• Tax planning

• Financial reporting

• Assistance in obtaining bonding and financing

• Business valuations

• Business succession planning

• Estate planning

• Job cost systems evaluation

• Software consultation

• Industry specific advice and assistance to construction and real estate companies

Introduction

• Cash – A must

• Starts with decision to bid

• Contract terms

Learning Objectives

• Why all balance sheet items are purely timing issues

• Why the timing of when cash inflows and outflows occur is essential to properly managing your company

• How strong cash-flow strategies keep companies from being vulnerable

Why all balance sheet items are purely timing issues waiting to affect your cash balance

• Assets:– Current Assets– Fixed Assets– Other Assets

• Liabilities:– Current Liabilities– Long Term Liabilities

• Equity:– Owners Equity– Retained Earnings

Why the timing of when cash inflows and outflows occur is essential to properly managing your company

• Inflows– Daily Exercise

• Billing & Collection Policy– Receivables and retainage– Collections are a right not a privilege– Timely and aggressive billing/requisitions

• Deposits• Auxiliary sources

– Adequate credit lines– Long-term financing and or Leasing– Partners or Shareholders

Why the timing of when cash inflows and outflows occur is essential to properly managing your company

• Outflows– Elective procedures

• Timing of payments• Paying within terms• Early payment discounts • Labor intensive work• Retainage• Purchases of fixed assets• Unplanned expenditures• Triage

How strong cash-flow strategies keep companies from being vulnerable to dangerous cash-flow positions that could lead to their demise

• Strong cash-flow strategies– Billings in excess of costs and estimated earnings (Overbillings)– Job borrowing

• Dangerous cash-flow positions– Costs and estimated earnings in excess of billings (Underbillings)– Job financing

Analysis of Cash Status of Completed Contracts

ContractorJob Cash Status Report9/30/2014

Completed Contracts:Amount Cost in Cash

Contract Billed to Accounts Retention Cash Contracts Accounts Retention Paid NetNumber Date Receivable Receivable Collected to Date Payable Payable Out Status

2138 272,000 32,000 240,000 200,000 200,000 32,000 2129 690,000 40,000 34,000 616,000 710,000 710,000 74,000 2133 980,000 980,000 750,000 15,000 735,000 (15,000) 2138 1,900,000 1,900,000 1,610,000 1,610,000 - 2147 420,000 21,000 399,000 260,000 10,000 250,000 11,000

4,262,000 72,000 55,000 4,135,000 3,530,000 15,000 10,000 3,505,000 102,000

Revenue Analysis of Job 2201

ContractorRevenue Analysis9/30/2014 Costs & Billings

Estimated Estimated in Excess ofEstimated Cost in Gross Estimated Gross Profit Costs and

Contract Total Total Gross Percent Contracts Profit Revenue Contract In Excess of EstimatedNumber Contract Costs Profit Complete to Date Earned Earned Billings Billings Gross Profit

2201 2,000,000 1,750,000 250,000 50% 875,000 125,000 1,000,000 1,008,000 - 8,000

What conditions might exist that are causing this contract that appears to be profitable and billable to

be negative in cash flow?

How do you know it’s negative cash flowing??

Analysis of Cash Status of Uncompleted Contracts

ContractorJob Cash Status Report9/30/14

Uncompleted Contracts: GrossAmount Cost in Cash Net Profit

Contract Billed to Accounts Retention Cash Contracts Accounts Retention Paid Cash Flow Recognized Job JobNumber Date Receivable Receivable Collected to Date Payable Payable Out Position to Date Borrowing Financing

2112 258,000 51,000 25,000 182,000 189,000 68,000 15,000 106,000 76,000 36,000 40,000 2114 9,400 9,400 5,300 5,300 4,100 500 3,600 2117 206,000 36,000 21,000 149,000 153,000 35,000 6,000 112,000 37,000 24,000 13,000 2135 112,000 27,000 85,000 97,000 34,000 63,000 22,000 19,000 3,000 2167 135,000 121,500 13,500 - 80,000 30,000 50,000 (50,000) 12,000 (62,000) 2201 1,008,000 375,000 75,000 558,000 875,000 242,000 22,000 611,000 (53,000) 125,000 (178,000) 2213 495,000 165,000 49,000 281,000 311,000 40,000 6,000 265,000 16,000 57,000 (41,000)

2,223,400 775,500 183,500 1,264,400 1,710,300 449,000 49,000 1,212,300 52,100 273,500 59,600 (281,000)

Must be in the Bank

Top 5 Best Cash Flow Practices

1. Project Cash Flows

2. Know what you are getting into

3. Establish a healthy line of credit when times are good

4. Have policies and procedures in place for collections and payments

5. Routine cash analysis of job cash status

Michael L. Gentry, CPA, CCIFP, CCAShareholder, Co-Chair of Construction Services

Group

KatzAbosch9690 Deereco Road, Suite 500Timonium, MD 21093(410) 307-6440 – Direct(410) 207-2451 – Mobilemgentry@katzabosch.com – E-mailwww.katzabosch.com – Web site

Presenter