It is important to determine the maximum expected cash exposure for each project the company takes on.
The goal is to always be working with the client’s funds.
Unfortunately, that isn’t always the case.
This tool can help identify any projected financial shortfall in the process.
Cash is the lifeblood of any business.
It is best to avoid any negative financial position in a project.
To the extent that the company is experiencing a negative financial position in a project, the company is financing the construction.
Your company should not be financing the project. That is the Buyer’s or the Buyer’s Lender’s responsibility.
If the Buyer insists that your company finance any part of the construction, be sure to include the cost of financing that portion of the project into your proposal.
Running a negative cash flow on a project means that your company is lending money to the project, and is the precursor to a money-losing project.
Consider the cost of borrowing money, whether that money comes from company reserves or from your company credit line, as a construction expense.
Like any other construction expense, that expense should be passed through to the Buyer, with appropriate charges for overhead and profit.
If you are already in a contract that is experiencing negative cash flow, use this tool to plan how you are going to cover the shortfall – line of credit, or extend Accounts Payable, or speed up billings and receipts.
Enter project information in the green-shaded cells.
Enter the Project name at upper right..
In the first column, enter the Contract Amount and the scheduled Milestone percentages.
Enter the expected project duration in days.
Enter the Gross Profit Margin % used in the Estimate preparation.
If the contract calls for a retention, enter the % to be retained from each payment.
Enter the average number of weeks expected between issuing the Draw Request and receipt of the payment.
In the “Actual Labor and Materials Expenses” column, enter the expected cash outlay for each week of the project.
In the “Overhead and Profit Allocated” column, enter the dollar amount of estimated Overhead and Profit you wish to allocate for that week.
In the “Milestone Billings” column, enter the Milestone Billing amount in the week which corresponds to the expected completion of the milestone.
In the “Bill for Retention” column, enter the Retention Amount in the week which corresponds with the contracted period at which the Retention Billing may be billed. This is generally at the completion of the project.
In the “Payments Received (billing less retention)” column, enter the payment you expect to receive from the corresponding Milestone Billing, less Retention. This should be entered in the week you expect to receive the payment, which is the Milestone Billing week plus the “Avg weeks between billing and payment”.
Use the same process for entering the “Retention Payment Received” amount.
The “Cash Flow” column displays the Cash Flow status of the project for each week. The largest negative amount shows the maximum company exposure for the project.
The Chart provides a graphic representation of projections.
The Chart displays the status of the company’s week-by-week financial position in the project.