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Building A Better A&E Firm:
5 Ways to Improve Cash Flow
May 12, 2015
Question and Answer
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©2015 Deltek, Inc. All Rights Reserved 2
The Cash Flow & Collections Challenge
3
According to the Deltek Clarity A&E Industry Study,
the average collections period for 2013 was 76
days
Collections period still is not back to pre-recession
levels. Could be due to a number of issues:
o Less willing to write off bad debt
o Clients trained to delay payment
o Poor contract language
o Higher amount of billing disputes
High performing firms actually had a longer
collections period of 82 days
©2015 Deltek, Inc. All Rights Reserved
Where Firms Struggle
Customers question invoices and detail
o Unable to create client specific invoices
o Difficult to include the right level of detail
No tools to manage the billing process
o Draft invoice review is cumbersome
o Collections efforts are difficult to manage
Limited financial reporting for firm leaders
o No visibility into firm’s cash flow
o Difficult to know where you stand
What does this lead to?
o Long cash flow cycles
o High overhead costs
©2015 Deltek, Inc. All Rights Reserved 4
Herb Cannon
President of AEC Management
Solutions, Inc. with 25+ years’
experience with high profile clients
Dedicated to helping architects and
engineers earn the profits they
deserve for their creative efforts
5 Considerations
1. Calculating days of sales in A/R
2. The dollar benefit of reducing A/R
3. Cash flow implications of hiring
4. Calculating years of profit in A/R
5. Dramatically improving collections
Key Indicators
Accounts Receivable In Days:
Accounts Receivable $ (Annual Sales/365 days)
Average A/E firm = 65-70 Days of Sale in A/R
Annual Sales 10,000,000$ 5,000,000$ 1,000,000$
Sales Per Day 27,397$ 13,699$ 2,740$
Days A/R Additional Additional Additional
Outstanding Cash Flow Cash Flow Cash Flow
120
115 136,986$ 68,493$ 13,699$
110 273,973$ 136,986$ 27,397$
105 410,959$ 205,479$ 41,096$
100 547,945$ 273,973$ 54,795$
95 684,932$ 342,466$ 68,493$
90 821,918$ 410,959$ 82,192$
85 958,904$ 479,452$ 95,890$
80 1,095,890$ 547,945$ 109,589$
75 1,232,877$ 616,438$ 123,288$
70 1,369,863$ 684,932$ 136,986$
65 1,506,849$ 753,425$ 150,685$
60 1,643,836$ 821,918$ 164,384$
How Much Money do you Want?
Annual Sales 10,000,000$ 5,000,000$ 1,000,000$
Sales Per Day 27,397$ 13,699$ 2,740$
Days A/R Additional Additional Additional
Outstanding Cash Flow Cash Flow Cash Flow
120
115 136,986$ 68,493$ 13,699$
110 273,973$ 136,986$ 27,397$
105 410,959$ 205,479$ 41,096$
100 547,945$ 273,973$ 54,795$
95 684,932$ 342,466$ 68,493$
90 821,918$ 410,959$ 82,192$
85 958,904$ 479,452$ 95,890$
80 1,095,890$ 547,945$ 109,589$
75 1,232,877$ 616,438$ 123,288$
70 1,369,863$ 684,932$ 136,986$
65 1,506,849$ 753,425$ 150,685$
60 1,643,836$ 821,918$ 164,384$
How Much Money do you Want?
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
Invoices 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$
Reimbursables & Directs 2,000 2,000 2,000 2,000 2,000 2,000
Net Revenue 18,000 18,000 18,000 18,000 18,000 18,000
Direct Labor 6,000 6,000 6,000 6,000 6,000 6,000
Gross Profit 12,000 12,000 12,000 12,000 12,000 12,000
Overhead 8,400 8,400 8,400 8,400 8,400 8,400
Profit 3,600$ 3,600$ 3,600$ 3,600$ 3,600$ 3,600$
Monthly Disbursements 16,400$ 16,400$ 16,400$ 16,400$ 16,400$ 16,400$
Colledtions at 60 Days 20,000 20,000 20,000 20,000
Monthly Cash Flow (16,400) (16,400) 3,600 3,600 3,600 3,600
Culmulative Cash Flow (16,400)$ (32,800)$ (29,200)$ (25,600)$ (22,000)$ (18,400)$
Collections at 90 days 20,000 20,000 20,000
Monthly Disbursements 16,400 16,400 16,400 16,400 16,400 16,400
Monthly Cash Flow (16,400) (16,400) (16,400) 3,600 3,600 3,600
Culmulative Cash Flow (16,400)$ (32,800)$ (49,200)$ (45,600)$ (42,000)$ (38,400)$
Cash Flow with 20% Profit60 and 90 Day Collection Periods
10,000,000$ Annual Sales
365 Days in the Year
27,397$ Average Sales per Day
2,602,740$ Outstanding Receivables
684,932$ Work In Progress (WIP)
3,287,671$ Total Work Completed and not Paid
95 Outstanding Receivables Measured in Days
25 Outstanding WIP Measured in Days
120 Total Days of Work Completed and not Paid
500,000$ Profit at 5% of Annual Sales
6.58 Years of Profit in Work Completed and Not Collected
1,000,000$ Profit at 10% of Annual Sales
3.29 Years of Profit in Work Completed and Not Collected
1,500,000$ Profit at 15% of Annual Sales
2.19 Years of Profit in Work Completed and Not Collected
2,000,000$ Profit at 20% of Annual Sales
1.64 Years of Profit in Work Completed and Not Collected
How Much Profit Are You Owed?
The Mandate to Collect Money
My motivation
o 98 Days of sales in accounts receivable
o The owners goal was to reduce accounts receivable to 70 days
o My bonus was held as ransom
o My job was put in jeopardy
o My choices were not good
Dramatically Improving Cash Flow
Proposal/Contract
Kick-off Meeting
Invoicing
Follow-up for Payment
Collection Contract Terms
Items to include:
1. Monthly invoicing2. Payment due upon receipt3. Payments must be current before document submission4. Right to stop work for non-payment5. Retainer6. Payment not contingent upon 3rd party reimbursement7. Attach a copy of invoice format8. No offset for professional liability claims9. Have consultants contracted directly with client10. Consider accepting credit cards11. Be careful of payment discounts12. Right to contact owner directly for payment after 60 days.
(subcontractors)
Start-up Meeting
Make business issues part of start-up agenda
Business person from your firm to attend
1st Item on the agenda
Find out their internal approval process
Meet the people involved with the approval/payment process
Find out their payment cycle
Review the invoice format & requirements
Find out their change order process
Invoicing
Streamline the Invoicing Process
Get invoices out fast
Pre-Bill Review
= Prebill Worksheet
Project
Manager
PartnerMailroom
Accounting
Draft Invoice
= Prebill Worksheet
=Draft Invoice
Project
Manager
PartnerMailroom
Accounting
Actual Invoice
= Prebill Worksheet
=Draft Invoice
=Actual Invoice
Project
Manager
PartnerMailroom
Accounting
Client
Actual Invoice
= Prebill Worksheet
=Draft Invoice
=Actual Invoice
= Final Approval and Mailing
Project
Manager
PartnerMailroom
Accounting
Client
Invoicing
Streamline the Invoicing Process
Get invoices out fast
Invoice is Not a Work of Art
An Invoice is Not a Work of Art
This is an invoice This is a Work of ArtUniversity School April 30,, 2015
Office of Major Capital Projects Invoice No: 34242 183 Higgins Road
Matawan, NJ 07747
Re: University Basic Services Project No: 04014.02
Professional Services from February 1, 2009 to February 28, 2009
Fee
Percent
Billing Phase Fee Complete Earned
Schematic Design 948,140.00 100.00 948,140.00
Design Development 2,362,150.00 100.00 2,362,150.00
Construction Documents 3,296,390.00 100.00 3,296,390.00
Bidding & Negotiation 15,000.00 0.00 0.00
Construction Administration 2,861,320.00 36.01 1,030,361.33
Total Fee 9,483,000.00 7,637,041.33
Previous Fee Billing 7,557,782.77
Current Fee Billing 79,258.56
Total Fee 79,258.56
Total this Invoice $79,258.56
Outstanding Invoices
Number Date Balance
34160 2/15/09 6,078.74
Total 6,078.74
Total Now Due $85,337.30
No Aging on Your Invoices
University School February 28, 2009
Office of Major Capital Projects Invoice No: 34242 183 Higgins Road
Matawan, NJ 07747
Re: University Basic Services Project No: 04014.02
Professional Services from February 1, 2009 to February 28, 2009
Fee
Percent
Billing Phase Fee Complete Earned
Schematic Design 948,140.00 100.00 948,140.00
Design Development 2,362,150.00 100.00 2,362,150.00
Construction Documents 3,296,390.00 100.00 3,296,390.00
Bidding & Negotiation 15,000.00 0.00 0.00
Construction Administration 2,861,320.00 36.01 1,030,361.33
Total Fee 9,483,000.00 7,637,041.33
Previous Fee Billing 7,557,782.77
Current Fee Billing 79,258.56
Total Fee 79,258.56
Total this Invoice $79,258.56
Outstanding Invoices
Current 31-60 61-90 91-120 121-150 Over 150
$79,258.56 $42,817.43 $16,888.14
Invoicing
Streamline the Invoicing Process
Get invoices out fast
Invoice is Not a Work of Art
All Fixed Fee Invoices Mailed by last Day of Month
Invoicing
Streamline the Invoicing Process
Get invoices out fast
Invoice is Not a Work of Art
All Fixed Fee Invoices Mailed by last Day of Month
1 Draft Invoice and no Further Review
Invoicing
Streamline the Invoicing Process
Get invoices out fast
Invoice is Not a Work of Art
All Fixed Fee Invoices Mailed by last Day of Month
1 Draft Invoice and no Further Review
Timecard Invoices Mailed by 5th Business Day of the Month
Invoicing
Streamline the Invoicing Process
Get invoices out fast
Invoice is Not a Work of Art
All Fixed Fee Invoices Mailed by last Day of Month
1 Draft Invoice and no Further Review
Timecard Invoices Mailed by 5th Business Day of the Month
Invoice Expenses Separate from Fees
Invoicing
Streamline the Invoicing Process
Get invoices out fast
Invoice is Not a Work of Art
All Fixed Fee Invoices Mailed by last Day of Month
1 Draft Invoice and no Further Review
Timecard Invoices Mailed by 5th Business Day of the Month
Invoice Expenses Separate from Fees
Consider Electronic Invoices
Invoicing
Streamline the Invoicing Process
Get invoices out fast Invoice is Not a Work of Art All Fixed Fee Invoices Mailed by last Day of Month 1 Draft Invoice and no Further Review Timecard Invoices Mailed by 5th Business Day of the Month Invoice Expenses Separate from Fees Consider Electronic Invoices Use e-mail to follow-up
Payment Follow-up
Follow-up for Payment
1. 10 Day Call2. 3rd Week Statement3. 25 Day Call for New Clients or Major Invoices4. 31st Day Call for Payment (Accounting)5. 45 Day Call for Payment (CFO & Project Manager)6. 60 Day Notice of Work Stoppage7. 90 Day Legal
Helpful Dialogue
Have you approved the invoice for payment?
Has the invoice been sent to accounting for processing?
The managing partner will not assign staff to projects with past due invoices
My banking line of credit requires me to stop work on projects with unpaid invoices for more than 60
days old
Improve Your Cash Flow With Deltek
Robust invoicing capabilities that deliver the summary and detail your customers ask for
Paperless billing review workflows that simplify the process and reduce your administrative workload
Tools to manage the collections process
Financial reporting that gives your firm leaders the information they need to make critical decisions
Streamlined processes and financial visibility that put you back in control
©2015 Deltek, Inc. All Rights Reserved 32
Improve Your Cash Flow With Deltek
©2015 Deltek, Inc. All Rights Reserved 33
Your Questions
Start Improving Your Cash Flow!
Herbert M. Cannon
(732) 705-5098
Twitter @HerbCannon
Pathway to Profit Seminar
Subscribe to complimentary e-newsletter
Brian Siefkes
(503) 688-5773
Axium.com/blog
Booth # 3081
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It’s up to a project manager to lead a project from start to finish
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