THE PROBLEM · FIXED BY STEP 07

AP is stacking and you stopped opening it

The stack on the corner of the desk is a financial statement. It just isn't a very good one.

DIRECT ANSWER

AP that ages past terms costs you supplier pricing first. Priority on delivery goes next, and supplier credit goes after that. By the time your credit is at stake, the fix costs far more than it did back when the only cost was a few points of pricing.

WHAT TO DO

Three moves, in order

STEP 01

Age AP weekly against the same calendar you age AR.

STEP 02

Match payables to the job that created them so you can see which jobs are funding themselves.

STEP 03

Talk to a supplier before you miss terms, not after.

THE STEP

Step 07: Monthly cadence

Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month.

CFOS-07 · CHAPTER 7

The monthly close that takes a contractor 5 hours

Read the step that fixes this, what it depends on, and what it changes downstream.

DIAGNOSTIC

Find your numbers

Pick your trade and revenue band. Get your targets, your shortfall, and the step order that closes it.

SYSTEM HUB

All 8 steps in sequence

What each step depends on, what it feeds, and why the order counts for more than the speed.

SAME STEP

Other things that go wrong

CFOS-03

You're bidding below your own overhead

If the overhead percentage in your estimating template is lower than what you actually run, every job you win loses money before a single hour is worked.

CFOS-03

Your overhead rate has not been updated in years

The rate in your bid sheet was right once. Revenue doubled, you hired two PMs and a fleet, and the rate never got revisited.

CFOS-02

Your equipment is eating the margin

The machine is paid for, so the jobs use it at no charge. Then the transmission goes and the year is gone.

PROOF

Contractors who had this

CIVIL

Four merchant cash advances gone, gross profit 5% to 33%

A civil subcontractor did everything right to grow and nearly finished the business doing it.

ELECTRICAL

$365,000 of receivables recovered, all debt cleared in 120 days

A commercial electrical subcontractor had a collections problem long enough that it turned into a debt problem.

QUESTIONS

What owners ask

Construction accounts payable behind?

The stack on the corner of the desk is a financial statement. It just isn't a very good one. AP that ages past terms costs you supplier pricing first. Priority on delivery goes next, and supplier credit goes after that. By the time your credit is at stake, the fix costs far more than it did back when the only cost was a few points of pricing.

Which part of the system fixes this?

The step is number 07, monthly cadence. Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month. It's drawn from chapter 7 of CONTROL: The Construction Financial Operating System.

Is this normal for my trade?

Across the 48 trades that publish a figure, net profit at $1M–$5M averages 7% before taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.

Where do I start?

Age AP weekly against the same calendar you age AR.

Can I fix this without touching anything else?

You can try, and it doesn't hold. Step 07 depends on step 03, overhead calculation and step 04, estimating system and step 05, software and bookkeeping alignment and step 06, project management. Install it ahead of those and it produces numbers the field won't trust, which is worse than the problem you started with.

AUTHOR

JOSH LUEBKER

MASTER ELECTRICIAN · 150+ PROJECTS · $2.1B+ MANAGED

Wrote CONTROL, the 8 step system behind these figures. More about the author.