In Business, Relationships Rock!

September 8, 2013

In 1988, a man named Harvey Mackay wrote a book that set the business world on fire. It was called “Swim With the Sharks Without Being Eaten Alive.” It is an entertaining and enlightening handbook to be successful in your career and personal life. It is a networking bible. It established Harvey Mackay as a respected author and columnist.

The book chronicles Mackay’s career from a recent college graduate trying to find a job, becoming successful selling envelopes, to buying a failing envelope company and turning it into a huge success. The book has been re-printed and needs to be in every businessman’s arsenal.

As a construction Subcontractor, we are losing the personal relationships we have with our customers, the General Contractors. Invitations to bid are sent out electronically. To view plans, we go onto a contractor’s FTP site or to a service like iSqFt. We download and print plans or order the prints from a third party printing service. We send our bids by fax or email. General Contractors now have a “pre-construction” department that puts the bids together before handing them off to the project manager, sometimes with a purchasing department in between. Unless you have a relationship with a contractor, or a really low price, your lines of communication with the contractor are limited.

Getting to know the people in the company you want to do business with are more important than having the lowest price. Contractors are looking for the lowest responsible bid, and when the contractor knows you, you get a seat at the table when the job is bought out. What Harvey Mackay wrote in 1988 is relevant today, except that part about a Roladex. If you use Mackay’s principles, including the “Mackay 66,” the things you should know about your client, your business relationships will be greatly improved. For you youngsters, it is even available as an e-book.

How's Your Project Cash Flow?

September 2, 2013

In an uncertain economy, a positive cash flow is imperative. Your goal should be to exit the recession with the same amount of cash you entered with. If you don’t have cash, you won’t be able to fund the materials and labor necessary to take on additional work when the economy recovers. Your accountant furnishes you with a periodic cash flow statement at the end of the period, but very few subcontractors do a cash flow statement on their individual projects. A project cash flow statement will let you know how each job is affecting your overall cash flow.

You can download an Excel template for a simple cash flow statement at http://office.microsoft.com/en-us/templates/statement-of-cash-flows-TC001046101.aspx?AxInstalled=1&c=0 . You should have your project manager furnish a monthly cash flow statement on each project. You only need to do the top section, Cash Flows from Operational Activities. It is only 7 lines long and you are only concerned with the top three lines, cash received, cash paid for materials and cash paid for wages, benefits and other operating expense. The template will calculate your cash flow for the project.

Why do a project cash flow statement? The project manager has the most influence on cash flow and contractors fail when they run out of cash.

Tips for improving your project cash flow:

1.      Front load the Schedule of Values. This is critical to maintain a positive cash flow on the job.

 

2.      Get the billing in on time and done correctly. Re-work on the billing is deadly to cash flow.

3.      Negotiate for payment of stored materials.

4.      Negotiate lower retention terms. Make sure the contractor passes through any reductions he gets from the owner.

5.      Email your invoices. Even if you are still required to mail an original, the contractor will still be able to include your billing for the month if the mail is delayed or lost.

6.      Utilize ACH payments. The money is sent directly from their bank to your bank.

7.      Get a check scanner from your bank and immediately scan any checks received.

8.      Have one person dedicated to collections. Must be tenacious.

 

Forecast for 2014...A Lot Like 2013

Long-time members of ASAC-Charlotte, now NC Subcontractors Alliance, will remember a program in 2008 by Martha-Ann Marley, called “A Contractors Diet: How To Get Lean.” The program was a segment of her 2 hour seminar and based on an article she wrote for the CFMA magazine, “Building Profits,” January-February 2006 issue. Based on her 24 year experience as a surety underwriter with a major surety company, poring over thousands of financial statements, audits and economic data, she realized certain common attributes of companies that survived and thrived during down economies, versus those that failed. The main attributes being, maintaining liquid assets, cash flow and a plan for controlling costs during the downturn.

Based on her study of economic data, she predicted that the coming recession, now known as The Great Recession, would be deep and would not begin to show improvement until 2013. She gave a detailed list of things that contractor’s needed to do to survive and thrive during the recession. In her latest seminar based on her article “Stuck in Neutral?” “Building Profits”, May-June 2012 issue, Martha-Ann shows the data that indicates the bottom of the recession was reached in early 2013. But, there are not yet any indicators showing that the economy is pulling up off the bottom. She has now revised her prediction. Now, she predicts that the economy will not show improvement until late 2014.

 

The fact that you are still here is a good sign. You are a survivor. Some of the important things, according to Martha-Ann, are maintaining cash flow, protecting margins and accumulating the cash assets that are needed for working capital when business starts to grow. Remembering that subcontractors have to pay out cash for materials and labor, furnish a lien waiver, and then wait 45 to 60 days for payment from the general contractor and even longer to receive payment for retainage. The worst situation to be in now would be loaded down with cheap work and be unable to finance a great job that comes up in the future.

There is still a lot of uncertainty in the economy. What is the Fed going to do with interest rates? What is going to be the cost to your business for Obamacare? What will be the impact of pending federal regulations from OSHA and EPA? Remember, the EPA director in speeches has promised to “regulate the coal industry into bankruptcy.” What will that do to energy prices?

If you can’t attend one of Martha-Ann Marley’s seminars, you owe it to yourself and your company to read her articles. She is now NC President of Gardner Insurance Group. These articles are available on her website, http://www.gardner-insurance.com/ and can be downloaded in a pdf format by clicking on the pictures of the magazine covers.

Money and Banking 101

In the near future, I will begin posting on situations in the economy and government that affect my industry, subcontracting. To be taken as a serious source, I need to establish my bona fides. I graduated from Campbell University (then Campbell College) in 1970. I have a Bachelor of Science degree in Business Administration, but my true interest was in economics and I took all the courses I could in the economics area.

For Money and Banking, I was privileged to study under Dr. Charles E. Landon. “Dr. Charlie” was a man of small stature, but a man of large influence. He was one of the 3 founding fathers of the economics department of Duke University in 1926. He studied and taught through the “Roaring Twenties” and the Great Depression. He had great stature in the money and banking area and during his career, he was called on to counsel several presidents. He taught from an old fashioned professor’s desk, a raised desk similar to a judge’s bench in a courtroom. He was held in great respect by the students as he was always willing to take time after class to answer questions and coach us through the hard part. Dr. Charlie had retired from Duke University, but had come out of retirement to teach the course he loved most, Money and Banking.

Dr. Charlie is second from the left on the front row in this picture of the Duke University Economics Department taken in 1948.

Unlike many current economics instructors, Dr. Charlie kept to the facts. We covered all the different economic theories, including the good points and bad points of each. Keynes vs. Friedman. The various theories of money. Strong central bank vs. weak central bank.  Equal emphasis was given to each one and we, the students, were left to question the fine points and decide for ourselves.

Our current government follows the theories of John Maynard Keynes. His belief was that with a strong central bank (The Federal Reserve) the government could manage a consistent economy without the highs and lows of a free market economy. The Fed controls the money supply by changing the interest rates, issuing bonds and printing money. Keynesian theory holds that an increase in the money supply will stimulate the economy. If the theory is correct, then with the very low interest rates, all the government borrowing and spending and the Fed’s quantitative easing (printing more money), then why is our economy so stagnant.

One problem is that the Fed cannot control the Velocity of money. Velocity is the number of times a dollar will be spent over a period of time. For example, if I take $100 out of the bank and buy a painting from an artist, he might then take that money and buy food from a farmer, who might then take that money and buy a part for his tractor and so on. My $100 could conceivably stimulate the economy by many hundreds of dollars. In a slow economy, people tend to hold on to their money; save it or pay down their debts.  This produces zero velocity and has an adverse effect on the economy.

So, in my opinion, the economy will come back when jobs and confidence come back. People who are insecure in their jobs or don’t have jobs do not spend any more than they must and this does not create the money velocity to grow the economy. The fastest way to grow jobs is to stimulate business development. Right now, business confidence is low. There is so much insecurity about the future, including the unknown costs of Obamacare and regulations coming from various government agencies, that businesses are reluctant to expand and hire additional people.  Until the government changes its attitude toward business, this sluggish economy will continue.

2013 Arts on the Green, Davidson NC

I was in Davidson this morning at 7:30 with Jim and Beni to help Jan Black get her tent and displays assembled for the “Arts on the Green” in Davidson.  Arts on the Green is not your usual art festival in that the artists’ work is vetted by their peers and only the best artists are invited.

I got to see some of Jan’s latest works for the first time today. To see the improvement in her work is inspiring. She has always had an eye for a good photograph and she could take a picture with a cell phone and get results that I can’t get with a Nikon.  Now that she has a professional grade camera, the result is awesome.

Jan’s subjects have gone beyond sunsets and sailboats, although those subjects are well represented. She has mountain streams, waterfalls, park shots and even a lake shot with a fish jumping from the water. There are wonderful pictures of an old mill, and a geometric taken from the inside of the mill's water wheel is gorgeous, with the rust and moss adding the color contrast. The detail on the sailboat shots is amazing.

She has introduced two new media for this show. Some of the prints are now on metallic paper that makes the colors really pop. And the pieces de resistance are the sailboat pictures printed on metal. They look like 1” deep gallery mountings but they are actually on metal sheet. These are not affected by weather so they are suitable for patio or boathouse, unlike paper photographs which can wrinkle in humid conditions. The brilliant red sail on one of the metal pictures really grabs your eye, with almost a 3-D effect.

You can see Jan’s work, along with the other better artists in the Davidson area, today and tomorrow, April 20-21, 2013 at Arts on the Green in Davidson NC.  

Ivory Soap....And Witches?

Sometimes you just have an unusual train of thoughts while in the shower. Sometimes it’s a brilliant idea that later goes away because you don’t have time to write it down before leaving for work. Yesterday, I was thinking about how long this particular bar of soap had lasted. I started thinking about the soap we used when I was a child and how quickly a bar would be used up.

We were an Ivory house. Ivory Snow for the laundry. Ivory Flakes for hand washing “unmentionables.” And, then there was Ivory Soap. 99 and 44/100% pure. So pure that it floats! Actually it floated because it was whipped with air. It was about 35% air. That’s why an Ivory Soap bar the same weight as Palmolive or Dial was 50% bigger and had a score line so you could break it in half and actually hold it in one hand.

So pure that it floats! That led me to think of witches. In Colonial Virginia, witches were ducked. They had a seat on the end of a long pole. A suspected witch was strapped to the seat and dunked in the river. This was called a witch duck. If she was a witch, she would drown. If she was pure, she would not drown and would survive.

In the City of Virginia Beach, where I lived for six years when I was in my twenties, one of the major streets is Witch Duck Rd. In colonial times, this road wound its way down to the river where the witch duck was. I don’t think I need to explain what was at the end of Pleasure House Road.

My Thoughts on Gun Control

With all the hype and hysteria that accompanies gun control these days, we need to think about the situation before we jump to conclusions.

For what it's worth, I think North Carolina does it right and I wish more states would copy what they do. To purchase a handgun, you need a purchase permit issued by the county Sheriff following a check of police records. Gun show and internet sales still require the permit and delivery of the gun to the purchaser must be through a licensed gun dealer.

To get a concealed carry permit, you have to undergo 8 hours of classroom training (which includes about 2 hours of legal training) followed by range certification. Then you have to undergo an interview by the Sheriff's department, a full background check, fingerprinting and a mental health background check.

The Manchin-Toumey Amendment to the Senate Gun Control Bill sounds a lot like this doesn't it? But this amendment was in fact an attempt to water down the requirements of the bill in the Senate to make it more palatable to moderates. But, the Senate Gun Control Bill goes so much further, I believe it to be unconstitutional. It seeks to control the types of gun you can buy. (Automatic weapons are already banned unless you have a federal permit.) It seeks to control the quantity of cartridges your gun can hold. It seeks to ban certain types of rifles because they look like military rifles, not because of the way they operate. There's also this thing about a federal registry of gun owners.

Two other things to consider:

One size does not fit all. Why should the rancher in Texas or Arizona be limited to a long rifle with 6 cartridges? If he is confronted with a smuggler trying to cross his ranch who is armed with an illegal automatic weapon, he should at least be able to defend himself with a modern AR-15 with a 15 or 30 round magazine.

Also, if there are abundant concealed carriers in an area, it is a big deterrent. There are armed people with training who can legally act in self defense or to prevent the loss of life or injury to others. Why is it that the 3 cities with the tightest gun control, Chicago, Detroit and Washington DC, have the highest rates of gun crimes? It is because of an unarmed citizenry. Only the criminals have guns.

If there is going to be gun control, it needs to be at the state level. Let the state's citizens decide the level of gun control that is needed in their state and then enforce the existing laws.