Latest / The Electrical Show / Thomas Nagy and Paul Meenan discuss maintaining cash flow while carrying out larger work

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Thomas Nagy and Paul Meenan discuss maintaining cash flow while carrying out larger work · The Electrical Show

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The Electrical Show with Thomas Najie. Electrical Show here on Fixed Radio with Bosh
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Professional. I am Thomas Najie and once again we have the fantastic Paul Minan
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in the drive in the passenger seat, but I mean I can drive if
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you can drive. Yes, we are going to be discussing generating cash flow
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when carrying out larger work in our trade. It is a problem. We've
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all been there, We've all experienced it. There's no exceptions. You take
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a larger job on and then you end up in this sort of dangerous game
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where you're using your own money to fund it until you get paid, and
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if you haven't got it, then you revert to credit cards or loans whatever,
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just to finance it until you get your money in. So we're going
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to be talking about how we can keep cash flowing because when cash stops everything,
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the trainer stops dead. So one of the best ways to do this
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and how do you actually get yourself to the point of being able to carry
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out larger work to begin with. So that's what we're going to be discussing
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over the course of this hour Fixed Radio Time to crack on. I'm Arms
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Nagie with Paul Meanan here on the Electrical Show, and we're talking about generating
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and managing cash flow. We've all struggled with it at some point or other
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in our business. Paul thinks I'm unconsciously incompetent when it comes to song choices
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on fixed radio just because you don't like Queen. No love Queen. Millions
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of people out there who agree. I do love Queen, just not constantly
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on repeat that first song out of the door every show, no exceptions.
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Right, Larger work, What do we mean when we say larger work?
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Paul our horses for different different courses. To some guys it will be you're
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a one man band or a two man band, or whatever. You get
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offered a brand new house build it's a luxury development, eight bedroom that could
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be far bigger than a normal take on, or it could be going from
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domestic to commercial industrial. There are a lot of risks because that carrot is
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golden and you can make, you know, double triple your money on some
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jobs, but it can be disappeared very quickly if you do find the terms
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and conditions and ask the right questions. Well, talking about terms and conditions,
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that was literally took me straight onto my next question. Favorable favorable contract
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terms. So we've got I mean, I'm guessing this sort of show.
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I mean, this is a complete stab of the dark. Actually, I'm
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going to assume I'm making assumption here that a lot of people listening are going
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to be small, small companies two, three, four or five six employees.
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I would guess that's probably It would be interesting to find out that actually
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how many people, how many companies actually listen, and what size they are.
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But I'm guessing that's going to be the bulk of them. So this
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is going to apply mostly to them, I would say. But favorable contract
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terms, how do you even negotiate that? Because there are some clients where
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they just like, look, those are our terms. You take it or
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leave it. Let's look at the bandwidth of just that. You've got the
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guys in the calf who arrange the cash in end jobs, and then you've
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got the companies who are small. They also have a management system, so
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they'll have a purchase order, so if somebody wants to work, they'll put
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it into a job management system that will then raise a works order for them.
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Hopefully there's a set of terms, conditions for payment and other fair and
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reasonable delays. And you know, because otherwise you could be on a job
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saying and it's not your fault. All of a sudden you end up being
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footed with a bill. So you need to have some terms conditions. How
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come you they're going slightly off piste here. How come you never ended up
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working for yourself? You're a wealth of knowledge with all of these things,
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and yeah, you don't work for yourself. That's a really good question.
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So I was offered massive contracts when I was younger, huge ones, literally
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without any procurement or anything. It was like, here's a million pound contract.
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Can you do this because you know what you're doing for me, I'll
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be honest of you. It was my own, my own fear. I
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was scared because I thought I knew too much and I would ruin it for
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myself. And I realized that I took more joy in helping others and helping
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my self, which sounds really stupid when you say out loud, but it's
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just kind of the mantra that I've always had to want to shive you.
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But yes, if I could go back in time and beat myself up,
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I would probably force myself up an electrical contracting business rather than working for other
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paymasters. All right, well, look, let's talk about building cash flow
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when carrying out larger work. The Electrical Show on fixed radio. You're listening
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to the Electrical Shaw. I'm Thomas Najie with a Paulmena, and we are
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discussing how to maintain a cash flow when carrying out larger work. It is
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something we've all experienced. I've also everybody's experienced it, and sometimes it is
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a learning curve and it's baby steps, I think is probably the biggest thing
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I learned. When you grow, you've got to grow a little baby increments,
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little baby steps and I don't want to You actually taught me that as
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well. Sorry, this man has taught me everything I know. Practically.
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How long will you be waiting from start date completion to be paid on average?
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Because thirty days is pretty standard, But I mean, I know one
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of the clients we work for is ninety days, and that's a proper killer.
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That's killer. That those sorts of clients. I know, they're big
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in corporate and the money's lovely, but they're the ones where you've really when
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you're doing this, when you're looking at cashtra You've really got to understand what
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risks your owning, because a lot of small companies, smaller medium companies,
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seven to fourteen days is not unreasonable. I mean, if you work for
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network Rail and you're a small company, it's fourteen days they pay you.
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In other companies thirty days. But there's a whole host of risks because if
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you're a small electrical contractor and you're working as part of a bigger principal contractor
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house builder developer, they may be on a thirty day payment term with their
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client, which is great, so they're building a house. They've got away
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thirty days from their invoices, But what's to stop them saying to you,
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well, you've now got away thirty days as well, because there is the
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assumption in contracting that people hold onto money for as long as they can so
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they can maximize those profits. And that happens in tier one, and that
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happens in electrical contracting as well, especially with small subbys. I've seen it.
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I've seen contractors be paid one hundred and twenty days later and that money's
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near the lack of that money nearly crippled them. But yet the person above
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them was sat with a few million pounds the bank account for a couple,
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make a little bit of it, added money on it while making everybody else
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struggle. So you've really really got to understand when somebody says I'll give you
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thirty days, say it's that thirty days for you or thirty days for me
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or fourteen days. Be very clear in understanding what your payment terms are.
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If you don't understand it, don't take the work on. I think it's
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you've also got to be prepared if you take on a job. And it
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sounds really bad, but it's true. If you take on a job,
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you've got to be prepared what happens if you never get that cash. Because
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I think was it, I can't remember who it was. There was a
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large housing company they went under and it was so sudden, and there it
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was in the paper, and there was like a landscape gardener who like,
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when they build all the new homes, they have a landscapeer coming and just
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do all the landscaping at the front of these houses. And he built up
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a debt with this company and he had invoices outstanding, and he was like,
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they're a huge company, My money's good. It might take a bit
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of time learn behold, they went bust and it took him under as well.
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He went bust as well. This is what happens when you work with
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the big boys. Unfortunately, if you're if you're doing growth, working with
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the big boys is high risk period. You need to be able to be
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willing to speculate to accumulate. So if you're going for them jobs, you
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may have to fork out on a big carrot dangling job one hundred and fifty
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grand your own cash, and then sit on that debt for three months.
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Yeah, it's a dangerous game and you've got to be it's risk versus reward.
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I guess you've got to make that. But once you get the rewards,
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you've got to not be stupid with it. And I always say to
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people create a war chest. As you're growing a business, create a war
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chest to make sure that one it makes your financials look good so you're more
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employable to the big people. But also in case you have a nonpayer,
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it doesn't cripple you immediately. All Right, key costs during the time work
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is going on, what are our key costs. It's going to be materials,
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your labor, which is probably the most important one, because you don't
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pay your contractors, they're just going to walk away labor materials. Okay,
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so what about the hidden one that that Yes, that's a killer because it
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is a killer because a lot of clients when you start growing, they won't
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pay your VAT because they know you'll claim your VAT back. So they get
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this. I think they call it a double reverse or whatever. Where yea
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reverse? I can't saying like that. Yeah, yeah, basically you end
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up forty you can end up forty percent. So if you've priced a job
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one hundred grand and you'll expect to get underground, you may go, hang
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on a minute, I've only got sixty's going in. I can claim twenty
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grand back later. But the main contractor, if you haven't clearly build them
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and invoice them and understood your terms conditions, may turn around you and go,
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well, we're not paying you that because you're going to claim it back
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from the taxman anyway. Yeah, super interesting as well. I remember when
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I was talking to an accountant a couple of years ago and he said,
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he said, companies. You see companies that get into that debt because basically
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they get paid and then they're so tight for cash. They use that that
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money to buy other materials to try and get more money in, and then
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you have this VAT bill which you've got to pay and you can't afford it.
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It's a problem because years ago in the construction industry, everyone would put
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their invoice in and then claim the VAT back as well, even though they
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were getting the client to pay the VAT as well, So there was a
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bit of double bubbling going on. So that's all now stopped. But for
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the naive or those who don't have that conscious experience of it, it can
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catch them out. And I have seen it catch people out as well.
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Yeah, and they've struggled because of it, because again it hits the small
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guy trying to become a bigger guy. At the end of as soon as
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your payment comes in twenty percent, just put that in a separate account and
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that's the best way, cause I remember the accounts instead. Just if you
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get to the point where you have spent, if you haven't got the money
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to pay your VAT, there is something fundamentally wrong somewhere. There is there's
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a cog missing in your machine, So definitely worth looking at that. But
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let's talk more about the ways we can keep our cash flow coming in during
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the larger jobs. Next Fix Radio. This is the electrical show. I'm
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Thomas Nagie with Poor and we have been discussing how to manage cash flow when
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you're carrying out larger work, how to stay afloat and not go under basically.
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Now, one thing I did learn which I thought was worth mentioning here
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was have the ability to step forwards, but you can also step back at
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the same time, so as you grow, right, we have This is
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actually just coming off the cuff here because just saying this occurred to me,
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but I thought it was worth mentioning. If you grow your business using finance,
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the danger with that is let's say you've got let's say you've got three
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vans on the road, right, and you want to put another two on
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the road, and you finance both of those. Great, no problem as
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long as your work keeps coming in. The second that work stops, the
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problem is every time you take on finance, you've then got a debt every
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month you've got to keep paying, and your monthly outgoing increases further and further,
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which is great as long as you've got the work to back it.
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Up. But if you lose a main contract or something, or something goes
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up, whatever. The problem is, every time you take on finance,
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you lose the ability to step back. And if you lose that ability,
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you've had it. You've got it. You need to be able to step
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forwards so you can grow, but you also need to be in a position
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where you can step back if something goes wrong or whatever. You can just
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you can lose people, or you can just sell off something. You can
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always you can always retrace your steps. So that's definitely in terms of finance.
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I think that's a major thing. You've got to be able to step
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back. You've got to keep the vans on the road. If you don't,
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you've got a debt sitting there not earning your money. Yeah, what
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work should we be bringing in alongside the larger ongoing work, because it's quite
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nice. We were actually just talking of microphone here a second ago. One
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of the contracts we've got is actually it's quite a nice way of doing it.
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And this is one of the things we've found is that I do work.
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We do work on highways, we do work on rail a little bit
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with you guys, we do a little bit of everything. But there's one
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client who we just work labor only for and that's really nice because it means
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we haven't got a we haven't got a source materials, which keeps our costs
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down and they pay super quick. So it's a way you can keep the
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engine churning with money while you're doing larger work elsewhere. I mean, that's
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one way we found to keep money rolling. Yeah, I mean it's It's
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a bit of advice I've given to people for years is never ever aly on
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one client. You need to have at least three to four clients you can
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go to and growth from those three and four. The way to keep the
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client is really simple, honesty, quality work, and owning the client's problems.
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If you can do that, a client will keep going back to you
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again and again and again. But from a business growth and development perspective,
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in cash flow, don't put all your eggit one basket. Never put your
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eggit one basket. I've seen people set up electrical contracting companies for railways put
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all your eggs in the one basket. Someone leaves a company before you know
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it, they've got no more work. They've got ten vans on the road,
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they're absolutely and it's the real thing. It happened. Yep. Yeah,
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if you want to if you want to start a business and stop a
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business very quickly, start on the railway because you make if you make the
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wrong decisions, you won't be there very long. And a hell of a
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lot of money to just get your foot in the door, as you as
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you will know. Yeah, it's it's a lot. That's the other thing.
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When you grow, you invariably fine, you need more and more qualifications.
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So HERSS risks all of these things and then you need to IESO nine
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thousand and one, and it is just a constant every year. It's just
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money going out the door that you've got to keep the work coming in to
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pay for all of those all those debts every month. It's also really really
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important worth knowing as well. A client will not pay for you to grow
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your business. Okay, if you sit down with your client and clients says,
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where do you want to be in five years or one of ten vans?
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I want to do this, one do that? That client means you're
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going to go right, well, am I paying for that? So you
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need to be mindful that when you're pricing a job. You're not giving a
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rate for your experience, qualifications, your insurance and your overage. You're you're
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giving a rate to allow you to have that float in case things go wrong,
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but also just enough to help take those small pigeon steps of growth.
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I would say that's perfectly well put. All right, We're going to wrap
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this topic up next as Trev and Rich are coming up from four pm right
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here on fixed Radio The Builders Station, The Electrical Show with Thomas Nagie On
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Fixed Radio The Builders Station. I'm Thomas Nagie with Paul Mean and here on
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the Electrical Show, and today we've been talking about the need to maintain cash
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flow when you're taking on bigger work. Final thoughts Paul, before we for
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our train pulls into the station, as it were, make sure you have
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terms conditions, make sure you understand your payment terms, and make sure you
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clearly understand your payment terms. And make sure the quality your work is of
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such a manner where they will be begging you back in terms of streamlining other
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costs. Be careful when you finance stuff. I think, because this goes
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back to what we were saying a little earlier that if you the more and
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more stuff that you take on, the more debts you've got a service every
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month, and it's a really dangerous game. It's if you've got the work
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permanently, like you said, from like four six clients, you can if
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one goes under, you can absorb it. But if you've got like just
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two clients, if you lose one, that's literally fifty percent of your work
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gone. And if you haven't got a war chest or some sort of just
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some sort of liquid cash, you're really going to be struggling. So definitely,
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I mean the way that we do it. We used to finance every
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single vehicle we had. If we took on a vehicle, we financed it,
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and we sort of change that. Now. The only ones we finance
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of the cherry pickers, because they're about one hundred grand, that's the only
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ones we finance. Everything else we just buy them out right because it does
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a great thing. It keeps your monthly cost down, and when you've got
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three, four or five six vehicles, it adds up. You know,
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it's like it's thousands of pounds a month you're saving just by buying outright.
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So baby steps and also increases a network of the company. Acid it does
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indeed makes you appear good on the credit scoring. It does as well,
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because the other thing when you look at when you do your accounting every years,
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I've literally just done mine, and it's actually really interesting when you least,
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when you finance a vehicle, there'll be a column there for you know,
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the net worth of all the vals you've got, but there's a column
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just below it how basically how many of it what cost is financed, which
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is literally like ninety percent you have put down ten percent by the vehicles.
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So people can also see on your accounts whether you've bought vehicles or whether you're
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leasing them or yeah, it's on finance, so definitely buying them looks a
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lot better on paperwork as well, so it's a good place too. And
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that's it for today's show. You can download the podcast from all major streaming
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