Job Costing for Profit and Value

By John R. Hall

BOYNE FALLS, Mich. - Attendees to the Michigan Chapter of the Air Conditioning Contractors of America (MIACCA) Convention learned about the importance of cash flow to the balance sheet. Gary Figurski, a certified valuation analyst (CVA) and business owner, told contractors that cash flow is the first thing he looks at when reviewing a company's profit and loss statement.

He said that cash flow - defined as what is available to the owner to take out of the business - is important for a number of reasons, including:

It tells owners what is available for paying bills.

It tells the net effect of any business changes.

It tells the bank how much money the business can afford to borrow.

To a potential buyer it tells how much money he or she is willing to pay for the business.

Figurski said he prefers to use the "Bizcomp" method to calculate cash flow. He used a sample balance sheet to show the affects of cash flow when a company moves its 45-day accounts receivables to 60-day. "This creates a serious cash flow problem," Figurski said. In his example, the move to 60-days put a company in a three-month negative cash flow during three summer months - all because of an extra 15 days added to accounts receivable.

He also told MIACCA members about a "what-if" software program called Income Statement Projection System (ISPS) whereby they could plug in variables to determine how their balance sheet compares to normal, current averages, as well as comparing to national averages of similar businesses. "Once you have these what-if scenarios, go back and plug them into your cash flow," he said.

His example showed the immediate impact on the income statement by changing labor rates by five dollars. The impact was dramatic.

"It doesn't really matter what other contractors are doing or charging," Figurski said. "These figures show what you should be charging based on your own calculations."

For more information, contact Figurski at gary@tcgcpa.com.

Publication date: 09/04/2006

Looking for a reprint of this article?
From high-res PDFs to custom plaques, order your copy today!

John Hall is the Business Editor. E-mail him at johnhall@achrnews.com.