Hi everyone!
If you’ve ever struggled with cash flow, the discussion among building designers at the December AIBD Coffee with Bernie might be of great help. All feedback is welcome!
As building designers, we must apply effective cash flow management to sustain our businesses. Challenges such as irregular payments, scope changes, and unforeseen expenses highlight the need for proactive strategies and clear communication. Sometimes this is hard to do, especially if you are a sole proprietor, but you can do it!
When you leverage tools such as QuickBooks, Zoho Books, and detailed spreadsheets, you can simplify your invoicing and payment tracking. Having consistent billing practices that you tie to project milestones can help you stabilize cash flow. And when you implement secure payment methods, thoroughly vet your potential clients, and use robust contracts, you can protect your work and mitigate risks.
It might sound like a lot, but having clear procedures for handling changes, reserving funds, and setting client expectations can foster trust and financial stability. By adopting these strategies and tools, we all can confidently navigate the complexities of cash flow while maintaining our professional integrity and keeping our clients satisfied!
Strategies for Maintaining Consistent Cash Flow
Here is a summary of the key points discussed about financial practices and avoiding common pitfalls.
Payment Structures:
- Require retainers for each phase, and apply them to invoices when you complete that phase.
- Use milestone billing (35%-35%-30%, or 50% upfront and balance before engineering).
- All payments non-refundable.
- Include a clear scope of work and payment schedule in contracts.
- Ensure that deliverables are tied to payments, and don’t release plans until payment clears.
Timely Billing:
- Send invoices promptly, and have payments due upon receipt.
- To minimize risks, use smaller, frequent payments.
- Require final payments before key deliverables, such as engineering submission.
Legal and Protective Measures:
- File liens for unpaid work, and ensure proper documentation and timelines.
- Include a “Termination Adjustment Payment” clause (30% of incurred charges if a client cancels).
Payment Methods and Tips:
- Venmo, PayPal, Zelle, ACH transfers, checks, and credit cards (with added 3% fee for card payments).
- Accept ACH payments only from trustworthy, repeat clients.
- Allow clients to opt for check payments to avoid fees but clarify potential delays.
- If payment issues arise, explore lien options.
Client Vetting and Contract Practices:
- Trust your instincts. Decline untrustworthy or scam-like projects.
- Protect your business with non-refundable retainers and clear service agreements. Aim for concise formats such as a one-page proposal and a two-page contract.
- Regularly review updates on project scope and payment expectations.
Other Recommendations:
- Use templates and resources, such as the Designer Docs that AIBD provides.
- For iterative or complex projects, bill hourly.
- For clarity and cash flow continuity, issue monthly invoices.
Handling Changes While Maintaining Cash Flow
When billing for changes:
- Charge extra for continual changes.
- Include clauses in your contracts that define reasonable changes.
- Use an hourly billing model for revisions beyond the initial scope.
- Offer a flat fee for initial phases, such as the conceptual phase with one revision, and bill additional changes at an hourly rate.
Communication and Clarity:
- Clearly outline the scope of work so that you manage client expectations.
- To ensure fairness, notify clients when changes are out of scope.
- Avoid itemizing your hours in your invoices. Instead, use a monthly sum total or minimum increments of one hour.
- Communicate procedures upfront and adhere to them.
Cash Reserves:
- Aim to keep at least three months of cash reserves on handto reduce dependency on immediate cash flow.
Employee and Subcontractor Payment Plans:
- For teams or subcontractors, establish clear monthly payment plans to maintain financial predictability.
Advice for New Business Owners
Contracts and Procedures:
- Always have a signed contract before starting work.
- Clearly define your scope of work and billing procedures in the contract.
- Do not hesitate to invoice or request payment for completed services.
Scam Awareness:
- Vet clients carefully (e.g., check property ownership).
- Request non-refundable deposits for added security.
- Stay vigilant against digital scams (e.g., QR codes, fake ACH payments).
Client Relationships:
- Payment signifies appreciation for services; ensure clients understand this.
- Train clients on your billing expectations to avoid misunderstandings.
Definitions
- Cash Flow: A scoreboard that tracks inflows and outflows of cash over time.
- Assets: Items of monetary value owned by or owed to a company.
- Cash: Money on hand that can be used immediately without relying on credit or pending transactions.
- Accounts Receivable: Money a company is guaranteed or owed by customers but has not yet been paid.
- Operating Cash Flow: A measure of whether a company is generating enough cash from regular activities to cover its near-term obligations.
- Breakeven Revenue: The minimum revenue a company must earn to avoid losing money.
- Accounts Receivable Days: The average number of days between delivering a product or service and receiving payment.
- Negative cash flow: Cash flow challenge that requires pulling from savings to sustain the business.
Key Takeaways
- Stick to established procedures for billing and communication.
- Protect your business with clear contracts and fair, enforceable policies.
- Build financial stability with reserves and consistent billing practices.
- Stay cautious and proactive against scams to safeguard your time and business.
Thanks to everyone for reading and for your input and contributions to this valuable discussion!
Warm regards,
Bernie
Washington, DC – During its Annual Meeting in Philadelphia this past weekend, the American Institute of Building Design (AIBD) awarded its prestigious Designer of the Year title to Colorado Springs building designer, Bernie A. Kern. Bernie, as he’s known locally, received this recognition for his work within the organization as well as the industry outreach his work has produced for the organization.
In 2012, Bernie assembled a group of building designers and formed the High-Performance Homes Team (HPHT) with a mission to provide resources and education on building energy efficient, comfortable, and environmentally safe homes. The purpose led Bernie to a stage at the International Builder Show (IBS) in both 2017 and 2018 where he and the HPHT designed a Tiny House Lab for the show’s High-Performance Building Zone. “The building had to be a Tiny House with various wall and roof framing configurations considered to be high-performing and energy efficient,” Bernie said of the specifications given to him by the National Association of Home Builders (NAHB), owners of the IBS. Recently, the NAHB approached the team again to design a Radon Test Model.
As the principal owner of BBKern DESIGNS, Bernie Kern has developed code approved working drawings for new custom and model residential homes, multi-residential, additions, remodels, and light commercial projects for nearly 30 years. He assists clients in all stages of building design, including planning, design fees, budget, education, specifications, special services, and consultation.
10-AMN_9421 – AIBD Executive Director, Steve Mickley (Right) presents Bernie Kern with the Designer of the Year Award. Photo by JPG Photo & Video
Awarded Best Of Houzz 2018
– of Colorado Springs has won “Best Of Houzz 2018” on 
