Construction Projections: Seeing Cash and Margin Trouble Before It Costs You

0:00Kathe Barrington: Your WIP shows where your jobs stand today. Your backlog shows the work you've already secured. Your WIP is a snapshot of the jobs at a current point, but those jobs all finish out at different points. And so in order to figure out where you're going to be, you need to take that out to as far out as those jobs are going. projections take those numbers and show you where your revenue, cash and workforce may be headed month by month. But what if those projections are wrong or don't even exist? You could hire too soon, bid too late. You can't make good decisions. You've got cash flow issues at that point because that's going to be off.

0:44You're going to have employment issues, right? Because if you're not properly hiring or even unfortunately laying people off seasonally or scaling back. You really need accurate information to make all of those decisions. So it's one of those things of pilot. If they miscalculate by an inch, they're going off thousands of miles by an 11 hour journey. So you want it to be accurate. And miss margin erosion until your money flies away. They're usually more growth oriented and want to make the proper decisions. If you're in a growth mindset and oriented towards growing your business, you've got to do this.

1:26Definitely. This is like the most complicated part of the entire process.

1:30Kathe Barrington: So how do top contractors see trouble coming early? That's what we're unpacking today on Construction Genius. Let's dive right in. This is Eric Anderton, and you're listening to Construction Genius, a leadership masterclass. Thomas Edison said that genius is 1 % inspiration and 99 % perspiration. If you're a construction leader, you know all about the perspiration, and this show is all about the 1 % inspiration that you can add to your hard work to help you to improve your leadership.

2:10Kathe Barrington: Kathy, welcome back to Construction Genius. Thanks for having me, Eric. Episode 7, Projections, the Art and Science of Seeing Ahead. Let's dive right in. First question, what are projections and how do they connect to the WIP and the backlog? So projections are basically taking your jobs and figuring out how your backlog projects out into different timeframes. Because, I mean, obviously your WIP is a snapshot of the jobs at a current point, but those jobs all finish out at different points. And so in order to figure out where you're going to be, you need to take that out to as far out as those jobs are going.

2:53Okay. So just give us the ABCs of doing an effective projection.

3:00Kathe Barrington: Like when you're walking someone through, like you're working with a client and either they haven't done it before or they're not very good at doing it. Just give us the ABCs. It's not something that I would have them do because it is pretty complicated. It's definitely this is like the most complicated part of the entire process. So you really need to have somebody on your payroll or somebody on your team like me that can help you do this because it is fairly complicated. So where my clients and the people get involved are more on the timeline aspect, making sure that I know the information and have the proper information.

3:42So it's something you want your CFO doing, really.

3:46Kathe Barrington: Okay. Okay. So that was my second question then is who should the projection process be owned by in the construction company? It should be the CFO. if the owners are qualified to do that, which I actually work with some companies that the owners are pretty on it. And so they know how to do it themselves, but they've also been business owners for decades. Okay, so then immediately when you say that, if I'm the owner of a company, I'm like, so I'm entrusting someone with this thing that is tremendously important to my business. How can I know that what they're telling me is accurate? What should I be looking for when I'm looking at the projections that someone else gives me?

4:25Well, it's a collaborative effort for sure. And so what I do is I take this out month by month. So if your jobs are primarily finishing out, so right now, we're in the middle of 2026. If they finish out by the end of 2027, that's when I'm taking it. If a few jobs fall off in 2028, I'm not gonna worry about those as much, but I wanna take it all the way possibly to the end of 2027 by month. month. So things that we're looking at together. So they really should understand what's going on because we're literally looking at month by month for the next 18 months or whatever.

5:03Kathe Barrington: Okay. So then a good projection is about 18 months in length. Is that about right? It should be. I mean, if you're looking at like just for the bank, you know, for them to be comfortable, you could be projecting out till the end of the fiscal year because they want to see you or your year is going to finish. For internal purposes and you properly planning, you should go out as far as your jobs are going. So if your jobs are going to be wrapped up in a year, then you're really only taking it a year. And then you're just going to keep adding on to it with every cycle. Okay. Okay. So if you've got multiple year jobs, then obviously your projections should cover that timeframe.

5:40Kathe Barrington: Absolutely. Okay. So how can inaccurate projections mislead leadership? I mean, you can't make good decisions. You've got cash flow issues at that point because that's going to be off. You're going to have employment issues, right? Because if you're not properly hiring or even unfortunately laying people off seasonally or scaling back, you really need accurate information to make all of those decisions. So it's one of those things of pilot, if they miscalculate by an inch, they're going off thousands of miles by an 11 hour journey. So you want it to be accurate. So again, you're updating the projections every month.

6:18Kathe Barrington: That's what you're recommending, right? If we're looking at properly planning, it should be monthly. Quarterly is a minimum for me at a certain point. Do I think people are doing it as often as they should be? And I don't have. With the ones who give it the proper importance level, what is it about them that's different than the other companies in terms of how they look at their business? They're usually more growth oriented and want to make the proper decisions. I mean, if a company and an owner is kind of, you know, I'm okay with where things are at and I don't really want to grow, then it's really not as important.

6:57So it really depends on what your overall goals are as a company and the strategy that you have. But if you're in a growth mindset and oriented towards growing your business, you've got to do this.

7:12Kathe Barrington: All right, quick break to talk about my book, Construction Genius. This is what I want you to do. Go to Amazon, search for the book, read all of the five-star reviews because there's a ton of them, over 50 to be precise. And the reason I want you to read them is because real people wrote those reviews who've actually read the book. And it'll give you an idea of why you should go and buy a copy right now on Amazon. And here's the deal. If you purchase 10 or more copies for your company, and then send me an email, ericatconstructiongenius.com, I'll come in via Zoom and do a one-hour Q &A and a bonus training session with your team at no charge.

7:52Kathe Barrington: I normally charge$4 ,500 for an hour of my time. And again, for you, I'll do it at no charge if you buy 10 or more copies of my book. And the reason you should buy it is all in the title. It's effective, hands-on, practical, simple, no BS, leadership, strategy, sales, and marketing advice for construction companies. So if you're in the construction industry, this book is for you. So you can get it on Amazon. You can also get it on Audible in the audio version as well, narrated by yours truly. And I know you'll really enjoy it. So go out and get the book. And now back to the interview. So that's interesting because you mentioned earlier this idea of who we hire or who we lay off is very much, you know, planning for that is very much tied in with the projections.

8:36Kathe Barrington: I'm assuming then if I have a very accurate projection, then I'll be able to understand when I need to ramp up my bidding or when I need to maybe tamp it down a little bit. Is that right? Yes. So what are some of the best practices for creating reliable forecasts? The biggest one is just making sure that you do have a really good timeline. And I know those change. But again, yeah, you're looking at this. This is a mobile product. You're not actually just keeping it fixed. Right. So what your timeline is at that given point. And then making sure you also understand how far along the job is going to be at certain points, because most of them are kind of like a bell curve.

9:15Right. So you're actually peaking at a certain point and then things fizzle out. So having a really good understanding of what that buildup and the peak point is so you can properly plan for cash flow and billings and people.

9:30Kathe Barrington: That's interesting, right? Because then you have to take into account as you're doing this, the client that you're working with, because obviously some clients or, you know, if you're a sub, some GCs run their jobs differently than others. And that affects your projections as well as the type of job that you're working on. Yeah. That's interesting. So how can historical job data make projections more accurate? So making sure that your job costs are right and accurate. You know, I've had people kind of along the way want to smooth out their job schedule by moving costs or artificially burdening other jobs just because they can take it.

10:08For me, that's never a great practice because you want your historical data. You want to know where your true margins are. You want to know what your burden allocations should be. And so that historical data, it can be so important, especially if you're getting a job that's very similar to one you did a year or two ago.

10:29Kathe Barrington: So that would be a really good sort of heart to heart with a construction company owner. And really, you got two choices here. You can play games with your numbers and fair enough, you can do that. Or you You can tell the truth as much as possible in all the reporting that you're doing. And as a result of that, be able to make way better decisions in the future. Yeah, exactly. How can owners use projections to spot early signs of margin erosion? I mean, if your estimates are correct and you're looking at your jobs on a regular basis, you should be able to spot those sorts of things pretty quickly.

11:06if you're going line by line across your budget, then you should know, right? If this section had more labor in it than you anticipated or material costs went up because of tariffs or whatever it is, then you should automatically know, okay, this job is either going to go over budget or I need to figure out if there's any other places down the road that we can save money to try to bring this job back to the overall budget.

11:35Kathe Barrington: It's interesting because last time we were chatting about banking and bonding and other such topics. How does projection discipline build trust with your financial partners? So your original WIP numbers are based off an original projection for when you get the job and you put it on your schedule. And then along the way, you're updating those estimates, right? So closer you are in alignment with what you originally put in or have really good explanations as to why things have changed, the more integrity your financials are going to show. So a lot of people think, oh, well, you know, I put so much cushion on there and my jobs always look better in the end.

12:16And that's not always necessarily a great thing either, because it all leads to, do you know your jobs well enough that those numbers are right? And if you can explain to bank and bonding, oh, well, I always put cushion on my jobs because I would rather this. And that's a method that you use and can explain, then that's fine. But if you're like, oh, yeah, you know, we're estimating 15 percent, but we always get to 25 or 30 and you don't really have a good enough explanation. It's like, well, do you really have a handle on what your numbers are in order to do that?

12:55Kathe Barrington: It's interesting. Think about the last time you promoted someone into a leadership role and it failed. Why did it fail? I can tell you one reason. People know how to build projects, but they don't know how to build and lead teams of people. Construction comes with its challenges that only insiders truly understand. Generic leadership training doesn't cut it. You need a program to train your leaders built specifically for construction professionals led by an industry expert. And my online course, The Shift, is exactly that course. It has five modules. It'll teach your people how to control their calendars and reduce stress and embrace chaos and accomplish their critical tasks.

13:40Kathe Barrington: It will teach them the three essential messages they have to communicate every day in order to motivate and lead their team effectively. It'll show them how to build and lead a high-performing team. Give them a framework for running effective meetings so they'll be able to solve problems in less than an hour. And also give them a higher perspective on their leadership. That will enable them to work on the business and on their teams and not get stuck in the weeds micromanaging. So go out to my website, theshift.constructiongenius.com, read all about the course, and then enroll yourself and your leaders in the course, and I guarantee that it will transform your leadership.

14:21Kathe Barrington: If it does not, you take the whole course and you didn't get benefit from it, you just send me an email, eric.constructiongenius.com, and I will cheerfully refund you 100 % of your money. I'm really confident this course will transform your leadership. So again, go out to the website, theshift.constructiongenius.com, learn more about the course and start taking it today. Does that then cause those financial partners to be more skeptical or cautious about working with you? Yes. I mean, if you have a history of your jobs doing better, obviously there's more of a comfort level. But if you have historically a reputation that your WIP schedule doesn't ever match from the beginning to the end of a job, then that is going to hurt your trust factor with that team.

15:12Kathe Barrington: And it seems if we're going to be able to do accurate projections, this goes all the way back to some of our earlier episodes on the importance of reporting from the field to the office and the accuracy of that on every project and the communication between the PM and the folks in the field. Yeah. Yeah. So what separates top performing contractors from average ones when it comes to forecasting? Think about the folks that you're working with, the ones who are kind of playing a shell game and the others who really have a clear idea of what's going on. I mean, first and foremost, having a mindset from the very top of integrity and honesty.

15:50You know, because if your project managers aren't being 100 % forthright and you have a team that doesn't value the same values in that sense, then the information you're getting might not even be great. So the ones that really hold everybody to a certain standard does a lot better, in my opinion. And the ones that really want to grow and hold themselves to that standard is so important. Okay.

16:18Kathe Barrington: So let's say, I know I'm listening to this. I'm like, you know what? I need to get my act together on my projections. Let's say the things I need to do, let's say in the first 30 days, 60 days, 90 days, so that from 90 days to six months from now, I've really got a good handle on my projections and I'm actually seeing things in the future as they actually may be. So, I mean, the first 30 days, you want to make sure that that original budget that you have in the system is right, right? I mean, there's a lot of times you're estimating in the very beginning and then you're giving it kind of like a certain percentage.

16:46But then when you reconcile that against the actual job, so you want to make sure that that starting point is really right. And then every month, in my opinion, is you need to be going through those jobs and making sure that they're still on track and going through them line by line.

17:03Kathe Barrington: Yep. So 60 days, 90 days, it's all the same, in my opinion. You have to just keep. So what you did to get you to that successful point, you just need to keep going. You don't need to back away. You just keep going with that. So then it's another element of discipline that needs to come into the picture. Yes. And I think this is one of the major challenges, right? Because there is, by the nature of the business, so much chaos involved in construction, simply because you're dealing with multiple parties on every single project, conditions change, schedules change, et cetera, that asserting whatever control you can in the areas that you're responsible for is so vital.

17:44Yeah. My opinion is that even though the GCs have the most components in terms of different subcontractors and all that kind of stuff, in that respect, they have probably the easiest job in projections in that sense, right? Because they're controlling it. When you're a sub, you're at the mercy of the subs, the other subs, the general contractor, the owner. So it depends on where you're also at down the line.

18:09Kathe Barrington: It's interesting because as you say that, I recall one of my clients who's a subcontractor and their mentality is very much we run the job. And it's their way of asserting control, even though they're not the general contractor or the owner. And one of the elements that has to be in place from what you're saying is a real clear idea of my projections. Because if I have a clear idea of where my company is going, regardless of what this particular project is doing, then I can make much more conscious decisions on this specific project to be able to bring a little bit of order in the midst of the chaos.

18:48Yeah. Yeah, absolutely. I mean, if one piece moves, you might have to move a bunch of different pieces, right? So like if you have a job that you scheduled one week and for whatever reason it gets pushed out, but you have other jobs starting that week, you've got to figure out how to fix that. It's like a nut and shell game at that point. And you have to be able to plan and adapt so quickly.

19:13Kathe Barrington: And so that's good because if my projection is clear, then I know. So let's say on a job, right, you have a certain amount of juice on every job or maybe political capital and you've got to know when to spend it, so to speak, because you can't put your foot down every single time, perhaps. You have to be able to give as well as take. And if your projections are clear for the whole company, then you can come back to this specific issue and understand whether it's time to flex or whether it's time to stand strong. Yeah. I mean, do you need to draft on your line of credit? Can you bill a client a little bit more one month?

19:51What if this happens? You know, like, do you have all the pieces in place? And this is why I say like a CFO or somebody that's really involved needs to be part of this process, because you don't have just the whip, you have your AR, right? So if you are underbilled on a job and you're getting 60 to 90 day collection timeframes and you don't have a line of credit in place to fill the gap, like there's so many pieces to this that you really need to make sure that you're honestly assessing every part of it.

20:24Kathe Barrington: Excellent. Excellent. All right, Kathy, this is really good. So either you've got to get a CFO or you've got to get Kathy. So Kathy, how can people get in touch with you? LinkedIn is great. Kathy Barrington, CPA. My website is kbcpa.biz. And yeah, just get in touch with me either of those ways. And you can Google me. I'm all over Googled as well. I'm CPA partner with Foundation and Dell Tech. So I'm all over the place. So reach out to me any way that you can. Beautiful. Links in the show notes. And again, this is part seven of our series. So we will also have links in the show notes to all the other parts of this series.

21:01Kathe Barrington: Kathy, thanks for joining us today. So much. Accurate projections help you see margin erosion, cash problems, and staffing needs before they become expensive surprises. If this episode helped you get a clearer view of where your company is headed, like it, follow or subscribe to Construction Genius, and leave a comment with your biggest takeaway. Share it with other construction leaders who need a better handle on their numbers. And wherever you listen to podcasts, leave the show a rating and review. That helps more contractors find the show. Appreciate you watching or listening, and we'll catch you on the next episode.

21:40Kathe Barrington: Thank you for listening to this episode of Construction Genius. Hope you found that 1 % of inspiration to help you in the next few days. If you like the show, please give us a five-star review on iTunes, share it with other construction leaders who you think would benefit, And always remember that the show is brought to you by Kick-Ass Meetings. I've been working with construction leaders since 2004, teaching them how to run extremely effective problem-solving meetings that gets their people collaborating, taps into their creativity. And to get yourself a free copy of the Kick-Ass Meeting report, go to www.ericanderton.com slash kickassmeetings.

22:22Kathe Barrington: Grab yourself that free report, read it, use it in your business. You'll find it extremely useful. And thanks again for listening.