Hi, my name is Ben Miller. I'm a project manager at Gilbane Building Company. And today, I'm going to be talking to you about contracts and cash flow. We're going to be talking about revenues, expenses, and how they impact contractors and projects as a whole. So what is cash flow? Well, cash flow is really something we deal with everyday as people in the world. It's something they have to understand, something we probably internalize and never really actively think about, but we know. Well, in projects, this is something that's huge for contractors, for clients, and for general contractors, but it can also be a major point of contention. It could be something that splits us apart. We're going to talk about that a little bit later. But it can also be something that helps us drive a project. it can be something that we use as a point of leverage to make our project run smoothly and efficiently. So if we know that cash flow is that impactful, what is it, really? Well, it comes down to a pretty simple equation, and that equation is this. Revenues Minus expenses Equals capital. Now, I'm going to leave this up on the board for most of this presentation. Because really, this simple equation with three variables is everything we do. So what's revenue? Revenue is really the money coming into a company. Expenses Are the money leaving your company, the money that a company has to pay for the work that they do. And capital is what's remaining at the very end. So this seems pretty simple, right? It seems like something that we should be able to comprehend with relative ease. But what we're going to run through today is why this is actually much more difficult and how contractors understand this equation and all of its complexities as it relates to them. All right, so now we need to create a framework for our discussion to talk about the basics of what we're doing. And the key here is understanding two different accounting methods. Those accounting methods are cash and accrual accounting. Cash is really based on your actual receipts and your actual payments, whereas accrual is based on the receipts that you've earned and the payments that are due. And we're going to do a real example about this. So here's our example. We have a job that pays $140 every other week. That's our revenue. But we also have rent. That's $42 every week. So that seems like a relatively simple equation to solve for, right? You take two weeks, you take $840, and you'll have to pay 84, so you'll have $56 at the end. We're going to look at how these two different accounting methods consider that so that we can understand exactly how that works. We're going to start with the cash method over here. So if we created a chart that our total expenses And total income, it would have to come out to $140. So if we do that. Create a simple chart. We're going to have $0 here at the bottom. And then across our x axis, we'll have the amount of time passed. We're going to go ahead and do this based on days, so we need 14 days here. Now, if we enter these days starting on Sunday, We'll have two total weeks. So what do we need to check? Well, we know revenues, right? And we know expenses. So now, we're going to create a chart that helps us fill in this graph. First, we know our revenues. We're going to look at those on a daily basis. And a total basis. We're also going to know our expenses, and we need to look at them on the same basis daily. And total. And finally, we want to know at the end of all of this, our capital. So we're going to go ahead and create our chart. Just straight across for each of these. So let's go ahead and fill out this chart. And in that way, we can create our graph. We know our revenues, right? We receive $140 every other week. Let's assume that payday is on a Friday. So here now at daily revenues, we'll see $140 on Friday. Let me just step out of the frame there for you. We also know our expense, right? We pay $42 once a week for rent. So let's say that we pay that on Friday as well. So our first Friday, our daily expenses are going to be $42. And on the second Friday, our daily expenses will be $42. That's pretty easy, right? Now, we fill in the rest of this chart. So daily revenues, Sunday through Thursday, are just $0. Daily expenses are the same, right? $0 each day, it's remarkable. Now, we have this basic equation. Revenues minus expenses equals capital. So we can go ahead and fill in our capital line as well. So on the first Friday, $0 minus 42 will be negative $42 daily capital. And on the second Friday, $140 minus $42 gives us a daily capital of positive 98. So we can now start filling the total lines. Our total is simply going to be the previous day plus the current day. So, Sunday, we have no previous day, so zero Monday, zero plus zero will stay zero. We'll just continue this trend across the revenue. Then finally, on Friday, our total revenues will be equal to zero for our daily plus 140 for our other. Zero for our total plus 140 for our daily or $140. On Saturday, we'll have 140 total revenue on Friday, zero revenue on Saturdays so that, again, we'll have total $140. Now, we'll do the same thing for expenses. So we have 0, 0, 0, 0, 0. And on Friday, we have $42 of expense. Continuing our formula, 42 plus 0 across, we'll see expenses of $42 consistently. Until finally, on a second Friday, we'll see total expenses of $84, and the same will go for Saturday. Pretty simple, right? Now, we can fill in our capital. So we're going to fill in the daily the first time. We can do that real quick, and we can do the same procedure of adding yesterday's total with today's daily to give us our total capital. So straight across, we go with the zeroes. Until we hit the first Friday. So on the first Friday, our total capital is -42, and it stays that way. So the second Friday. When we see a total capital on the second Friday for $56, and that carries on in to Saturday. So now, we want to plot this. So we can go ahead and make our marks here. So if we start with revenue, which we'll put in green because that should be positive, that should be cash coming in, right? So we're going to be at zero point, zero Sunday, Monday, Tuesday, Wednesday, Thursday, Friday, all the way on til the second Friday. Now, here's an important question is, how do we show this $140? We know that the end of the day, Friday, we're going to have $140 right up here. But do we want to shows as a slope line? After all, we start Friday with zero dollars, but we end up with 140. The answer to that question is no. We're going to show this as a one big step. We don't want to show it as a gradual gain across the day, because in reality, what will happen is there will be one large lump deposit into a bank account. So we're going to go ahead and show this. So there's our revenue, and our total revenue stays the same all the way into Saturday. Easy enough, right? Now we want to go ahead and plot our total expenses. So the same way, our total expenses are $0 all the way up to the first Friday. At which point, we have $42 in expenses. And I understand that some of you might be wondering why we're plotting these both as positive values. After all, the revenue is positive, right, but the expense is something leaving. We'll talk about that in one second. So on Friday, in the same way that we capture our revenues as one large step, we're going to capture our expenses, this one large set. So Friday, we have $42 in expenses, and that carries straight on over to the second Friday. At which point, we still have $42 in expenses at the start of the day, but by the end of the day, at some point in that day, we make a payment in the amount of 42, and our total expenses will be $84 So some of you might be wondering why we aren't plotting our capital. And that's hidden right in this chart, like we talked about, revenue minus expenses is capital. So if we look at our chart, for the first half of the two weeks, the first week in its entirety, we have greater expenses than we have revenues. So this entire area Means that we are in debt. Our expense exceeds our capital or exceeds our revenue. We have negative capital at this point. Now, on the second Friday, we have income, we have our revenues. And our revenues exceed our expenses. And so this area Is cash flow. And the difference between the two, right here, is our capital. That's pretty simple, right?
