Survive the Slow Season: Winter Cash Flow Tips for Contractors

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ℹ ABOUT THIS EPISODE

Every winter, broke contractors blame the weather while disciplined ones use the slow season to rebuild and prepare for spring. 

Wade and Stephen share practical cash flow strategies to help you survive seasonal slowdowns, including the 'drip account' method, reverse calendar planning, and how to keep your crew paid when work slows down. 

Learn to build financial reserves during good times so you can buy competitors' equipment at half price instead of taking predatory loans.

⌚️ Key moments in this episode:

• 00:26 Seasonal Challenges and Opportunities
• 01:11 Practical Tips for Winter Preparation
• 02:44 Financial Strategies for Contractors
• 04:52 Cash Flow Management Insights
• 07:24 Planning Ahead for Success
• 12:04 Creative Solutions and Final Thoughts

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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com

Transcript

Wade Carpenter: [00:00:00] Every winter, broke contractors blame the weather. Meanwhile, the discipline ones use the same slow season to rebuild, rebalance, and come out swinging when the thaw hits. Today we're talking about that inevitable seasonal slowdown that many contractors face, and some unconditional ways to approach your cash flow.

This is the Contractor Success Forum. I'm Wade Carpenter with Carpenter Company CPAs, alongside Stephen Brown with McDaniel Whitley Bonding and Insurance.

Stephen, we are getting to the slow season, the winter months for many contractors. It hit in the twenties here yesterday. This is the season where contractors' cash flow gets tight. What are we talking about today? 

Stephen Brown: It's deer season, it's, duck hunting season, it is the season of ice fishing for our northern listeners coming up. I get it. Maybe our point is take a potential customer deer hunting, duck hunting and ice fishing.

When you mentioned this subject matter, I thought, this is great, Wade. The first thing that popped into my mind, and I told you this, was what you had already thought of, and that [00:01:00] is what does a bear do in the winter? They hibernate.

Contractors aren't built that way. You know that. There's always stuff that needs fixing or replacing in the winter. And there's certain seasons that we go through. So I'm interested in the practical tips and ideas that you have for our listeners to maximize this cold weather, this off season, so to speak.

Wade Carpenter: And to use your analogy, I mean, yeah, bears do hibernate in the winter, but bears do fatten up during the summer months. They put on extra fat and they can sleep through the winter. Where a lot of contractors, we're trying to survive during the best times of the year, then we really can't survive during the winter months.

So that's one of the messages. How do we fatten up without wrecking our business when times are good, but build back for the future so that we can have something and we don't lose our crews. When the work comes back the next year, is the crew gonna be there? You don't wanna lose them because you can't pay them.

Stephen Brown: Yeah. No, I totally get it. And for you not to worry about me, [00:02:00] Wade. I have built up enough fat for the winter. 

Wade Carpenter: Well, I'm not-- 

Stephen Brown: Literal fat for the winter. I'm sorry, I didn't mean to take us off topic, but I love this analogy of a bear. They don't hibernate unless they have enough to fuel their bodies while they're hibernating.

And it's the same with contractors. What fuel do you have built up, and how do you make the most out of it? Not just building up your client base by taking them hunting and fishing. But just simply what things can you practically do to make the most of your off season?

You hear so many customers say, you know, look, we're gonna have this dried in for the winter. That means the shell of the building's done and we can start working on the interior. And we still gotta provide heat in there. But nevertheless, that's a source of comfort for them.

So tell me where we're going with this today.

Wade Carpenter: I think we may take a few different angles with this one. Obviously in my book, Profit First For Commercial Construction, there's a whole chapter talking about seasonality. But to use another stupid analogy, the squirrels gather nuts for the winter.

We can't be in a blizzard and not have [00:03:00] any firewood here. And that's where most contractors find themselves. They're struggling to survive with their cash flow in the best times. It's a matter of survival when things get tight.

One of the messages from Profit First For Commercial Construction is how do we put money aside so that we do have it there? We set up a drip account, put a little bit in there so that we have some extra. And today we're gonna expand on that concept.

But like some of the points I make in the book, if you've got a 401k, it comes out of your paycheck and you got something there for retirement. You never feel it.

A lot of people wanna do an IRA or something like that to save, and they don't have the cash when it's time to do their taxes. They can't do the IRA because they haven't put the money aside.

Another way that manifests itself in money like, okay, you and your bank own the house. The mortgage company makes you put escrow money for real estate taxes. If you didn't escrow that money, you come up with several thousand dollars bill, one time a year or something like that, people would be losing their houses because they didn't budget for [00:04:00] it.

I don't want to get political, but we're hoping we're getting past this government shutdown. There's a lot of people that got caught with their pants down that government workers that make pretty good livings that are struggling to put food on the table because they didn't put money aside.

So I'm not trying to get on some kinda a moral high horse or anything like that. It's more like how can we change our behavior so that we do have something where we can come out of the winter swinging? 

Stephen Brown: Yeah. I totally get that. I had a customer specifically talk about a billing problem that may or may not get paid, but if they had automatically billed them for this situation, it would've been just like mortgage property taxes taken out directly. The customer wouldn't have even given it a thought.

But now that it's added up and turned into a big bill, they're like, I'm not paying it. Just another example. 

Wade Carpenter: Well, a lot of this really hits home. I recently had a conversation with one of my CFO level clients. They had a ton of money. Their subcontractors were used to being paid [00:05:00] immediately, and their receivables had swelled quite a bit, but the cash wasn't coming in. And they were in a panic mode because all their cash was disappearing.

We ended up doing a two hour deep dive on this whole thing. Strangely enough, we start talking about how-- the billing is one thing we always talk about. But just picking up the phone and calling, And within two weeks they had collected a half a million dollars. That's very sizable for them.

And all of a sudden the things change. If we're waiting until it's already too late, and you know, it is a little later in the year to be thinking about this. What do we do to survive it? The key is to start early. 

Stephen Brown: I know you're right. Start early. Just kinda like that example I was using before. You think about winter things slow down and all of a sudden you're like okay, what do we need to do now? Oh, we need money. Oh, did you bill this? Did you bill that? No, not yet. And then it's too late because you're billing people that are having the same off season problems you are. I don't know, but that's certainly something worth [00:06:00] thinking about. What could you have done better to prevent that from happening?

Wade Carpenter: As I say in my book, it's like, okay we need to have some money to make sure we can keep our people paid. We need to not get in a situation where we're doing drastic things to not lay somebody off where we're, get this kiss of death, loan that you have to pay back week by week that has an exorbitant interest rate.

One of the things I really didn't go into is, yeah, you need to see what you are trying to cover for the next year. What do you need? Because you can't just go into like, okay, let's cut everything out and then expect to come out. Somebody that plans well for their winter and has some cash to burn could be buying that shiny new pickup truck at half price because the other contractor down the road was trying to keep the lights on. You know what I mean? 

Stephen Brown: I

totally get it.

Wade Carpenter: One of my thoughts here is let's reverse engineer it. Go back to maybe your previous April or so when things start picking back up, how did things come in?

Did the money start rolling in? And [00:07:00] what is it we needed to cover for this particular winter to make sure we cover our payroll, to keep the lights on, to have some cash, to not be struggling or taking these-- unfortunately sometimes these loans, yeah, we can maybe pay our way out in the better season.

Meanwhile, destroyed your profit, destroyed your ability to really capitalize and build the long-term health of your construction company.

If you wanna sleep like a baby in January, what would you need to start doing today? It's later in the year, but maybe if you start thinking about it now as you go through this season, think about the implications for next year. You wanna make sure that you have the equipment tuned up and ready to go. You wanna make sure you have the people, you don't lose people in the off season. Will they come back when you need them?

What I'm talking about today is this backward calendar method where we wanna look forward to next year, but a good start would be what happened? When is the worker's comp bill gonna be due? Obviously you got taxes sometimes to [00:08:00] pay. When did you pay them? Are we on this constant installment loan, because we never planned for that too? Any thoughts on that? 

Stephen Brown: Yeah, totally all my customers, I've tried to engineer around a December 31st effective date on their insurance. Because January or February when all those audits for workers' comp and general liability are due, and that's when the least amount of cash and the most stress has always been there.

But you're right. That was a good example.

Wade Carpenter: I know we could probably also talk about okay, what are we gonna do to keep ourselves busy? And most of the time the owner sends them to their house and does stuff around their yard or whatever. When you're going through this kind of thing, and when you're getting slow, that's the time to maybe rebalance your Profit First percentages.

And it may actually have to be done a little differently. And when we have these drip accounts that supposedly has some money in there for your overhead during those slow times, maybe that has to be changed during the winter months to cover some of that overhead, but at least you got it there.

I had a situation several years ago that a [00:09:00] contractor basically we've been putting the money aside, and it was pretty sweet because it was like they started panicking because they saw their buckets, but we actually had a drip account like this stuck in another bank and they were in panic mode.

He was like, we got this money right here. The look of relief on his face. It's like, yes. That's why we do this stuff. Too often we see these things where we have this windfall, a big retainage check comes in, and we may have extra money, but we don't need to go maybe buying another boat or something like that we've talked about. Maybe that's time to squirrel some of that money aside.

Stephen Brown: Yeah, maybe have a drip account for at least taking the family in the winter on vacation somewhere. 

Wade Carpenter: But again, I wanted to throw out some things that are just not necessarily things you might think about. But just as a thought experiment. When you're tight on cash and sometimes you're leaning, you're stretching these vendors or your subs out a little bit.

Think about it, if you could actually pay some of these subs early, or the material suppliers. You'd be surprised what goodwill [00:10:00] that gives. So if you could do that in the better times, and you tell them, okay, we're in the slow times and I'm gonna catch you up. But that builds a ton of goodwill.

I've seen an example of this where somebody started doing that, and I don't know if you can relate to this, but the relationship completely changed between the supplier and the contractor.

Stephen Brown: Yeah, absolutely. Wade. It's worth its weight in gold. And I speak as a vendor. I can consider myself a vendor of a construction company. My customers that pay me promptly and take my advice, I will kill for them. Not literally. Okay.

Wade Carpenter: Okay. 

Stephen Brown: Okay. 

Wade Carpenter: Anyway, it's just some other thoughts. A lot of times during the winter maybe we are taking our crew and we're doing safety training or whatever, OSHA training, those kind of things. But maybe thinking about taking some of the slower times to train everybody from the ground up. What happens with your cash flow, why it's important for your project managers to make sure that you guys get paid on [00:11:00] time.

Make sure that the pay apps are done correctly, following the requirements the GC requires. Making sure you pay attention to what the architect is gonna pay attention to and not get your pay app cut.

And when you can relate that to, doing this gets cash in the door, this keeps us from having to spend all this money on this pay-by-the-week loan that costs us 86% or whatever it is.

Just a couple other thoughts. Eliminating debt, those kind of things. When we don't have a payment for debt in the slower season, that's cash flow that we forget about. It's not just things like, okay, we gotta keep the electrical bill, the rent and the water bill and the phone bill. But you can't forget that monthly payment that goes on your truck and all your equipment.

So thinking about, how can we restructure debt? Could be a good way to think about surviving this as well as, in the better times, taking out debt, and thinking about how much that payment actually cost you in cash. 

Stephen Brown: So maybe creating debt at the end of the year to avoid paying taxes may not be a good idea [00:12:00] when you come around the winter the next year and you don't have those issues. 

Wade Carpenter: Yeah. I was trying to get to some more creative things thinking about how can we get our winter cash flow strategies in place? And I was thinking more like, okay, could we have a ghost payroll? If we had to pay payroll now for the next month or something like that, what would it look like?

How could you actually do this? And especially that makes more sense when you've got some cash. Before you go and buy that truck we talk about on December 27th, you worry about your taxes, but is it gonna take up some of your cash flow?

Thinking about flipping your invoice calendar. When you bill, what does it take to get that bill out the door, and how fast do they pay it? So reverse engineering that whole process. How do we speed up the cash flow? This is the kind of thing that also can help us survive the winter. 

Stephen Brown: Traditionally, during the winter the contractors that are weather dependent are spending the winter working on their equipment as well. And I can tell you the part suppliers for this equipment, they know that the winter is their [00:13:00] peak season, so to speak. And I guess as a contractor, I keep thinking of these peak seasons, Christmas being a peak season for retailers.

I think of a dirt contractor that can't move dirt when the dirt's frozen or wet. And I think of all those elements and I say to myself, of course, everyone's spending that winter doing practically what they have to do to get ready for the spring. But if you get ready in the spring, you've taken care of the winter.

It's like the analogy of the bear storing up some fat. That's just it, that's the whole point. I forget one of my customers was talking about, they were really doom and gloom about future and some other things. And I told him, I said, I don't really know. I've got a 22 rifle and I got squirrels all over my backyard right now. But those squirrels are gonna be hibernating soon. What will I, do if I hadn't harvested those squirrels?

So no matter how you look at it there's just no true way to totally protect yourself unless you're thinking ahead, and you're planning ahead. And [00:14:00] I love the ideas that you came up with from an accounting standpoint. Just basic, from invoicing, from billing to cash flow.

What other cash flow situations are hitting our customers particularly hard in the off season?

Wade Carpenter: One of the ones that comes to mind is you paying for software to subscriptions or whatever. Just another way of thinking about this, your overhead, that's the main thing you're probably trying to cover during the slower periods, because maybe you're not buying more material.

For a thought experiment, let's just say you owned an apartment building and you had people that paid various amounts of rent, but you got something back from these people. So what are you paying if you got tenants that have very little value to your apartment building, should you evict them?

Can you evict off your overhead list? Is it really paying something back for what you do? And again, software subscriptions, things like that. That's one of the big things that I see all the time. There's things that hit your credit card, that it was just 50 bucks a month. It was 29 95 a [00:15:00] month. That adds up. And so that's the time to maybe tighten up the belt a little bit. 

Stephen Brown: Yeah, I totally get it. I replaced all my credit cards not too long ago. And there was a breach. It was a good opportunity to just order all new credit cards and live off cash for a while, till the new credit cards came in.

And what blew my mind is how some of these subscription services somehow found my new credit card billing and say, it's okay, don't worry, Mr. Brown. Your subscription will not stop because of this. And I'm like, I want it to stop, because I want these people to come hunt me down and not suck things out of my account. I don't know. Don't get me started.

Wade Carpenter: I get it too. I think we all experienced that.

Some of the other ideas I had, probably very silly. But just different gamifying things where we can explain to people like, okay, this is what it costs you. And I mean, just the simple example is your project manager, you don't get paid or your bonuses obviously get affected if you can't collect the money.

Having these things where we have some kind of [00:16:00] scoring system. I mean, we could make a whole episode on this part, but how do we say, you gotta get your pay apps in on time. Did we help collect it? If it sits out there, the project manager may have some relationship with the people, the supplier.

The main point of today is thinking about it before you're out there in the blizzard without any firewood. Thoughts? 

Stephen Brown: I think that's a great way to think about it. Gamify is a good word. I like the way you used it. When you think about gamifying, you think about how to make something that's tough, more enjoyable, and what's the first thing you do when winter sets in hunker down in the cabin, your family pull out the games, I get that.

I like the analogy that you used it here for running your construction company. What exactly is it that you are doing to make this dark, dry, cold period, more productive, more enjoyable for everyone that you work with? Vendors, employees, customers, your family, yourself. How do you maximize that, and how do you even [00:17:00] that out? It's a great question, I think.

Wade Carpenter: Again, before you're in the middle of it. That's why I wanted people to start thinking about it now, and we don't want contractors out there in a blizzard without any firewood. The idea is here, if you structure it properly, maybe you can buy the other contractors down the-- his truck at half price because they can't afford to keep the payments up.

Wouldn't you rather be that contractor than somebody that's just having to take out this pay-by-the-week loan that takes the rest of the year to get out from under it. 

Stephen Brown: Absolutely. Work smarter, not harder. 

Wade Carpenter: Yeah, absolutely. All right. I know there's a lot of things we could have gone into on this one, but I think we're getting a little long on it.

If nothing else, think about where you're going and if you're affected by the winter season, just hopefully take some of these things to heart. Spend some time going through your money, going through your general ledger. Where do we spend the money? What hits your credit card? And things like this will go a long way if you don't wait until you're in crisis mode.

So with that said, if we made you think about any of this, if you had any questions, comments, we'd [00:18:00] appreciate it if you put them in the notes below. We do this every single week and we appreciate it if you consider like, share, subscribe, it always helps the channel out. And we will see you on the next show.