11.05.2008 — With the double-whammy of constricted credit hurting builders and the stock market hurting homeowners, integrators need to stay on top of cash flow.

According to Susan Sipe of the consulting firm Abacus Prime, many integrators she has worked with are now operating on zero cash flow (or -5 percent cash flow) in this poor economy.

She offered seven vital accounting tips to small dealers during her session at EHX Fall 2008 called "Financial Management: How to Structure an Integration Company for Maximum Return."

From billing progress payments to change orders, following these 7 pieces of advice will boost cash flow.

Payment Schedule for Long-Term Direct-to-Homeowner Jobs

For jobs that will take more than 3 months, Sipe recommends:

• 25 percent payment on acceptance
• 25 percent upon completion of rough-in
• 40 percent when you order equipment
• 10 percent upon substantial completion — defined as when the system works, not including final tweaks

Payment Schedule for Short-term Retrofits

For installations in existing homes that take less than 3 months, Sipe advises:

• 90 percent payment upon acceptance and ordering of equipment
• 10 percent payment upon substantial completion

Payment Schedule for Builders or Commercial Clients

Sipe recommends this payment schedule for builders or commercial clients:

• 50 percent at rough-in completion
• 40 percent upon ordering of equipment
• 10 percent upon substantial completion

"The goal is to always have more of your client's money than you have paid out at all times," says Sipe. She adds that billing on time and materials can be problematic if clients ask for a reconciliation of "work done vs. payments" in the middle of a job.

Tracking Sales by Cash vs. Accrual

Sipe believes integrators shouldn't track sales based on invoices (accrual) vs. cash (payments received).

First, it can lead to sales tax complications. Second, it lends itself to creating wild swings in your financial status.

You will, for instance, appear rich the first month you receive an upfront payment. But when that's followed by a month of paying your labor and then purchasing equipment, you'll appear to be cash poor.

Separate Categories for Deposits and Costs

Many integrators use the default settings in QuickBooks that simply create broad categories for "labor" and "equipment sales."

Sipe advises creating industry-specific subcategories for both sales and labor. For example, break down sales of equipment by a specific category like lighting control, security, audio, video, etc.

Likewise, break down labor by rough-in, trim, final, programming, design, service and travel.

Track Inventory

Most integrators don't feel the need to track their inventory because they are not retailers with tons of products sitting on their shelves. However, small items like faceplates, connectors and wires can eat up profit on a job.

Sipe recalled one year in her own installation company that earned $3 million in revenue and she had not billed for about $100,000 in small "unbillable" items.

Mark Up Change Orders 50%

On average, according to Sipe, about one-fourth of your total expenses will be taken up by unplanned change orders.

"You must bill a 50 percent margin on those change orders or it will eat up your profitability," she says.