Yaneek Page Contracts management a game changer for improving profitability, cash flows
Q UESTION: I am a young entrepreneur and my business has been growing and doing well, or so I thought until my accountant brought to my attention concerns about my financials. Mainly, he says that I am overextending myself beyond resource capacity, and this is causing cash-flow issues, which have been progressively getting more intense.
The short version of a long story is that I have many lucrative projects, and because I do excellent work, my customer base is growing with word of mouth. But execution and payments are eating up the bottom line. Unfortunately, due to no fault of ours, most projects suffer from challenges such as extended deadlines, delays, budget complications due to delays, and so on. This is what affects cash flows even though we are profitable. I have tried all the textbook approaches to managing these issues, but here I am. Do you have any solutions?
– Laurie
BUSINESSWISE: Kudos to your accountant for raising the alarm about the devastating impact of poor cash flows on even the most profitable business. No matter how lucrative your business appears on the face of it, ultimately, the state of your cash flows is a critical indicator of its financial health, especially in a period of rapid growth, such as your current expansion. Cash is the lifeline of a business, so where it doesn’t flow, nothing is truly able to grow. On the current trajectory, you will find it impossible to meet your current liabilities and sustain operations.
In the context of our local landscape, where lateness and a lack of respect for time are cultural norms, there is no simple solution to the operational challenges you described, which is probably why the textbook approaches haven’t worked. However, I have a potential game changer for you!
Proactive and effective contracts management and contracts administration, which are fairly novel concepts for Jamaica, but well-established disciplines for our major trading partners in North America and Europe, can transform your operations and recover the health of your business immediately upon implementation. You can consider it an extension of your project risk management or as a buildout of your legal risk assessment and mitigation framework.
Contract management is the process of managing contracts, deliverables, deadlines, contract terms, and conditions while ensuring customer satisfaction, operational efficiency, and achieving the targeted financial performance at an organization, all while reducing financial risk.
Contract administration is different in that it involves extensive planning before a contract is signed. This includes the pre-planning and forecasting, financial and legal risk analysis, and the organising, consultations, and negotiating that is done before a contract is executed.
Here is what you would need to do:
First, conduct extensive research on contracts management and contract administration, including watching YouTube videos, reviewing college course content from major universities, and reading articles online. You can also join professional groups on LinkedIn in this space as they often share helpful resources and tools and offer great support in navigating complex challenges.
Second, decide what elements of contract management and contract administration you will adopt in your business. Then create standard operating procedures and policies that support the successful implementation. This is akin to creating the roadmap that your contract administrator will follow.
Third, you can then identify the talent, skill set, and education required for this new role, which you cannot execute as the project lead. It must be led by a competent professional. Usually their background is in business, law, or management.
The next step is hiring and onboarding the new talent and starting to align contracts administration and management in every project for every job you execute.
You will also need to look at job justification, and this will include expense and income that is expected to be derived from the addition of a contact manager or administrator.
Some of the duties, responsibilities, and requirements of a contract manager or contract administrator will include:
o Negotiate and approve contract terms while ensuring that projects remain within the established budget review contract estimates;
o Ensure that all records are accurate and up to date;
o Write contract letters and other communications and notices;
o Attend meetings, when applicable, to assess progress on projects that are in motion;
o Create regular status updates;
o Take detailed notes to share with stakeholders and create regular status reports regarding progress;
o Administer ongoing contracts, including insurance and licensing requirements, issuing subcontract agreements, tracking contract termination, extension and amendments;
o Monthly billing of customers and projects, posting deposits and tracking revenue;
o Processing lower-tier subcontracts and their monthly billing and payment distributions;
o Preparation and execution of close-out documentation, including punch list items, as-built drawings, and O&M or operations and maintenance manuals;
o Maintain accurate files and organisation of all contracts, billings, insurance information, and more;
o Be responsible for maintaining complete and accurate records for multiple jobs simultaneously – working with multiple project managers;
o Ensure that legal and regulatory obligations are satisfied;
o Other duties and responsibilities as assigned; and
o Three-five years of accounting experience preferred but not required (construction background preferred).
This new approach will transform your project proposals, estimates, budget, payment terms and conditions, payment periods, production costs.
You will likely see a transformation in your business, and I am excited for the possibilities that this simple change will have on your business.
Good luck and one love!
– Yaneek Page is the programme lead for Market Entry USA, and a certified trainer in entrepreneurship.yaneek.page@gmail.com