Managing Cash Flow, Risk, and Relationships – Insights from Doug Harrah

Rishi Srivastava (00:00)
Hello, everyone. Welcome to the podcast, Finance at the Jobsite. Our previous name was the Construction CFO Podcast. Recently, we made this name change to have more construction finance and ops leadership included in this conversation. Today, our guest is Doug Hara. Doug, welcome to the podcast.

Doug (00:21)
thank you for having me, Rishi. I appreciate it. Looking forward to running through this.

Rishi Srivastava (00:23)
Okay.

Me too. I’m excited that you took this time. So we are going to go through a series of interview questions. So the first section is on your background and career journey. Can you walk us through your career path? What led you to become a CFO in construction?

Doug (00:41)
Yeah, in summer colleges I started working in construction. Did some masonry work, masonry labor, and did some landscaping, rolled that into some carpentry, and traveled the East Coast doing some different frame out models interior for fast food restaurants and different places. Met a girl, right, go figure, and walked into the guy I was working with and said, hey, know, this is what I’d like to do. And he said, fine.

And he gave me a box of receipts, old facsimiles, and working together with him and the team there, we were able to collect, you know, like 400k, but that was my introduction. So that was a long time ago, 30 years plus probably.

Rishi Srivastava (01:08)
Mm-hmm.

Mm-hmm.

Doug (01:18)
And then from there, I’ve just been doing the same thing, accounting and doing the CFO spiel, I guess, really. I’m not really a great accountant, but I understand the numbers pretty well and that really helps in how we move forward with our presentations and so

Rishi Srivastava (01:34)
Yeah, I was talking to a controller just before this call and he was saying that he’s not a good CFO. He’s very good at numbers, but he cannot explain the context. He’s just like, I’m so much outside of my comfort zone trying to become a CFO, you know.

Doug (01:48)
Yeah,

yeah, you have that. But you know, you can work, we try to work together with all the business models and the team members. And, you know, we’re in the process of always trying to refine that, make that more efficient and better. It’s long, you know, it’s fun, really.

Rishi Srivastava (02:00)
Yeah. So, was finance always the plan?

Doug (02:04)
I think initially it was mostly business related and including, you know, like maybe a CPA or lawyer type occupation. know, kind of rolled into a little bit of both, you know, with contractor views and different things that, you know, have occurred. I’ve had to put on the lawyer hat occasionally, you know, it’s a little different hat. And also just been doing the accounting and financial reporting and presentations for many years now.

Rishi Srivastava (02:20)
Okay.

Nice, What was your first job in the construction industry and what surprised you most about it?

Doug (02:33)
the thing that surprised me was how much we were looking forward to rain, right? So, I worked in the masonry field for, you know, a couple of years, few years, and that was an interesting field. It was a good trade to learn and, it was, you know, a lot of hard work and, learned about production there. I had some good, you know, mentors and people that were there. I was really, really young. So that was quite a long time ago, but rain really was what surprised me is how much you looked forward to rain.

Rishi Srivastava (02:37)
Mm-hmm.

Yeah, and if your company’s future depends upon rate, you know. How has your view of the CFO role changed since you first stepped into it?

Doug (03:04)
Yeah.

It’s become more a understanding and relationship with the different models that you’re working with so that you’re not just reporting the numbers, but you’re working with them to make sure that they’re getting accurate reports so that they can better help ascertain where the projects are at certain period, monthly, or however that works. I think that’s important versus just pulling numbers together. For a long time, you just kind of pulled the numbers together and that was it.

feel like really integrating your team members with it, you know, helps include, well, increase accuracy and efficiency, you know, personally. And that’s been real successful.

Rishi Srivastava (03:48)
By the way, Doug from Neighborgall Construction. Who had the biggest influence on your approach to leadership and financial strategy?

Doug (03:51)
That’s right, sorry.

Yeah, that really would be a lot of different people, think, throughout the times that I’ve worked. Everybody’s brought a certain sense of what they are to the table to me and some. And you take that information and you try to mold it into what makes you a better person, what helps you in the process that you’re doing. It’s been a real learning experience. And I’ve been fortunate to work with some really super great people.

very fortunate from that aspect. So it’s really a melding of all those people working together with them and, you know, coming to good conclusions and making right decisions.

Rishi Srivastava (04:33)
Anyone you would like to call out?

Doug (04:35)
not there’s so many, honestly, you know. There’s a lot. You know, if I start naming names, somebody’s forgotten, right?

Rishi Srivastava (04:41)
Yeah, OK. Let’s go to the section 2 which is about cash flow and financial strategy. What’s the hardest part about managing cash flow in construction today?

Doug (04:51)
customer receipts, Trying to make sure your customer and you are on the same path regarding cash flow schedule wise and how that operates. The other thing is making sure that you’re taking a look at the jobs, looking at a good estimate, the schedule and seeing where that cash is going to fall so that you can better plan and prepare for that.

Rishi Srivastava (05:10)
Now, it’s time to another CFO and he was saying the schedule is the most important thing. You know, you got it. Bye.

Doug (05:16)
Right, Yeah, the estimate and the schedule. And you

analyze, you compare that on a month to month, a week to week basis, and you can get a fairly decent idea. If you have accurate information, you know where those projects are pretty quick.

Rishi Srivastava (05:27)
So has that evolved in the last three to five years?

Doug (05:30)
Yeah, the ability to access the data, I think, has become much easier. And there are lot more third party tools and things out there that are available to assist in those things, you know, in those different models that you’re wanting to work in or, you know, making something better in a plan. So, yeah.

Rishi Srivastava (05:48)
Very nice. How do you approach the balance between paying subcontractors promptly and protecting your company’s cash position?

Doug (05:56)
Most of the agreements that we have, it’s spelled out. And as long as we honor those agreements, typically, you know, we’re fine. we anytime that, you know, there’s communications with the vendors. It’s one of the things we pride ourselves on is our strong subcontractor and vendor base that we communicate with regularly and really well. So I feel like that really helps.

Rishi Srivastava (06:17)
So what’s your take on pay event paid clauses? Do they actually? It works.

Doug (06:21)
think it works great. If you do it, it

works, right? I feel like

Rishi Srivastava (06:24)
Do they actually

help or they create more friction?

Doug (06:27)
Now I feel like it helps because it creates a schedule that everybody’s used to or aware of. And as long as you follow that procedure, I feel like the subs understand that process and it builds consistency and understanding between you and your vendors. I feel like it really builds a team better.

Rishi Srivastava (06:42)
Yeah, laying out the expectation and outside. Yeah, actually another person was talking to they were saying that the subs need to think that GC is not the bank. You know.

Doug (06:52)
Well,

yeah, right. But you also have to be aware of the sub needs and making sure that they’re taken care of, you know, on your projects as much as possible. feel like that that’s also very important.

Rishi Srivastava (07:02)
Right. How do you think about financial risk, whether it’s tied to project delays, retainage, or bonding?

Doug (07:11)
I think some of that depends on your balance sheet, especially in relation to bonding. If your balance sheet is pretty strong, then you’re looking at your job activities, your project activities to make sure that they’re falling in line. And anytime something like that goes south or it doesn’t meet expectations, then making sure you figure that out in relation to where that project is headed and how it impacts the overall company.

Rishi Srivastava (07:33)
Anything on retainage or bonding?

Doug (07:35)
⁓ the retainage is something that is agreed to typically. So, that usually isn’t an issue as long as you manage your retainage and your payouts, you know, that typically works out fine. bonding, you know, is always bonding. So as long as your balance sheet’s pretty strong, then you have a pretty good, understanding there. And the key to that really is to communicate. You know, you have to communicate with your bonding agent. You have to let them know where you’re at, what’s going on.

you know, make sure that those things are consistent and, you know, effective, that they know what’s going on with projects, etc. So from that perspective, that’s always gone really well.

Rishi Srivastava (08:08)
Yeah, communication. So the next section is on technology and automation. Can you walk us through the key software tools your finance and accounting team uses daily?

Doug (08:19)
Yeah, we use the Microsoft Office products. Typically, we use an accounting program, Sage 300 CRE, and we use QBO for one of the other subsidiaries. You know, we’re doing MS query. There’s quite a bit of PDF stuff and, you know, getting all of that information working together, you know, we’ve been able to tie together through databases and such like that. So that’s the key things are though.

the accounting system and your ability to generate your data.

Rishi Srivastava (08:46)
Anyway, which tools are indispensable and which ones do you tolerate?

Doug (08:51)
Excel.

It’s indispensable and you can barely tolerate it. Outlook and PDF, right?

Rishi Srivastava (08:56)
Hmm. Yeah. So what’s one technology investment that paid off and one that didn’t?

Doug (09:02)
There’s been a lot of different ones and they don’t necessarily didn’t pay off. You know, sometimes it’s more about learning from that process, that procedure, that program, that product is necessary in order to get to the right thing that you’re looking for. So I don’t always learn, look at it as something that didn’t work. It’s just something that was a step into making, figuring out, making sure what did work. And typically that’s worked out pretty well. You know, sometimes it’s a little expensive, so you have to be careful, but

Rishi Srivastava (09:30)
Yeah, if we have some failures in the process of learning something huge, that’s probably worth the investment.

Doug (09:37)
Right.

And the other thing I’ll say is a lot of it has to do with having the right people in the right spots.

Rishi Srivastava (09:44)
Yeah, people, definitely. Have you started using any AI-based tools for in-waste processing, forecasting, reconciliation? Why or why not?

Doug (09:53)
We are in the process of trying to implement that. You know, as well as I do Rishi, I’ve been interested in that for quite a while now. And we feel like that, you know, we’re moving forward with trying to make sure that anything that we’re investing in to increase our efficiencies and et cetera, is also investing in the potential for AI. So it’s one of the things we’re looking at on any of our vendor integrations and any of the things that we’re trying to do. Time cards, you know, making things more automated, you one touch, one time.

So I feel like, you know, that’s what we’re working towards.

Rishi Srivastava (10:20)
Mmm, yeah.

Right. The next question is, what would take for you to fully trust AI in your financial workflows?

Doug (10:29)
Well, think, I think some of that at least has to do with what you’re feeding it. Right. So if it’s using the data that you’re providing it to do what you want it to do, then I feel like, you know, that’s less risky. There’s risk in anything anymore. So, you know, you have that and most of the programs and software and stuff that I’ve looked at, you know, I haven’t felt like that it was a great risk to do that. I feel like it was the opposite. You know, was maybe a greater risk not to.

Rishi Srivastava (10:54)
Yeah, yeah, once the technology is proven enough, you’re not using is it’s a bigger risk. So if you could wave a magic wand and build the perfect construction finance tool, what would it do?

Doug (10:58)
Yeah.

be a point of contact capture, right? So at the transaction point, wherever that might be, that information is captured and then processed through approvals, through the various levels of authority that you might have to, know, through the AP and into a final check. So that that information flows from that one point, one touch there, that one time, that point of contact.

you’re able to move that all the way through and things are getting close on that, especially on some of the time stuff. that I think in coordinating that with your logistics, all of that’s going to be where it’s at, I think.

Rishi Srivastava (11:41)
Mm-hmm.

Yeah, we as humans a lot of times we are moving data from one system to another system. What is your take on that?

Doug (11:53)
⁓ man, that happens all the time, doesn’t it? I mean, it’s all the time that that happens. And sometimes that’s part of that process of learning, right? Is, know, how does this work and where does it fit within your, you know, what you’re planning to do and how that’s going to work out. So it is definitely ⁓ something that you take into consideration. And, you know, if you get it right, it’s great. And if you get it wrong, it’s a pain in the ass, right?

Rishi Srivastava (11:55)
Yeah

Yeah, definitely. So the next section we have is on reporting, job casting, and ops. What’s the one report you pull every week without fail? And what are you scanning for?

Doug (12:29)
Yeah, pull a GL history report and I’m looking for transaction data to make sure dates are within ranges. I’m looking at checks that are going out and, you know, trying to get a feel for where the job costs are. And it’s usually through that GL history and job cost report, those two reports.

Rishi Srivastava (12:47)
Both reports are very important. So do you ensure your project managers or field teams actually understand and use the financial data you give them?

Doug (12:56)
feel like that’s a communication process. project managers are great at their jobs. And so being able to transition that to the financials is something that we communicate and people understand. know, whenever you get into the over-under, sometimes it can kind of be ethereal or whatever. But the way that we try to report and show them, you know, is how it is. And we’re in the process of doing that here, making that much more efficient so that they’re seeing the accrued.

seeing where the revenue ties to the costs and you know, that’s an ongoing process. Always is. Always is.

Rishi Srivastava (13:27)
⁓

Yeah, yeah, they are doing their job very well, right? So the finance shouldn’t be their responsibility fully. ⁓ Yeah, so how do you handle cost overruns when a job starts drifting off track? What’s your process for course correction?

Doug (13:33)
Right.

Yeah, I mean, they’re intimately involved.

you know, the first thing I try to do is figure out, you know, how far is the job going to be upside down? And then, you know, you immediately start to try to communicate with your vendors and see exactly what happened. You looked at the past history and compare it to your schedule. And if you are managing your jobs by your schedule, you’ve got a pretty good feel pretty quick on, know, where that project’s going to end up. So it’s by looking at what that loss is going to be and what you have to do to remediate that loss with communications with your vendors and seeing

there’s anything that can be done that might help that schedule, typically.

Rishi Srivastava (14:19)
And how often that leads into change orders and big fights?

Doug (14:24)
I wouldn’t say big fights. It happens. It doesn’t happen a lot and it leads into change orders sometimes and sometimes it doesn’t. A lot of times that depends on the agreements and what’s happening, what kind of existing conditions or what kind of conditions changed. And there’s a lot that goes into that. So hard to know.

Rishi Srivastava (14:41)
Yeah. Does your ERP setup support the way your team actually works, or do you feel like you work around the system?

Doug (14:49)
Yeah, we definitely, I mean, every system I’ve been in, we work around a little bit. I think that you do have that. Overall, a lot of the systems are very similar in how they handle the data entry or the processing of payroll and checks and such. And so you kind of learn to work with that schedule and it flows really well as long as you, you know, you have the right people in the right places and you’re following that process that you do throughout the week. It typically works out okay.

Rishi Srivastava (15:18)
The next section is on leadership, people and the future. What’s the most underrated skill a construction CFO needs to have and why?

Doug (15:28)
think it’s the communication and understanding with all of your business models and how they operate and having an open communication with the leadership of those models so that you can make sure that the first thing that happens is, you you’re aware of it, good and bad, and you’re able to manage those situations. I think that’s important.

Rishi Srivastava (15:47)
Sorry, communication. What do you think about math skills? Are they important as a construction CFO?

Doug (15:55)
I don’t know if they’re important. think if you have Excel or the ability to do those things, you know, can you have no math skills yet? Great formula skills. You know, I don’t know. Right.

Rishi Srivastava (16:05)
Yeah.

Doug (16:06)
There’s a lot of work there. I’m not sure people really understand the amount of work that’s there and the diversity of that work from communicating with your bankers to all the people in all your teams, all the stakeholders. It’s pretty broad in that it’s not just saying here are the numbers and here’s what’s going on. I feel like implementing and helping with the efficiencies for the projects and the jobs and the managers is something that the CFO is always trying to do.

I think making sure that you’re able to have accurate financial monthly reporting and that you’re able to communicate those numbers with your project managers and that in turn gives you the confidence and the ability to send, communicate and talk about those financials with your banker or with your bonding agent or with the finance institution or whatever it might be.

Rishi Srivastava (16:37)
and

Yeah, yeah. Looking ahead, five years, how do you see the role of a construction CFO evolving?

Doug (17:02)
feel like it’s going to be more data compilation and then disseminating that data in a more accurate, timely manner so that it’s near live to the point that you can work with your PMs to make sure all the projects and different things are going as well as they need to go. I feel like that’s going to be.

Rishi Srivastava (17:24)
Near light. Okay.

Doug (17:26)
The ability to do integrations now and data grab and that kind of thing has really become very robust. I look for that to increase.

Rishi Srivastava (17:32)
what is your take on history telling versus forecasting and being a business partner?

Doug (17:41)
I feel like, you know, history drives the forecast, right? So you have to look at your history, you know, to get your forecast, you pull in your schedule and your estimates, but you know, over time, typically that history will give you a fairly good idea of what that forecast is going to be. So they’re integral to each other.

Rishi Srivastava (17:45)
Yeah.

Yeah. Yeah.

what will separate the top performing CFOs from the rest?

Doug (18:03)
You have to be willing to change. have to be willing to learn. You have to be willing to sometimes take a risk. You have to manage that risk with what your reward could potentially be. So I feel like that those things are going to become very, very apparent.

Rishi Srivastava (18:18)
Yeah, calculated risk and match it to the rewards.

Doug (18:22)
Yeah, the data is going to be available, I think, to help better manage those risks, because you know it’s about risk reward, right?

Rishi Srivastava (18:29)
Yeah, Anything else you want to share with us, Any words of wisdom for our listeners?

Doug (18:37)
You know, I feel the closer you get to the data point, the more accurate that data is going to be. And if we are able to work with our team members and everybody involved, that it is, could be a struggle, but it also becomes very, very, ⁓ positive. can be a really good win. I think teamwork’s key in our environment and in all industries really. taking that into account and making sure everybody works together.

because team beats I, right?

Rishi Srivastava (19:05)
Yeah, yeah. This is another question I have is, in terms of a life cycle of construction business, where do you think we are? Is there a recession coming in this business or not?

Doug (19:19)
I think that that is too hard to predict currently. Personally, I think it is. I think we’re at really good point. I know here in our area, we’re doing really well and things are out there to bid. There’s a lot of good projects, a lot of great things happening, and we’re looking forward to working on those things. Five years from now, it’s just really hard to predict that, especially with the rapid changing of the economy and the

you know, the finance and those different things that change pretty quick these days.

Rishi Srivastava (19:47)
Yeah, everything’s connected to everything, right? Nowadays. Doug, I had a great time chatting with you, and thank you for your insights.

Doug (19:50)
Yep.

All thanks. All

right, now I appreciate it. I appreciate you having me on.