From Controller to Fractional CFO: Luke Nelson on Cash Flow, Retainage & Building Better Contractors

Rishi Srivastava (00:00)
Welcome to Finance at the Job Site, the podcast where construction finance meets the field. I’m your host Rishi Sivastava, founder of Beiing Human. In each episode, I sit down with construction CFOs, controllers, owners, project managers, IT leaders, ERP consultants, and industry experts to uncover how they connect the back office with the field, choose and implement technology, manage cash flow, and drive profitable projects.

Whether you are running the numbers, leading the team, or designing the systems that keep projects moving, this is your place to learn what’s working, what’s broken, and what’s next in construction finance.

Rishi Srivastava (00:39)
Today our guest is Luke Nelson.

Look, welcome.

Luke Nelson (00:42)
How’s it going, Richie? Glad to be here. Thanks for having me.

Rishi Srivastava (00:44)
Luke is a fractional CFO. So first section, Luke, is on your background and career journey. You served as CFO for multiple construction companies, Gunter, JM Cope, and now run a fractional CFO practice. What made you transition from full-time CFO to running your own firm?

Luke Nelson (01:04)
Yeah, I think, I think it was like always this burning nature inside my soul to not want to just be like tied down with one company, right? I, I always, since I was like in college, I always loved the idea of beiing a consultant just because I love the idea of working with multiple people. And like when you work with one company, you basically have one set of problems and in that fractional, see a full row role.

you know, every, every client has a different set of problems. And so that was something that always, that always attracted me. And, you know, I finally decided to make the jump and ⁓ definitely, definitely glad I did. Some days are more hectic than others for sure, but definitely, definitely happy I made the jump. Yeah. That’s right. That’s right. Yeah. That’s the, that’s the dream they say, right? So.

Rishi Srivastava (01:47)
Yeah, you’re cutting your own paycheck.

Yeah, yeah.

What was the biggest challenge stepping into the CFO role for the first time and how did you overcome it?

Luke Nelson (02:01)
Like for fractional or just period? Yeah, think the biggest thing is like understanding that you belong at the table and at the table with everybody. I was a controller at a fairly young age, I would say for controller ⁓ demographics and then ⁓ CFO at kind of a young age as well. so,

Rishi Srivastava (02:03)
Just be real and fearful.

Luke Nelson (02:23)
You know, you hear various people talk about like imposter syndrome or whatever, but like, you know, I would go to these conferences and I was by far the youngest person there. I’m not anymore. I’m obviously 40 and bald now. uh, you know, I’m no longer the yeah. Yeah. Just like you, I’m no longer the young guy now, but, um, just beiing like, okay, Hey, you know, uh, you belong, you belong here. You belong at this table. You put in the work, you have the construction knowledge, you know, though. So just like,

Rishi Srivastava (02:35)
Just like me.

Luke Nelson (02:50)
really truly believing in yourself and just be like, okay, I belong here, right? So I think that was the biggest challenge for sure.

Rishi Srivastava (02:57)
Yeah, imposter syndrome. Having worked across Iowa, South Carolina, and now addressing contractors nationwide, how do regional differences shape the way you approach construction finance?

Luke Nelson (02:58)
Yeah, yeah.

Yeah, I think this is a great question because I have a very good answer, think, to this. When I moved down to, I lived in Charlotte, or right outside of Charlotte for a couple years and worked with a really good general contractor there. I brought this like, know, we’re Midwest, we’re nice, right? But we’re also very direct. You know, I grew up in Iowa. And so when I went down there, I’d be like, when I first started, I’d be like in these meetings and I…

I would just be very direct and they were like kind of beiing this like Southern passive aggressive thing, you know? And so like, I remember my boss, like Andrew, he was like, hey, like he loved it because I wasn’t afraid to call people out if we were over budget or if our projects weren’t performing well or whatever they, whatever may have been going on, right? Like we’re not going to skirt around the issues here. And so obviously look, that’s not as brash as probably like New York people or whatever, you know, but like,

Rishi Srivastava (03:44)
Hehehehehe!

Luke Nelson (04:07)
It was just a very big learning curve for me and just kind a different cultural shock to be like, hey, I never thought I was super direct, but apparently I was. So I think just kind of learning how different cultures are. Some people are always on time. Some people are kind of late and those things like that. But I think just ultimately just beiing yourself is really what people want. So yeah, I think that was really it.

Rishi Srivastava (04:30)
Yeah,

everyone’s already taken. You you gotta be you.

Luke Nelson (04:32)
Yeah, right. Exactly.

Exactly. Yeah, you gotta be you. Yeah, that’s so true. That’s so true.

Rishi Srivastava (04:37)
So besides the cultural differences, what about regulation and operation and,

Luke Nelson (04:44)
Yeah, I mean, it really varies by company by company, right? Because some owners are laid back, some want to be very involved, some accountants are laid back, some controllers are laid back. So it really depends on company by company because…

I like to be probably a little more hands on with my clients than than I would say other fractional CFOs. Like I always tell my clients when I meet with them, like I think I think of your company’s financials as my company’s financials and vice versa. Right. Like I always tell them, hey, we need to do better on girls profit or we need to do this. It’s not always like, hey, you guys need to do this. And I’m sitting over here doing that. Right. So I think it’s just kind of learning that everybody has kind of a different.

temperament and just like, some some others want to be involved, some do not, some just want financial reports, some want to meet weekly, you know, so just it’s all different for sure.

Rishi Srivastava (05:34)
Yeah, yeah. I mean, SMB business is the owner’s personality kind of shadows the business.

Luke Nelson (05:40)
Yeah, that’s right. Exactly.

Rishi Srivastava (05:42)
Who has most influenced your leadership style and how does that show up in how you guide contractors today?

Luke Nelson (05:49)
Yeah, so I kind of alluded to this earlier, but I got very lucky. was an auditor right out of college for two years traveling around, and I got a controller position for this construction company up in Iowa.

you know, around $100 million general contractor, second generation family owned, just a great company. And one of my friend’s dad’s was a, was a vice president there. And so he’s like, Hey, we got this controller job. This lady’s retiring. She’s been here for 30 some years. We were lucky to interview for the job. So I will making the story longer here, but it needs to, but I interviewed this job and I got this job. Right. And I’ll never forget it to you by the way, like I interviewed up in this conference room and it was like,

the middle of summer of Iowa, it’s 90 degrees out and very humid. I’m just sweating through my shirt. I’m fine, I’m fine. I don’t need any water. anyway, I had really good mentors with this company called Woodruff Construction. They’re obviously still around, just a great company. The president at the time, Don Woodruff, he really taught me.

Rishi Srivastava (06:37)
Bye bye.

Luke Nelson (06:54)
everything there is to know about like the hardcore peer construction accounting, right? Like, because I knew nothing. came from, I was auditing not for profit. So colleges and things like that. And so I really knew nothing about construction accounting. Construction accounting in itself is just a whole different world. And so, you know, there was also a handful of guys too with what if a…

like Dave O’Brien, ⁓ Jason Rackamer, Nick Ford, I’m calling people out here, but like I had a really good group of mentors and they all kind of had different, you one was really more operationally focused. But I would say out of that group, Donald Woodruff was the one that really, really taught me just like, and he would always preach at me because I was, I had this audit mind, right? Where I was so focused on, right? I’m going to audit account receivable and dive into the details. And he always be like, no, Luke, wait.

We gotta think bigger. We gotta think big picture here. And so it honestly, took me so long to flip that switch in my brain to think big picture. But ultimately I think that’s what separates CFOs from controllers and bookkeepers, right? Is like, gotta be able to think big picture. then so, when I left Woodroof, I moved down to Charlotte like I alluded to earlier and worked for a

Kind of same thing, a hundred million dollar second generation family owned general contractor called named J.M. Cope and Andrew Cope was the president there. And he was like, him and I worked awesome together. He’s got this really cool entrepreneurial mind where, know, it’d be like, hey, we can go make windmills. And if I could like pencil it right for him, we would do it. you know, he really taught me how to kind of think outside the box. You know, we started doing some

land development deals, things like that. And so like that really got my wheels spinning as far as like my, you know, I kind of lose really, like, I just, can’t, it’s really hard for me just to sit in one box and just stay there. Like we started doing those things and obviously like those are pretty lucrative as well. I’ve just had, I’ve just been very, very, very lucky to have really good mentors throughout my career. And, you know, now I’m trying to do that with

with my clients, right? If I’m working with a client and there’s a controller, know, controller that I’m trying to teach to think like a CFO or a bookkeeper that I’m thinking I want to teach to think like a controller, right? I’m trying to pay that forward, if you will. yeah, long-winded answer, but I’m just super thankful for that whole group of guys.

Rishi Srivastava (09:16)
Yeah, yeah, I’m sorry.

Well, you and I met in Charlotte too, so what about that time?

Luke Nelson (09:23)
Yeah, that’s right. That’s right.

Yeah, that time was good. out to Charlotte. I like Charlotte. Rock Hill, South Carolina. That’s where I worked. so, yeah, Charlotte’s definitely a beautiful, beautiful city with a lot of business folks, a lot of great food. Weather’s awesome. You’re not too far away from the beach, the mountains. And obviously, yeah, you and I met there. And I met a couple of really, really good friends there as well. So definitely thankful for that.

for sure.

Rishi Srivastava (09:49)
Yeah,

I’m thankful to meeting you there in Charlotte, The next section is on cash flow and financial strategy. You’ve seen finance from both the inside as a W2CFO and outside as a consultant. What’s the hardest part about helping contractors get their cash flow under control?

Luke Nelson (09:52)
Yeah, yeah, yeah, yeah.

Yeah, I think the hardest part is having them really look at it and change their mindset. Right. It’s. And I have and have had some clients that they just they refuse to change habits. Right. And, know, they’re complaining about, I just I can’t get bonding because I don’t have any equity in the company. And then they go out and they buy, you know, one hundred thousand dollar trucks or whatever, you know, or they have no money in their bank. So it’s like.

really putting that cash flow in front of them and showing them how their decisions impact things are, you know, is what it takes. But, you know, I think specifically in like the general contractor world, cash flow is huge, but in the subcontractor world, it’s even it’s even larger, right? Because of like, just a trickle down effect of, hey, you know, you have to wait 60 days most of the time to get there. Forty five, 60 days to get paid, right? And so if you take a

Rishi Srivastava (11:04)
Bye.

Luke Nelson (11:06)
Take a $20 million concrete company who’s got 80 laborers, that weekly payroll is huge. Those concrete invoices are huge. And so you’ve got to be able to front load that cash before you get paid from your contractor. putting that cash flow in front of people and actually seeing that, I think is very, very crucial. Yeah.

Rishi Srivastava (11:26)
So

just line of credit and other sort of instruments help in managing this.

Luke Nelson (11:33)
Yeah, I mean, for sure, line of credit, it’s leaned upon quite a bit in our industry, right? And so, which I think can be, it’s there for folks, right? But I think it ultimately kind of becomes a crush at times as well, where it’s just like, hey, we got that money, it’s there. But the last two three years, that money’s no longer cheap. When you’re talking prime plus a half or whatever, right?

Rishi Srivastava (11:52)
yeah.

Luke Nelson (11:55)
before it was nothing to be in your line and you’re like, yeah, that’s almost free money. So who cares? But I think that’s also where us as fractional CFOs for construction companies, like we provide a huge value add, right? In banking and in bonding, because if I’m reviewing their financial statements and putting together a financial packet for a contractor, we send those on to the bank or send those on to the bonding company. The bonding company is really

I found this just in working like they love the fact that companies work with fractional CFOs, right? And I’m going to say especially me, right? Uh, let’s my own horn, right? Just because they can rely on the financials and they know they’re right. They know they’re correct. They know our girls’ profit projections are correct. They know the whips correct, all those things. So, um, but yeah, I think, I think the message though is like the line of credit is there, but it shouldn’t just be something you’re always tapped into. Right? So, I mean, if you think from like a big GC,

Rishi Srivastava (12:27)
Mm-hmm.

Luke Nelson (12:49)
perspective, it just takes one big job to not get paid on and you could be in some serious, serious trouble. So, or any contractor, quite frankly, really. So,

Rishi Srivastava (12:56)
Hello.

Yeah. What about AR invoice financing? There’s companies that do that.

Luke Nelson (13:05)
Yeah, I’m not in favor of that whatsoever. think that you are, to me it feels fairly predatory and you’re ultimately paying just really high interest rates. Like I’m sure it works out for people, but I’m 100 % against that.

Rishi Srivastava (13:21)
When you come into a new company, what’s your first step in stabilizing cash flow and establishing reporting discipline?

Luke Nelson (13:30)
Yeah, so I, I’m probably one of the, I don’t want to say rare ones, but I don’t have a lot of fancy dashboards and stuff like that. Right? Like I want to look at the financials and I want to look at the balance sheet. I want to look at the PNLs. I want to look at the cashflow statement. Now I want to look at the whip. Right? And so from there, I mean, look, I know you can build, there’s all kinds of, you know, there’s all kinds of things out there to make a really nice deliverable for your clients. like I’ve

I’ve tried that and some like it, some don’t, but like, I think to me it’s really like, let’s just dive into the numbers, right? The numbers do not lie. Like they just don’t. So let’s dive into those and let’s make sure that we are figuring out why we are where we are, how do we dig ourselves out of this hole if we’re in a hole, and then how do we kind of stabilize from there, right? Because

It’s just this weird thing that I see a lot where it’s like, you know, I get a call, someone wants my help, whatever. And then we get right. And then it’s like, all right, now we’re getting back into those old habits again. You know, it’s like, hold on guys, like, let’s not do that. But that’s also on me, right, to hold them accountable. So I think like step one is just like, let’s get it all out there. So I think that’s really what I like to do. Yeah.

Rishi Srivastava (14:49)
I

mean, plain vanilla financial reports, including wip they have so much information in them if used right.

Luke Nelson (14:54)
Yeah, right,

right. No doubt about it. No doubt about it. Yeah. And you’d be amazed that like how many contractors out there. But I say this all the time. So let me preface this by saying I don’t I don’t know how to pour concrete. Right. I don’t. So like I don’t blame a concrete guy that goes out and he starts his own business. Right. And he doesn’t know how to read a balance sheet or a P &L or a WIP. Right. Because like I don’t know how to I don’t know how to

poor concrete. So I don’t blame them, but you’d be amazed at how many contractors just don’t have financial statements, right? They’re not reviewing them or they’re just way behind or whatnot. And I don’t know how you effectively run a business without knowing that stuff. Bye.

Rishi Srivastava (15:36)
Yeah, so

the smaller contractors, if I remember correctly from my experience, they just look at their bank statement. They bank, do I have enough cash to run this thing for the next couple of months?

Luke Nelson (15:43)
Yeah. Yeah, no, and that’s

right. And when I work with clients like, look, I get that. I understand why they’re thinking that way, but that’s not enough. And so when we talk about what a fractional CFO can offer, it’s just like that bigger picture thinking and building that balance sheet. So yeah, that’s great. We want to be able to make payroll. That’s obviously the number one thing.

every week, every buy week, like we gotta make pay, right? And I’m not blaming the contractors, right? That’s their concern, right? It’s their company, it’s their people, but you’re right, it’s just not enough to kind of think like that.

Rishi Srivastava (16:09)
Yeah, yeah.

I am.

Yeah, I mean, you guys are fractal CFO. mean, you educate them a lot too on all this.

Luke Nelson (16:26)
Yeah, for

sure, for sure. Yeah.

Rishi Srivastava (16:29)
So next question is, what’s your take on pay when paid clauses? Do you coach contractors to embrace them, push back, or something in between?

Luke Nelson (16:38)
Yeah, I come from the GC world, where I kind of cut my teeth. So I embrace them, right? And I it’s tough, right? If you’re like I alluded to earlier, if you’re a subcontractor and you got to wait 30, not even 30, 45 to 60 days consistently to get paid, that creates a really, really, really big strain on your cashflow, right?

especially if you think about too, let’s say you’re a site work subcontractor, right? You’re there day one, you do this big site work package for two million bucks, right? And then you got 10 % retainage on top of that. So you’re not maybe getting that money until the very end of the project, right? And so while I’m definitely in favor for pay when pay like on a monthly cycle, I do think contractors really do need to try to get

partial retainage from, well, the GCs need to get it from the owners, but then as it trickles down to the subcontractors, they need to get that partial retainage as you’re near 70%, 80 % completion on the project. Because it does create a big time strain on your subcontractor group. so I think GCs oftentimes take this like,

stance where they’re gonna like butt heads with their subcontractors. I’ve never really been in favor of that because I think if the GC wins, sub wins, everybody wins, let’s do another project, let’s do it again. Now obviously there’s instances where a subcontractor is defaults on a contract or doesn’t perform or is negligent in some way shape or form. It’s like, okay, now we gotta go to battle. But I think the pay when paid there is kind of like

Is there to protect kind of everybody just kind of stinks for the subcontractors when like they got to wait a little bit longer. So, yeah.

Rishi Srivastava (18:31)
Yeah, I was talking to another CFO and he was telling me about the retainage and how it’s captured in the contract. Like, am I going to get paid when the landscaper is done or when ⁓ the last year the contract is? So what is your take on contract language on retainage?

Luke Nelson (18:45)
Yeah, right.

Yeah, I mean, I think to me, I think you really need to review that contract language, right? And I always like, if there’s like 10 % retainage in there, try to get down to five, right? Like, mean, five is kind of like the barrier minimum that you see these days, right? I mean, I know, you know, states are different or whatnot, but I think like try to get that down. And I often see too, subcontractors will be like, you know, 80 % of the

when the GCE reaches like 80 % completion or substantial completion or whatever like I think I think it’s one of those things like if you’re if you’re a contractor and you don’t review the contract and you don’t ask you’re obviously never going to get it right so like the worst the the thing the thing that you the worst thing you can do is not ask so why not redline your contract to say like okay we’re gonna do five percent and then maybe once we reach I don’t know

80 % on our end, get that down to 2.5 % retained or something like that, right? So I think the biggest disservice you can do as a contractor is not review your contract and not try to just get, try to get more, right? Because again, the worst thing you can do is not ask.

Rishi Srivastava (20:03)
Yeah. And how often are you seeing contractors are not even reviewing the contract? They’re like, whatever. We just signed.

Luke Nelson (20:09)
Yeah, a lot. Unfortunately, a lot. Yeah, I think it happens more than we would all want to admit, for sure.

Rishi Srivastava (20:16)
How do you help owners and project managers think differently about retainage, bonding, and risk management so they’re not surprised at end of the job?

Luke Nelson (20:26)
Yeah, I think every construction project comes down to risk, right? And so you’re really evaluating risk from day one when you submit your bid, right? So I think to me, it’s working with owners, PMs, and just helping them understand that risk. And like, when can we pull our foot up off the gas a little bit, or when do we got to press down?

Rishi Srivastava (20:38)
Okay.

Luke Nelson (20:52)
so I think, I think, you know, everything comes down to risk. So I think too, especially when it comes to like. Project financials. I always tell my clients if we’re not going to make GP, like our projected gross profit, I want to know right away. Right. So we can, we can do some things, maybe bigger picture to adjust for that lost girls profit on the project or just for the company on the year. Right. And so.

I also want to know right away if we’re going to make more. To me, a project manager that sandbags their GP is just as guilty as a project manager that doesn’t rip the band-aid off right away. Like, I really mean that because you’re not letting, you’re not giving us the real numbers, which doesn’t allow us to make like higher level financial decisions that we want to do. Right. And so,

I think to me it’s like no sandbagging. I tell my clients that all the time. want to know. But ultimately the PM’s fear is this, is like if they tell us in our September WIP review that they’re probably just going to make 10%, all right, I’m holding you to that. And now all of sudden it’s making eight. And they’re like, ⁓ shoot, I should have told them that. So ultimately they know I’m going hold them accountable to that profit percentage.

Rishi Srivastava (22:04)
Yeah, it’s very hard to predict the future. It’s just such a con.

Luke Nelson (22:06)
It’s

very hard. think it’s easier for general contractors for sure, right? Because you have a contract amount, have division one cost, right? That’s your PM, superintendent, dumpster, all those kind of division one things, which are usually pretty easily projected out. And then you have all your subcontractors, right? And so you have all your commitments to say,

I know all of my costs to complete with my subcontractors and if I hit my division one stuff, I should be able to get this profit. Whereas if you’re like a concrete company, you got to project out man hours, you got to project out yardage, you got to make sure that you’re performing at the right clip. You know what I’m saying? So like it gets way, way, way, way more difficult. I’m actually going through this process right now with all my clients. We’re kind of struggling trying to figure out

are projected girls profit on big projects because there’s just so many variables, right? So, but yeah, that’s a fantastic point.

Rishi Srivastava (23:05)
Yeah, I mean, CFOs like you who have this kind of holistic picture, they’re so important to the industry.

Luke Nelson (23:12)
Yeah, for sure, for sure.

Rishi Srivastava (23:13)
The next section we have here is on technology and automation. Here also the co-founder and advisor at Beiing Human. What pinpoints in construction finance inspired you to help build an AP automation platform?

Luke Nelson (23:28)
Yeah, well, it really comes down to just pain and suffering, quite frankly. you know, when I was, you know, when I was like a controller, kind of cutting my teeth, learning everything, you know, we’ve had to like, I’ve had to like fire AP clerks, whatever, and then guess where that rolls onto me, right? And so like, I’m sitting here entering sub, you know, invoices or pay apps, whatever, like this sucks. And like, it’s just very, very labor intensive, right? And so,

And so I was like, when you and I kind of came up with the idea of this, I was like, okay, this is what the industry needs. And so it really comes down to just, hey, I’ve lived it before, right? And now I see it with my clients too, where it’s like, you and I talked to one of my clients the other day, and she’s got like 100 to like 300 invoices, 400 invoices she’s entering a month, right? And so with a tool like Beiing Human, where it’s like, okay,

It gets emailed right over to them, AI reads it, she verifies it, boom, that’s right over approval. Just think of the time and repetitiveness that that saves for her. So I’m excited to see where all this kind of takes our industry because as you’ve learned, you’re not a native.

native construction guy, right? As you will, you learn like our industry is super slow to adopt to technology. I’ll never forget when I like I first started like in this hell, not even very long ago, I guess kind of long ago, because I’ve been in it for a while now. like, there were still faxing subcontractor bids, right? I’m like, when we had email and all these things, right? Like

on bid day, we’d be like getting facts. I remember like sitting by the fax machine and like running them to our estimator. like, this is like, you know, 2017, why are we still doing this? You know, so like, but that’s just our industry in a nutshell right there for sure.

Rishi Srivastava (25:15)
So on the same topic, what would a person like you and I who have built this company need to convince the industry to change?

Luke Nelson (25:25)
I think is just proven. It’s a great question. I think it’s just, like, prove yourself, right? I think, know that sounds probably a generic answer, but it’s like, prove that it works. And obviously, look, it always, everything in life boils down to dollars, right? And especially for me, like, who’s an accountant by nature, like, if you can make it pencil for me.

save my company money and save my company time. And obviously, we started beiing human because we wanted people to be humans, right? And not sit there and be robotic, right? And so I think to me, it boils down to dollars for sure, but also what more do you want out of your employees? You want them thinking strategically or you just want them plugging data all day?

Yeah.

Rishi Srivastava (26:10)
Yeah, great point.

Which accounting or ERP systems do you most often encounter with your clients? And what are their strengths and pain points?

Luke Nelson (26:21)
Yeah, so I work with construction companies only, right? think most of your people do the interview. So yeah, is probably the one that I work in the most. It tends to be kind of the best for GCs and subcontractors. And then also Sage is one that I work with a little bit too. And then QuickBooks.

QuickBooks desktop and QuickBooks online. those are really the three that I work with the most. I would probably say I’m in foundation the most though. I think the biggest problem with foundation is it’s really hard to, for other softwares or other products to interact with it. You would know this better than me. I don’t know the like right lingo, I guess, but like, it’s just really tough to get things to work with it. So.

I think think I think I really truly believe besides QuickBooks Online, like QuickBooks Online is just meant for like purely good, like just bookkeeping and small business kind of things, which is fine if you’re like a growing contractor. That’s OK. Right. I’m not getting me wrong. But like I think at their core, most ERPs are the same. Right. They got the same modules. They got they got, you know, if you you know one, you can kind of work your way around all of them. Right. And I also think like

I think they all do good things and they all do bad things, right? Some have really good projection tools, some have really good change order tools, some have good reporting, some are like easy to create reports, but yeah, I think at the core they’re all kind of the same. I don’t know if I answered your question or not, but yeah, so.

Rishi Srivastava (27:57)
Yeah, when it’s 1010 points, you’re just at least few of them. Have you seen AI or automation meaningfully reduce the time finance teams spend on payables, reconciliation or job cost reporting?

Luke Nelson (28:01)
Yeah, yeah.

Yeah, for sure. think definitely payables, right? For sure. And reconciliation too. know you got a great tool for that. So yeah, think AI can definitely help a lot there. I think too on the job cost reporting and forecasting, I think it helps out. But I also truly believe that you do need project knowledge as well about what’s going on in the job.

The numbers are definitely there and need to of forecast out, but like if the PM doesn’t know what’s going on in the project, then like you’re kind of at a disadvantage, right? So I think you can have AI help there, but also still need the PM to kind of have knowledge of what’s going on within the job.

Rishi Srivastava (28:52)
Yeah, think anyone who thinks that AI can go and win in the stock market, I mean, they’re probably fooling themselves.

Luke Nelson (29:00)
Yeah,

I mean, none of us would be sitting here, right? We’d be living somewhere in Dubai or something, right? Maybe that’s they all are. They’re not here in Kansas City. They’ve to figure it out. I don’t, yeah.

Rishi Srivastava (29:06)
Right.

Yeah, what would need to happen for you to fully trust AI with core finance decisions like approvals or forecasting?

Luke Nelson (29:20)
Yeah, I I think that’s a pretty dangerous slippery slope, right? And maybe I’m 40 again, so I feel like I’m getting old now, but I think I always want there to be, as we say, a human in the loop, right? To verify. I I guess it would just have to be proven time and time again that the results are as perfect as possible. I I even know.

A person’s not perfect, right? So AI is probably a little more perfect as far as data entry goes. But I don’t know that I could ever really truly get there to say like, all right, I’m going to just review my financial statements and AI is like going to do all of it. I don’t know that I could get there. Yeah, yeah. Yeah, yeah.

Rishi Srivastava (30:05)
Yeah, it makes sense. Human in the loop is definitely critical. ⁓

Luke Nelson (30:09)
real quick. I want to say something. I think that sorry to start to interrupt you, but I do think that like, think that we’re sort of like as a CFO, right? Like there’s, there’s a, there’s a patch in a, a tactic of leadership, right? And so AI is not going to really give that to you, right? And so like, yeah, it’s great to rely on AI, right? For sure. But like,

Rishi Srivastava (30:13)
No, no issues.

Luke Nelson (30:32)
You still have to lead your accounting team. You still have to lead your company. You still have to be able to sit in a meeting like this and have a difficult conversation with the project manager when their project has faded 7 % over a 10-month job, right? So I think I don’t want us to lose that, right? Because I still think that’s a very, very big piece of what we do.

Rishi Srivastava (30:50)
and

Yeah, you know, tough contextual conversations here. So reporting job costing and ops. What’s the one report or metric you always ask for first when you start with a new client

Luke Nelson (31:03)
Right, right. Yeah.

Well, I think the one report is the balance sheet, right? I think to me that tells me the health, I think the overall health of a company. I think that’s the easy answer, but I love the whip, right? I can’t get enough of a good whip. can tell how a company is doing on their projects at that given time, obviously, right? Because the whip is really just a, it’s a current snapshot, past snapshot and like kind of where you’re going as well, right? So.

To me, the whip is where it’s at. I think that’s project specific, right? But the balance sheet obviously is the number one thing, right? Because you can kind of tell what’s their current ratio look like. They’re super debt heavy, debt to equity, all these things that we talk about all the time. But ultimately, I think the construction accounting nerd in me is like, ⁓ let me get my hands on that whip, man. I want to.

I want to see that. want to see if we’re overbilled, if we’re underbilled. Why is this project only 3 % when everything else is 10 to 12 %? And ask those questions and really dive into that.

Rishi Srivastava (32:13)
Yeah, yeah, web’s like so tightly tied to the schedule and the progress of the job,

Luke Nelson (32:18)
Yeah, I think to me, I’ve seen, I think people tend to like over complicate the whip, honestly, and look, every company is its own. I would think some of my clients even think like we have too complicated of whips when I think they’re pretty simple. But like, I don’t like to see whips that are like 20 columns wide, right? You I think you just kind of need your basic like.

10 rows if you kind of think of a whip like that, right? Like 10 kind of rows, which I don’t even know how many I use, like just, I think if you over complicate things, it’s kind of paralysis by analysis there with that. for sure. And I think too, if you’re trying to show your whip to someone that doesn’t look at it all the time, their mind’s gonna just explode. So like if you’re trying to keep it a little bit simple, like,

You know, I think even trying to keep it simpler for them, like I think that you’re going to get more out of that, out of that interaction, that meeting than, anything else. Yeah. Yeah.

Rishi Srivastava (33:16)
Yeah, makes sense.

You worked as a controller and a CFO. How do you teach project managers to actually use the job cost data you give them?

Luke Nelson (33:27)
Yeah, I mean, that’s an awesome question and it’s something that I absolutely love to do. So it’s really about looking at your, like starting with a good budget day one, right? And like, you gotta have the PM. The PM has to be bought in on the budget. Like they need to own it, right? And so I really think that…

Contractors need to be holding their project managers accountable for girls profit on their jobs because you know besides like a superintendent or a foreman or whatnot they’re the ones that are driving the profitability on these projects so I kind of alluded to this earlier, you know if we got a 10 month job and Months one through three we are over our labor by a lot and it doesn’t look like it’s gonna get any better Let’s rip that band-aid off. Like I want to know so let’s go on ahead

adjust that gross profit and use the data that we have plus the data that you know we know what the project is gonna is gonna take to get it done let’s use that and let’s bump that gross profit down right or vice versa let’s bump it up if we can but again I’m gonna say this again a sandbagging PM in my opinion is just as bad as a PM that’s not telling you the truth right they just are so to me that tells me that you don’t know your project as good as you should and so I

I started this when I was right in my construction career, is we would go through and we go through, you know, once a month we go over all the projects. It’s me, all the PMs sitting in a room and we go over every job, right? And we talk about gross profit. We talk about subcontractor issues, payment issues, change orders, all these things, right? So I would open it up to the PMs and let them talk about it, about the project. And then I would ask the questions.

Right, but you can’t sit there as a CFO and just like deliver haymakers all the time, right? Because then they’re just gonna like shut down. Does that make sense? Right, so you should be like, okay, you know, okay, I see that, okay, great, thanks for that update. I see that your dumpster cost code is over by, you know, a couple grand. Like, are we gonna change over coming for that, that? Or what’s the story there with that, right?

Rishi Srivastava (35:18)
Yeah

Luke Nelson (35:33)
hitting them with kid gloves, if you will. Now, everybody’s different, right? Some people can take it, but I think no one likes to be criticized, right? So I think having those conversations, not only, and all of sudden too, then I would start to see other project managers learn from the other project managers, if that makes sense, right? Because they’re all kind of having this open and honest conversation about how they run their projects. So that was a very long-winded answer, but I’m very, very passionate.

Rishi Srivastava (35:39)
Mm-hmm.

Luke Nelson (35:59)
about that, it’s something like I try to do with every single one of my clients is like that project, that monthly project financial review. yeah.

Rishi Srivastava (36:10)
Yeah, the alignment of ops and finance. I’m glad that you’re passionate about because construction’s success depends upon that alignment.

Luke Nelson (36:14)
Yeah.

Mm-hmm. 100%. 100%.

Rishi Srivastava (36:20)
When a project starts to drift off budget, what’s your go to playbook for getting things back on track?

Luke Nelson (36:27)
Go to the owner for more money. No, I’m joking. Yeah, no, it’s it’s just sitting down with the sitting down with the team to like to just figure out a plan, right? Whether whether it whether it be like, hey, have we been impacted by rain, right? Or have we had a bad subcontractor? Do we have this bad performance, right? And so I think I think the longer you put off those conversations,

Rishi Srivastava (36:29)
Hahaha!

Luke Nelson (36:55)
the worst it’s gonna get, you know what saying? So just be sure you’re tackling those issues head on. I think it’s the best thing that you could do.

Rishi Srivastava (37:04)
sometimes as a CFO have you also driven a change order?

Luke Nelson (37:08)
my gosh, yeah, big time, big time. yeah, and I, like, and sometimes you get, you get subcontractors or you just get contractors that are afraid to ask, right? They may not want to ruin the relationship with the GC, right? Or the GC might not want to ruin the relationship with the owner or something like that. But like, look, if they, if they did something that cost your company money, why would you not?

Rishi Srivastava (37:11)
Cheers.

Luke Nelson (37:33)
try to get compensated for that, right? At least bring it up. And so those monthly project reviews that I was talking about, like that’s where we talk about change orders all the time, right? Okay, so why haven’t we asked for a change order yet on this? Like they’re delaying us, right? Or like the owner keeps, the owners, this is the fourth time they’ve changed the design on this. Like they’re obviously delaying us. So let’s try to get, let’s try to get compensation for that. So yeah, 100%, I’m driving those conversations.

this goes back to like beiing in tune with your clients, right? And again, that’s why I said I like to be a little more, I truly do think in meeting other fractional CFOs, I’m way more hands on than most, but I love that, right? And so it’s like beiing able to know what your client’s going through and especially like on a specific project.

And having that knowledge, you can’t ask them to do that stuff if you’re not willing to dive in a little bit with them. So yeah.

Rishi Srivastava (38:31)
Yeah.

Yeah, I your approach is your approach.

Luke Nelson (38:36)
Yeah, that’s right. That’s right.

Rishi Srivastava (38:37)
Do you find most contractors adopt their processes to fit the ERP? Or do you try to bend the system to match how they work?

Luke Nelson (38:47)
Well, I think most people try to fit their ERP. Yeah. think ultimately though, I don’t know that I love that way of thinking. I think we always need to be trying to improve with whatever we’re doing, right? like, because here’s what, and here’s what people say, well, let’s just get new ERP then. Like, okay, well, time out.

Like that takes, you know, amount of time and money that that takes to get that accomplished. I’ve done a few of those ERP implementations between me, you and whoever’s listening right now. I don’t want to do them again. They’re not fun. Right. So like, like I think from there you just like, okay, how do we, like if ERP is not no good, then by all means change. Right. But I think like, how do we, how do we tailor our procedures around that?

but still get the effective reporting and the efficient process down to where like, whatever we want to have happen, we’re still making it happen, right? So, yeah.

Rishi Srivastava (39:49)
Yeah, ear changes are very complicated.

Luke Nelson (39:52)
Yeah, very complicated. Very, complicated.

Rishi Srivastava (39:55)
The last section here is on leadership, people, and the future. What’s one leadership lesson you wish you had learned earlier in your career?

Luke Nelson (40:06)
Yeah, think to me it’s just, and I said this kind of already, but it’s like knowing that you belong and then also, actually I’m gonna step back. think the biggest thing that I learned is telling your employees that they’re doing a good job, hands down, hands down, yep. so I think,

Rishi Srivastava (40:27)
Hmm.

Luke Nelson (40:31)
I think that that I always liked to hear that right. And so I tried to do that with my, when I was like a CFO for a company, like I tried to tell them that all the time. And I’ll even still to this day, some of my clients that like have decently sized accounting teams, I will shoot them off and email or a text message or whatever and say, Hey, appreciate your guys’ hard work this week. Really good job. Right. And so again,

That’s all I like to be led. like, think like, I think, and ultimately like that, that’s, I don’t know that’s really, I don’t know that’s really leadership, but it’s like, you’re getting people to buy into you and innately follow you, right? And want to be a part of your team, right? Which then I think if you are leading them in the right way, like they’re going to have your back no matter what. Right? And so I think like, I think the thing that I wish I would learned better was like telling people like, Hey, great job.

I appreciate you. Like I need you on my team. So yeah.

Rishi Srivastava (41:29)
Yeah, like even personal relationship saying thank you to your significant other is so important.

Luke Nelson (41:35)
⁓ my gosh, right, right. Even

like, yeah, that’s so true. Saying thank you or like, hey, just thinking about you, right? Like to a friend or whatever, right? Like that goes a long way for sure, for sure. Yeah, yeah.

Rishi Srivastava (41:45)
⁓

What do most contractors misunderstand about the CFO role, especially when they think about hiring fractional CFO support?

Luke Nelson (41:56)
Yeah, I think that a lot of them just think that the CFO role boils down to like numbers. And obviously look, it’s in our title, financial, right? So like that’s number one for sure, right? But ultimately a CFO should be so much more than that. You are part of the truly of the exec team. like, hey, if you’re coming to me for just financial related stuff, only like

that’s not what I want to do. want to help you grow. want to help you how to scale your company, how to think about adding on people, adding another office, things like that, right? About these big shifts that have the chance and opportunity to make a big impact in your company, right? But I think too, as far as a fractional goes, it’s obviously becoming a little bit more accepted, which

which I love. think that people sometimes have a little bit unrealistic expectations from you as well. like, hey, I need you to be on every single call that we have as a team. I’m like, OK, well, that’s not really what I do. I definitely don’t mind beiing on calls. I love that, actually, because it makes me, again, feel more like the team, as part of the team.

I think to me is like some owners really want us to be way more involved in like this little nitpicky stuff. It’s like, you’re not hiring a bookkeeper, right? You’re hiring a CFO. So let’s focus on the bigger picture items here.

Rishi Srivastava (43:28)
Yeah, yeah. Bookkeeper versus a CFO.

Luke Nelson (43:31)
Yeah,

right, exactly.

Rishi Srivastava (43:32)
Looking ahead five years, how do you see the role of a construction CFO evolving and how are you preparing your clients for that future?

Luke Nelson (43:41)
Yeah, I think it’s definitely changing, We’ve talked about this a lot, obviously this is like the crazy hot topic, but like it is adapting AI, right? And it is learning to be mobile, agile, maybe the old, hey, everybody working in the office, especially in construction, like that’s kind of been the thing, Maybe that goes away and there’s more of a hybrid.

workspace, right? Or maybe, you know, I just think like, I think we need to be able to adapt to technology. Because again, we’ve historically been bad at that. But then also not lose that, you know, I said this earlier, not lose that leadership piece. Because I think truly without that, like, we have nothing.

Rishi Srivastava (44:26)
There’s a core fundamental principles about various disciplines, construction, finance or journalism. They need to remain intact even in the changing technological landscape.

Luke Nelson (44:35)
Yeah.

Right, right, I agree, I agree.

Rishi Srivastava (44:41)
The last question here for you, Luke, is if you could give one piece of advice to a founder running a $10 million construction company about building a finance team, what would it be?

Luke Nelson (44:53)
Yeah, I just be sure that you have people that are going to do things the right way with your finances and always kind of show you the real numbers and not try to make it look better or worse than it truly is, right? And I think that you can…

You can get by with certain bookkeepers or whatnot, but if you really are trying to scale your company, you do need somebody on your team that can think big picture for you.

You don’t need to go out and hire a $200,000 CFO. That’s not what I’m saying. But you do need, if you want to grow and you want to grow at a controlled pace, which in our industry doesn’t happen a lot, right? That’s where guys get in trouble. If you want to grow at a controlled pace, you really need someone on your team that can help you kind of wade those mucky, muddy waters. Otherwise you’re just going to grow and just

be out of your skis and not know what to do. And you’re gonna be in trouble, right? You’re go from 10 million up to 15, back down to seven, and it’s not gonna be pretty. So, yeah.

Rishi Srivastava (46:04)
Yeah, the processes need to scale and someone strategic like you, you know, they can guide them.

Luke Nelson (46:06)
Right. Yes.

Exactly.

Rishi Srivastava (46:11)
Look, thank you very much for your time. I enjoyed this conversation.

Luke Nelson (46:15)
Yeah, man, Richie, I appreciate you having me out here, dude. Obviously, it’s great to catch up with you. You and I go back a few years now, so really, really good to do this. seeing you.

Rishi Srivastava (46:24)
Yep, it’s team here.

Rishi Srivastava (46:25)
Thanks for listening to Finance at the Job Site. If you found today’s conversation valuable, share it with a teammate and subscribe so you don’t miss the next episode. You can listen on Spotify or watch on YouTube. Just search Finance at the Job Site. Until next time, here’s to building smarter, faster, and more profitable projects.