Masonry Magazine April 1962 Page. 5
By Ralph B. Rogers
President
Tezas Industries, Inc.
Financing For The Mason Contractor
One of the highlights of the 1962 MCAA Convention in Houston, Tezas, was the presentation by Mr. Ralph B. Rogers, Tuesday morning, February 13th, on Financing. Due to the many requests for his speech, Masonry will present, during the coming months, Mr. Rogers' entire speech.
PART II
One of the problems people in your business are confronting us with is the fact that you have so much money tied up in retainages. And this just wrecks us. I mean that we wouldn't need any money if those retainages would be paid, and gee whiz, this retainage business just cripples us, and the bankers won't lend any money on retainages, and you suppliers don't know what the retainage business does to us," and so on and so on.
I'm sorry, boys, but that's just the bunk. Now I'll tell you how you can take an item like retainage, and make it into an asset instead of a liability.
If you have been in business any length of time, and it is customary, in the section where you do business, to have retainages, (money held out on you) this is not an unusual or infrequent occurrence. It happens all the time. If you have been in business for three years, it has been happening to you for three years. If you have been in business for thirty years, it has been happening to you for thirty years-so what is there unusual about it?
Now how many of you here can call up your office and have them send you the history of your retainages for the last five years? By "the history" I mean this: During each year, our retainages amounted to so many dollars. For example, fifteen thousand this year, twenty thousand last year, fifteen thousand the year before, ten thousand the year before. These retainages were outstanding blank days. We collected ten per cent of our retainages in thirty days, twenty per cent in sixty days, thirty per cent in ninety days, etc.
"THE AUTHOR-Ralph B. Rogers
is President and Chief Executive Officer for Texas Industries, Inc. He has been the head of this firm and its twenty-five affiliated companies since 1950. Under Mr. Rogers guidance, Tezas Industries, Inc., has grown from a company having $356,000 in assets in 1950 to one in excess of $25,000,000 today. Tezas Industries is understood to be the first vertically integrated concrete company in the United States which mines and processes its own raw material and with those raw materials manufacturers and delivers concrete in various forms.
We lost so many dollars of our retainages-for whatever reason makes no difference or we deducted on adjustments so many dollars from our retainages.
Now, what could be simpler? Here's a list of all your retainages for the last ten years, in dollars. This tells you when they were paid, thirty days, sixty days, ninety days, one hundred twenty days, a year, two years, five years after they were created. And here is how much money you lost, and here is how much adjustment you made. Now, you all could get that information; that is not a difficult job.
Now suppose you went to your banker and said you wanted to borrow some money against retainages, and you could show him a five-year record which showed that the length of time to collect retainages averaged six months, and that the average adjustments and losses, on a consistent basis, went to three or four per cent; do you mean to say that any banker would not say that that was a current asset against which you could borrow? But, gentlemen, I am yet to meet the first contractor, except for the very biggest ones, who would think it worth their time to have that simple record; and yet I have yet to meet the first contractor, big or little, who didn't gripe all over the place about retainages.
Now we are going to talk a little bit about fixed assets, net worth, long term debt. All of us in this business love machinery and equipment. I mean we just love it. We are really very easy people when it comes to selling us more modern, up-to-date machinery and equipment. And lots of times, we damn well better buy some more modern, up to date machinery and equipment. But, gentlemen, the relationship between your current assets and your current liabilities must not be destroyed by an unbalanced capital account in machinery and equipment. Machinery and equipment ties up to capital. It is necessary; it is important; you must have it. But there must be a relationship, and that relationship must be planned properly, so that your balance sheet is framed in such a way that you are sufficiently liquid to command the credit you need. Because, although it is true that machinery and equipment can save you money, how many of you have had to pay what amounts to interest rates ranging from six per cent simple interest to one hundred per cent interest, because you were tight for money?
Now, of course, somebody is going to say, "Hell, I never paid any one hundred per cent interest." But, you know, that's not true. I mean, you know that if you should discount a bill that is payable in fifteen days, and that is two per cent discount, you know that is a rate of four.