In Who wants to get paid when during new billboard construction we stressed that you need to spend substantial capital on a new billboard before the billboard generates cash.  Your sign construction budget should include a 5% contingency to handle a few months of deficit cashflow after a billboard is in operation.  Here’s why.

Billboard expenses start right away

• Most billboard lease payments to start on the completion date of sign construction.  Most leases require payment in advance for the payment period.  A monthly billboard lease requires payment by the 1st for the following month.  A quarterly billboard lease requires a three months payment in advance of each quarter for.  An annual lease will require 12 months payment in advance of a year.
• If you’ve borrowed for the sign,  interest and principal payments are due monthly in arrears commencing on the date you’ve borrowed.
• Legal fees are due monthly in arrears.
• Utility expenses are due monthly in arrears.  Some smaller utilities may require  a deposit equal to several months expenses.
• Vinyl cost (if not billed to the customer) is due within 30 days of vinyl shipment.
• Ad design (if not billed to the customer) is due monthly within 30 days of the work.

Revenues take a while to earn and even longer to collect.

• “I want to see before I buy.”  Most advertisers want to see the billboard before they sign a contract.  A new static billboard may take a month or two to fill.  A two sided digital with 16 flips may take 3-6 months to hit full occupancy.  To be conservative you ought to assume the following schedule for a new digital.  First month – 20% occupancy.  Second month 40% occupancy.  Third month 60% occupancy.  Fourth month on – 80% occupancy.
• Revenue starts on ad installation.  Billboard contracts commence on installation so there can be a month delay between when a contract is signed and when an ad is installed to allow for ad production, vinyl printing and scheduling installation.  The time between contract and installation is shorter for a digital billboard because the installatin is done on computer but it can still take a couple weeks to conceptualize an add and go through iterations with the client.
• Collection takes time.  For local clients it will take 10-30 days to get paid, depending on your payment terms.  Agencies and national clients will take 60-90 days to pay.

Here are projected cashflows for a $351,000 digital billboard.  We assume sign occupancy grows from 20% in month 2 to 80% from month 4 on.  Sales commissions are 20%.  Electricity is $400/month.  The lease costs $2,500/month (about 20% of the signs fully occupied revenue), payable monthly in advance.  We assume the sign is financed with debt at 10%.  The sign doesn’t cover all expenses until the third month after it’s put in service.  The cumulative cash deficit is about $10,000 or 3% of the total cost of the project.  The deficit will be higher if receivables take longer than 30 days to collect, or occupancy takes longer or revenue per face is less the lease must be paid quarterly or annually in advance.  That’s why a 5% working capital contingency on a new billboard contruction project makes sense.

What’s your experience with new billboard performance and costs?  Let Billboard Insider know using the comment box or by emailing davewestburg@billboardinsider.com and we’ll do a followup post.

To receive a free morning newsletter with each day’s Billboard insider articles email info@billboardinsider.com with the word “Subscribe” in the title.  Our newsletter is free and we don’t sell our subscriber list.

Paid Advertisement