Published on October 16th, 2021 | by Sunit Nandi0
How To Improve Cash Flow In A Construction Business
There are a lot of moving parts in a construction business. Both literally and figuratively. Managing the day-to-day operations when there are multiple projects happening at the same time plus others coming down the pipeline is a challenge.
One of the biggest factors that makes it especially difficult to manage is the fact that cash flow is impacted. Keeping it positive is not easy when the cost of materials and labor are needed to get started on major works. It is a good idea to focus on cash flow so that all the other aspects of the operation can function smoothly. In this article, we will go over several tips to maintain a positive cash flow so projects don’t get interrupted.
Forecast and budget correctly
Knowing when money is coming in and going out is important for planning. When projects are properly planned, there will always be positive cash flow. It is really the only way that a budget can be created since so many aspects of construction happen in phases.
The best way to forecast is to use construction invoice software. It allows for invoicing to be done automatically and also helps to give answers as to how cash is coming and going. Instead of crunching the numbers and risking something getting missed, the software can do it in seconds and paint an accurate picture of the cash situation.
Then a budget can be created which will allow for accurate planning later. It also allows for a seamless billing strategy since everything is in one place.
Spread out expenses
Much of the costs involved with construction are in the materials and machines needed to do the job. Since it is quite hard on the equipment, new machinery is often needed. Rather than buy everything outright, negotiate to pay in installments or financing the purchases.
This allows some of the cash to be spread around and not have it evaporate with a huge payment. Then, payroll can always be met, insurance can stay up to date and other normal expenses can be paid.
Labor is quite expensive in the construction industry. Unfortunately, projects come and go, and keeping people on the payroll that aren’t always working can be problematic for cash flow.
Outsourcing is a good way to make sure money is only being spent when it is necessary. Find third parties to fill certain jobs that are not done on a daily basis. For instance, marketing should be done by an agency when new clients are needed rather than having a marketing department.
Reward early payments
Waiting on invoices to be paid is a real cash flow killer. Rather than wait for the term to expire before payments come in, reward early payments or paying at the time the invoice is issued.
There can be a discount given for immediate payments or some kind of future reward so money is coming in on time or early. This money is then free to be used for urgent parts of the project.