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Here’s how you maintain cash flow as a construction business

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Here’s how you maintain cash flow as a construction business

If you’re a construction based business, there’s a good chance that you have a lot on your plate at the moment. Whether quoting for clients, buying supplies for a new project, signing off jobs, completing payroll, trying to find the next job, the list can sometimes seem endless.

The danger of working in this environment is that you can quite often overlook or neglect areas of the business that desperately need attention in order to ensure that the project is running on time and on budget.

We see so many construction businesses come to us with their finances in a mess. They’re pulling their hair out because they can’t tell which part of the business is causing incorrect finance data.

Is it the field team? Are our accounts department not keeping enough strict records? Are our suppliers overcharging us and we’re not noticing? These a very common questions and can all contribute to your cash flow by making the invoicing process harder.

So what can you do?

Get Your budget in order

It may seem silly but ensuring that great detail is put into setting a budget is very important for any project. Whether it be marketing supplies, vehicle expenses, apprentice wages or any of the other hundreds of considerations a budget needs, you need to make sure that you’re making balanced and accurate estimations.

The reason this is so important is that if the unexpected arises, you don’t have to make a knee jerk reaction based on your gut. You can make an informed decision that is backed by a very strict and balanced budget.

Good cash flow comes down to the process of understanding the entire picture attributing funds to their correct cost centre.

Know what’s coming in and Know what’s going out

It’s crucial to know exactly what money will be coming out of your account and exactly what money will be coming in. Nasty surprises that were not accounted for are always a big inhibitor on the success of a project.

Nasty surprises = less cash.

The easiest way to achieve this is by using accounting software that helps you track and manage every single aspect of the project.

In reality, crosschecking a spreadsheet with your bank account is no longer a reliable method to achieve this. If your project management team is working off one spreadsheet and your accounts department are working off another, you can’t possibly streamline information flow and all be on the same page.

My colleague, Greg Joyce did a very interesting video on why cash is not profit. He outlines why so many construction companies go bankrupt because they assume that just by having money in the bank, the project has been successful. When that money has to be withdrawn for unexpected costs they suddenly panic and realise that the job is not as successful as what they originally thought.

Get business visibility.

Use this information to streamline customer payments

When you have all the information readily available and you don’t have to go digging for receipts in order to issue an invoice, you not only cut down on labour costs of your own employees but you ensure that every single cost centre is attributed to an invoice. You can theoretically miss nothing and spend less time achieving it.

The key is streamlining information flow. By having every single department within your business operating off one system in which there is one true source of data, this will not only cut down time in interpreting it and making meaningful business decisions but allow the process of issuing invoices and getting paid much more accurate and efficient.

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