9 Cash-Flow Management Tips for Construction Companies
Cash is king in any industry. In construction, though, it can make or break a company.
Sir Richard Branson, business magnate, investor, author, and philanthropist once said, “Never take your eyes off the cash flow because it’s the lifeblood of business.”
Cash Flow Management Tips
Here are nine cash-flow management tips for construction company owners to help you do more than just stay afloat.
- Perform regular forecasts to reveal important trends in your company.
- Implement a rolling cash-flow model to make timely decisions on short-term strategies, including managing debt reduction, and securing a line of credit for large purchase items.
- Review contractual payment terms and billing provisions, and include “pay when paid” clauses to alert vendors and subs that you will pay after receiving payment from the project owner.
- Negotiate retainage reductions if you cannot phase out or eliminate retainage as a project progresses.
- Avoid under – and overbilling – to avoid running short on cash later in the project.
- Process change orders quickly and get timely approvals so you can bill for additional costs as they come in.
- Refine your closeout process to ensure no steps, documents, or signatures are overlooked.
- Create and maintain a cash reserve to have a cushion large enough if something unexpected happens.
- Engage actively in tax planning throughout the year to avoid surprises come tax time. It also helps you to better manage your finances overall.
Cash Flow Traps
Here are several areas where cash flow can get trapped in any size construction company. Do you have any traps you need to clear out?
- Billing discrepancies
- Unprocessed change orders
- Accounts receivable
- Inventory and other assets
- Accelerated debt amortization
If you have any of these traps holding your success back or if you need help implementing cash flow management tips, give us a call.
Let us help you keep your company’s lifeblood flowing all year long through effective cash management and tax planning.