Managing cash flow in construction can be complex. Good cash flow ensures that there is enough money available to cover all types of expenditure during a project, including the suppliers, materials, salaries, and other day-to-day activities. Efficient and sufficient cash flow is vital for any construction business to be successful.
Some of the most common cash flow problems in construction businesses
Some of the most common things that cause cash flow problems include poor management of orders, out of date systems, not setting up an initial payment before the start of a project and taking on too many projects at any one time.
Tips for improving cash flow
Cash Flow is not just about managing the budget, but managing all parts of the project that will affect the budget, including how the project is run, obstacles and risks, time and resource management and more.
The first step is sufficient management of the project. Ensure that you are clear on what projects are in the pipeline, their key milestones, budget and timeline. It is also important to manage the payments for the project, and ensure this is obtained before the start date or agreed for certain milestones.
When planning the project, and throughout the project, it is crucial to track the risks that may cause constraints. There are problems that you can foresee, which should be taken into account when planning times, supplies and budget. There are also problems that you cannot predict. Make sure you monitor risks throughout the entire project, so if they do arise, they can be managed quickly.
Throughout the entire project, you should not only track the risks, but also the actual vs. estimated schedule and budget. If this is monitored regularly, then any obstacles that arise can be managed accordingly, and all parties involved can be made aware. It is important that you can quickly see how each project is going and how it affects the overall budget. This allows sufficient time for steps to be taken and finances to be adjusted where necessary.
Sufficient resource tracking can ensure that you not only remain compliant but also stay within time and budget requirements. Track the incoming supplies, track contractors workload and make adjustments wherever is needed.
Improve systems and processes
If everything in the project is running smoothly, it could be your systems and processes that are holding you back. Consider reviewing how your systems are currently working for you, and where changes can be made. For example, could you invoice quicker? Are you following up on unpaid invoices promptly? Are you processing change orders quick enough?
Make sure you conduct regular reviews on your systems and process, to see where improvements can be made. Alternatively, a guide to your annual filings will help you compare income statements with cash flow statements, so you can identify any red flags.
If you want to improve cash flow, it is important to consider all aspects of the project and how they impact the timeline and budget, the adequacy of the systems and processes you have in place and the visibility of project requirements and supply chains.