Tips for Managing Cashflow in the Construction Industry

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Cash flow is the heartbeat of a construction business. Project managers need to have a steady flow of cash moving into their business to purchase materials, rent equipment, cover wages, and more. Healthy cash flow means a construction business is financially-sound, stable, and poised for manageable growth. Of course, managing a consistent cash flow is easier said than done. Expenses are guaranteed, but income is always more fickle. Follow these tips for ensuring your business’s cash flow is optimized for success.

Keep track of everything.

The foundation of a solid cash flow strategy is extensive bookkeeping. Accurate and up-to-date numbers make it easier to reliably track expenses and costs. These insights make for quicker and better decision-making when it comes to cash management. Spreadsheets can work in a pinch but dedicated accounting software is your best bet in the long run. When you don’t have exact numbers, you can still keep track of predictions. Just make sure to update the estimates when more accurate numbers are available.

Stick with profitable projects.

You should only bid on projects that will yield a profit for your business. Maintaining a steady flow of cash is already challenging enough. You should avoid the unnecessary obstacle of tight margins at all costs. Take the time to determine if a project will yield a sufficient return based on the projected timeline and expenses. Simply move on when a project doesn’t meet your standards. It might feel imprudent to turn down a potential project, but you’ll be better off financially in the long run by sticking with profitable projects with reputable clients.

Conduct a cash flow prediction.

It’s impossible to know how much cash flow you’ll have during a project down to the penny due to unpredictable hiccups or cost changes, but that doesn’t mean you should head into a project completely blind. Performing a cash flow prediction can give you an estimate of how much cash you’ll need to have on hand to complete a project. To conduct this prediction, you’ll need to subtract the estimated outgoing expenses from the incoming cash of the project budget. This will give you a rough idea of how much cash you’ll have at each stage of the project.

Ask for enough money upfront.

Be sure to negotiate a favorable billing structure that provides you with sufficient cash flow throughout a project. Keep in mind that you’ll need to spend a decent amount of money on equipment, labor, and other expenses before even getting started on the project. You’ll need to request enough upfront to have sufficient funds to get the ball rolling. You can bake regular payments throughout the project into the agreement too for an even greater buffer. This is where cost predictions are going to come in handy. You’ll have an accurate idea of what kind of funding you’ll need from the client to make the project sustainable and profitable.

Communicate effectively with clients.

As a project manager, you’re used to improving communication and collaboration on the job site. However, that responsibility extends beyond just internal connection. Construction leaders have to communicate effectively with clients directly to ensure all stakeholders are on the same page. This is crucial when it comes to managing cash flow successfully. You need to communicate the client’s responsibilities when it comes to payment schedules, payment amounts, and payment deadlines. When these payments aren’t made in time, don’t be afraid to to apply a little pressure.

If you’re having trouble finding the best craftsmen to complete your projects, the Madden Craftsmen team can help! As local hiring specialists, we’ve spent the past decade pairing talented craftsmen with eager employers throughout the PNW. Check out our employer resources to get started or feel free to contact us directly to see how we can help.