Poor cash flow is a problem that affects a lot of different companies across a broad spectrum of industries. It is something that can severely inhibit the growth of any company. The construction industry is one that deals very frequently with cash flow issues. It’s the nature of the business that allows for it.
Cash flow management is essential when you are trying to stay competitive and grow your construction business. Instead of acting as though it is a simple fact of life when it comes to your business, you can actually make some improvements to give yourself a better positive cash flow. In this article, we will go over several of the ways it can be done.
1 – Have a forecast
When you have a construction business you need to have a crystal ball, essentially. To make sure that you have a positive cash flow as often as possible you have to be able to look into the future and know when you will have projects that start and finish. Then, you need to know when you will be paid for these projects.
Using a construction budget app along with your forecasting will allow you to only spend at the times when you can. This way you can avoid overspending when you are in one of the many periods in between projects. You can decide when the best time to buy new equipment will be so it doesn’t occur during one of those periods in between jobs, for instance.
2 – Give incentives for early payments
One of the biggest issues that construction companies face is that there is some lag time when it comes to invoices being paid. When you finish a project, you then have to wait for the invoice term to end to get paid. This can often be a couple of months which is bad timing when you need cash earlier.
Offering a discount when clients can pay the invoice upon receipt is a great way to get cash right away. You can even give a lower discount if they pay later but still before the normal term of the invoice.
This is a win-win as it also helps the client save money so they are more likely to pay right away.
3 – Outsource
Labor costs are usually one of the biggest expenses that a construction business has. One of the easiest ways to save on labor is to use a third party to do a lot of jobs both in the field and in the office. This way you don’t have to have a staff or team for certain things and can avoid doing layoffs for some of the field workers. You also have to consider the scaffolding costs and that’s why it’s essential to find an affordable and trusted company. You can try searching your web browsers by typing “hire a bending conduit pipe” if you can’t find one.
For instance, you can outsource the bidding process to avoid having to pay people when there are no bids being done. Likewise, if you have certain parts of the construction project that require special training or equipment then it makes sense to outsource that.