Managing Construction Cash Flow Effectively
Effectively managing your construction business’ cash flow can be the difference between a successful business and a failing one. But how exactly do you manage construction cash flow to make sure your projects are profitable from start to finish?
Get to know your client
Getting to know your client before any work begins is important – after all, you want to work with contractors that will process, sign off and pay in a timely manner to protect your cash flow.
Your accounts team should perform a credit check on potential clients too, or at the very least look for references from others who’ve previously worked with this client.
Going into a project you need to be confident and comfortable that the client is going to be able to pay up for all the work you deliver.
Provide a profitable estimate
Make sure a contract will be profitable before bidding for the work, otherwise what’s the point? Balancing your construction business’ cash flow at the best of times can be a tricky task, let alone when you’re running a project that keeps you in the red.
Reduce accounts receivable by being organised
Trying to get your accounts receivable down to 40 days or less will really help take the pressure off managing your construction business’ cash flow. Make sure that you’re sending paperwork to the right contact and you have all documentation in order. Once work has been inspected and signed off ensure you’re asking for payment quickly.
Do a cash flow forecast
The Holy Grail when it comes to effectively managing cash flow, a cash flow forecast or projection will help you to take control of project costs. Depending on how long the project will last, you will need to revisit the forecast a number of times to ensure it stays up to date.
By figuring out how much you’re likely to have to pay out to subcontractors at different points, you can get a general idea of how your cash flow is going to look throughout the project.
Comparing your forecast to invoices and receipts as they come in will help you to remain agile in amending this forecast and give you valuable insight for future ones, too.
Need help with construction cash flow?
With our brand new Cash Flow module, your construction business need never be caught short for cash again. Shun the spreadsheet and the guessing games – Cash Flow will show you your up to date cash position over the coming weeks and month, in real-time.
Deduct from current bank balance
With your business’ current bank balance as the starting point, Cash Flow deducts invoices as and when they are due, along with adding in sales, to give a predicted view of cash flow.
Add in recurring expenses
In addition to taking into account invoices and sales, you can also add in recurring expenses such as wages and other overheads, to ensure your cash flow prediction is as accurate as possible. You can change the frequency of these recurring expenses along with establishing an end date.
Generate automatic reports
Automatic reports can be set up which are emailed to management on a weekly or monthly basis. These PDF reports are attached to an email message, meaning the user does not require access to Evolution Mx in order to see the business's current cash flow position.
Ready to see it in action?
Book your complimentary web demo to see how the new Cash Flow module can help your business better manage cash flow.
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