When it comes to running a profitable construction business, having a positive cash flow is essential. This post will discuss the fundamentals of cash flow before highlighting how you can ensure your construction business is maintaining a positive cash flow.
What is cash flow?
To put it simply, cash flow relates to the amount of money incoming and outgoing from a business. This means that if there is more money coming into the business than coming out, you have a positive cash flow. Securing a stable and positive cash flow will ensure all expenses are covered and help meet projected margins.
In the construction industry there are a lot of moving parts to manage as well as multiple projects which can make cash flow hard to predict. It can also be impacted by factors outside of your control, such as having to place material orders early. Having a negative cash flow can cause issues with subcontractors, suppliers and could have a negative impact on successful project delivery.
Having a positive cash flow is vital for any construction business, but don’t worry there are a number of things you can do to help maintain it.
Reporting
To ensure that you stay on top of your cash flow management, you need to have full visibility over your construction business’ operations. Having access to accurate, up-to-date reports when making business decisions is essential. With this being said, if your construction business is still relying on spreadsheets for reporting, it might be time to reconsider your process.
Integrity Software’s construction-specific accounting software, Evolution Mx, allows you to instantly generate business reports with the most up-to-date information. By using dashboard technology, you can get an ‘at-a-glance’ view of your construction business’ performance. Having all the information you need on one screen makes reporting much easier and makes keeping track of cash flow effortless.
Forecasting
When it comes to monitoring cash flow, forecasting is essential to allow you to mitigate any potential risks before they arise, helping you maintain positive cash flow. This is particularly true in the construction industry when you are dealing with multiple contracts or projects at once. To be able to accurately predict margins and forecast long-term financial risks, you need to have a single source of information that covers all departments of your business. One way to do this is by using an integrated accounting system.
Evolution Mx is a fully integrated accounting system covering all aspects of your construction business. By having easy access to all business data, particularly related to projects or contracts, it becomes easy to forecast and can help you identify and mitigate any potential risks. By having an integrated system like Evolution Mx you also have access to historical data, which can be useful when it comes to forecasting.
Plant and Equipment Management
In the construction industry, plant and equipment costs can have a big impact on cash flow. Being able to effectively manage your plant and equipment costs will allow you to have a better understanding of your overall cash flow, allowing you to make any adjustments needed to keep it positive. When it comes to effective plant management you need total visibility on; availability, costs, locations, bookings, and billings to give you an accurate understanding of costs and utilization.
Integrity Software’s Plant Management module, an add-on to Evolution Mx, can help you achieve this. As well as having instant access to all information regarding plant management you can also use this data to generate reports and create profit and loss reviews. This allows you to have a clear overview of the costs associated with plant and equipment, giving you a better idea on how this may affect your construction business’ cash flow.
Summary
As the construction industry has many moving parts, it faces a number of challenges when it comes to maintaining positive cash flow. By having access to better reporting, more accurate forecasting, and plant management you have a clearer idea of your construction business’ cash flow and how to keep it positive.
Through digitization you can have real-time visibility over your business in a fully integrated system, which allows you to control costs and predict margins. To find out more about how our construction-specific accounting software, Evolution Mx, can help your construction business maintain a positive cash flow then please get in touch today and book a free, no-obligation demo.
