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How to Handle Cash Flow in Your Construction Business?

In the past years, the construction sector has been experiencing immense growth raking in more than $1.2 trillion in 2017 alone. However, challenges are limiting construction startups and growing companies obscuring them from sharing in the huge success of the industry.

The most prominent of these challenges is managing cash flow.

In a recent survey by kabbage, 28 percent of companies reported cash flow as a major challenge in their first year of business outweighing the difficulty in finding new clients.
Here are some of the reasons the construction industry comes by cashflow problems:

  • Having cash that’s tied up in either equipment or building material.
  • Sudden increases in prices of construction materials forcing managers to prompt for more cash in the course of the project.
  • Paying contractors and workers before a client delivers full payment for a project.
  • Buying equipment instead of leasing can slow down cash flow.
  • Unpredicted obstacles such as law-suits or a job going over budget.

Set targets

Preparing a cash flow forecast for your construction business is one of the initial steps to monitoring the flow of finances.
It is advisable to update the forecast weekly to provide a clear and concise outlook for the project.

Setting targets for financial controllers is a helpful way to control cash flow.

Write invoices on time

Sometimes the problem facing the business is usually in the owner’s hands. Invoices are essential in keeping track of business cash flow; therefore, they should be updated immediately a project completes.

When you delay writing an invoice, you delay your payment with an equivalent amount as the delay time.
The delivery method is also a critical factor in making sure your invoice reaches the client early. Email service is efficient and quick ensuring you get your payment

Make payments easy for your clients

Develop a more accessible and convenient payment model for your customers to pay efficiently. A good payment system also gives you instant access to money.
Payment methods like cheques only delay the time taken for the funds to reach your bank account.

Focus on cash flow, not profit margins.

Many construction company managers and owners often concentrate on profit margins and oversee cash flow. This causes early failure in construction startups.
Managing cash flow results to an equivalent rise in profits. Failing to have a good cash flow to survive during the first year of business leads to firms not making it past six months.
Young construction startups should ensure that they work with clients who are quick to make payment, even if it means fewer clients and low-profit margins.
Don’t be blinded by profits or you’ll be overlooking an important factor— cashflow.

Closing Up

Cash flow in a construction business dictates the success of the company and the stability of operations.
Cash remains king in business, therefore, find a way to get your cash flow in control to get your business in the right direction.