432: Cash Flow Advice For Construction Businesses

This Podcast Is Episode Number 432, And It's About Cash Flow Advice For Construction Businesses Solid cash flow management is vital to ensuring your business survives, but not everyone understands what cash flow is or how to manage it. That's likely what makes it a leading cause of stress for construction business owners.   Cash flow refers to the movement of money into and out of your business. It's based on the amount of money you bring in minus the amount you spend. A positive cash flow means you're bringing in more than you're spending. A negative cash flow means you aren't bringing in enough to cover your expenses. Your company can run into problems by not charging enough for goods or services, having late-paying clients chronically, growing too quickly, or simply spending too much money.  

Without proper tracking and matching of income and expenses, most construction companies never know if they made a profit until the job is over.

Cash flow can vary throughout the year, depending on sales cycles or whether you've made a large purchase. Here are three strategies you can use to gain control over your cash flow.

1. Understand your profitability

Managing your cash flow is excellent, but it won't help you if your business isn't profitable. Take a look at each of your services to determine how much they bring into your business compared with how much you spend to provide them. Find any inefficiencies in your processes and eliminate them if possible. Figure out where your business is most profitable and where you're dealing with cost overruns.

The basis of a solid cash flow is ensuring you offer goods and services that are profitable and help you obtain your goals while reducing those that negatively affect your finances. You may need to increase your prices to reflect the cost of goods sold or stop selling lower-margin products or services.

Similarly, take a look at your clients. Are there some that you are undercharging or spending too much time and energy on? Can you increase their fees or find higher-paying clients?

2. Write a cash flow forecast

Your cash flow forecast (also called a cash flow projection) predicts how your business will perform financially over a set period. It's a good idea to have a cash flow forecast for a year, broken down into quarters and months.

The projection considers your revenue and expenses over those set periods and helps you figure out how much you need to make in that period to cover your costs. It can also allow you to anticipate any upcoming cash flow issues, such as slower periods that may require you to cut back on expenses. If you have any anticipated big-ticket items you'll need to buy or plans to expand your business, include those in your forecast.

Periodically check your actual cash position against your projection to see how you're doing and if you need to make any adjustments.

3. Use technology to keep on track

There are plenty of software solutions that can help you gain insight into your company's cash flow. They can help you build projections and get a real-time view of how your construction business is doing. This information can then be shared among company managers so everyone can know how the company is doing financially and where strategies need to be put in place or altered to get you back on track.

Additionally, invoicing software and project management software can encourage faster, more manageable payment from clients and keep projects on budget. This will also improve your cash flow.

Final thoughts

Many business owners find cash flow management stressful, but with a bit of information and planning, and by using the right tools, you can have better insights into your company's financial situation. Those insights will help you make better decisions for your business and gain control over your cash flow.

Because of the unique nature of construction accounting, most accountants have little understanding of how construction accounting works. Construction accountants are skilled in providing accurate information for contractors, while C.P.A.'s and tax preparers are trained to make sure contractors pay their fair share of income taxes.

The bottom line is working with us; you get the best contractor bookkeeping services company on your side, which means you will substantially improve your chances of success. We are not Jack-Of-All-Trades, Master-Of-None accountants, or bookkeepers who take anyone who contacts us. We are Construction Accounting Specialists with one purpose and only one purpose; serve construction contractors in the business and prepare to get into business.

About The Author:

Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com