Sep 29, 2023
This Podcast Is Episode 543, And It's About Better Practices For Managing And Maintaining Construction Business Cash Flow
In the business world, cash flow remains the lifeblood that
keeps your operations running smoothly. Whether you're a start-up
finding your feet or a seasoned business in the construction
industry, managing and maintaining a steady cash flow can be
challenging. But a few small changes can make a world of difference
to your cash flow and overall revenue.
Your business needs cash. Cash keeps your company in operation
and enables it to grow, so you should know how much your business
needs to survive. Although many think the answer is linked solely
to operating expenses, this isn't true.
No single factor determines how much cash every construction
business needs to have on hand. Somewhere between 3-6 months of
operating expenses is an excellent baseline to start from, but
there's more to it than that.
Initiate a discussion with your lenders if interest only or
deferred payments on outstanding debts are possible.
Request more flexible
payment options
It never hurts to ask, especially
if you've been transacting with your vendors for a long time and
you've established a certain level of mutual trust and confidence.
You can request more flexible payment options or longer payment
terms.
Tap into available credit
lines
Take advantage of available lines
of credit and place the funds in interest-bearing accounts.
Assessing your cash flow is fundamental to better
understanding your business's financial health.
Let's dive into some practical strategies you can implement to
boost your cash flow.
Make invoicing a
priority -get paid faster and aggressively follow up on
invoices.
Receiving speedy payments is crucial to improving your cash
flow. If you typically invoice your customers, consider offering
them an incentive to pay earlier than the standard 30-day payment
period. A small discount of 5% could encourage them to settle their
bills within ten days.
Small businesses in the construction industry are at risk of
having their clients not pay them on time—or at all. Being too
passive in collecting unpaid invoices or reminding clients when
payment is due will not help you collect the money you need to pay
your bills.
Sending out reminders of due invoices can speed up getting you
paid and encourage clients considering not paying you to
reconsider. Reach out to clients if necessary to discuss payment
options. Even a payment schedule is better than no payment at
all.
Invoicing should be a regular part of your business day.
Adopting a same-day or next-day invoicing practice can ensure
you're on top of your receivables. Additionally, consider emailing
invoices as a supplement to regular mail.
If you have customers who are habitually late, don't hesitate
to remind them regularly about payments.
Use business credit
cards.
Using business credit cards to pay suppliers or make purchases
can also help manage cash flow. Most credit cards offer a grace
period, sometimes up to 25 days, allowing you to settle the
statement balance without incurring interest. Some even come with
cash-back features.
Watch for scope
creep.
Scope creep occurs when clients or stakeholders change a
project's goals or deliverables. Almost all projects experience
some form of scope creep, but too many changes to a project can
severely impact your bottom line and hurt your cash flow.
Make sure the terms of your project are set out clearly, and
let clients know that any changes to the project will result in
additional fees. If clients attempt to change the project, you can
remind them about the original agreement and the extra costs. If
they insist on making the changes, you can charge the agreed-upon
amount.
Invest in today's
technology.
Investing in modern bookkeeping software or invoice management
services can help streamline your receivables and expedite customer
payments. While it may seem like an additional cost, this
investment can offer tremendous cash flow benefits in the long
run.
Many software solutions can help you understand your company's
cash flow. They can help you build projections and get a real-time
view of how your business is doing. This information can then be
shared among company managers so everyone knows 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 and project management software can
encourage faster, more manageable payment from clients and keep
projects on budget. This will also improve your cash flow.
Consider delegating the
financial tasks.
Many construction small business owners become self-employed
because they have construction skills, not because they want to be
businessmen. The financial aspects of a construction business are
complex and take much time and planning. That can add demanding
responsibility to the business owner.
Hiring someone to take care of the financial aspects of your
business or even to advise you about the decisions you face can
take the stress off you. That's precisely how we can help. Having
someone on your side with the financial expertise and construction
experience to assess your business, advise you about your cash
flow, and help you secure funding. With the time and money you'll
save, it will be worth it in the long run.
Final
thoughts
Remember, cash flow is king in the business world. Assessing
your cash flow is fundamental to better understanding your
construction business' financial health. Implement these simple yet
effective strategies to maintain a positive cash flow and drive
your business toward success.
Need help with managing your cash flow? Get in touch with us
now.
About The Author:
Sharie DeHart, QPA, co-founded Business
Consulting And Accounting (Fast Easy 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. She offers insights on
managing 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