According to a recent study, some construction firms struggle with their cash flow than finding new clients. As a construction business owner, you may be frustrated of managing a positive cash flow but it is an important part of any business so you need to effectively manage it on your construction projects to be successful.
If there are gaps in your business cash flow, it can impact your ability to order inventory, attend to bills and pay employees and contractors. Inefficiency like delayed payments from clients, seasonal inconsistency, overpaid vendors, inventory surplus and persistent equipment issues can stall your cash flow balance.
Project components can move quickly that’s why it’s critical to align them with your company expenses. You need a sequence between company cash flow and project cash flow. You should plan to pay your usual business expenses, marketing costs and insurance premiums before other significant expenses become due.
Your construction and tradies accountant will assist you with the right tools and help you understand your finances better, allowing you to make adjustments. You can level out your cash flow even at the peak of rapid payments. You can also take advantage of discounts when you purchase or receive service from your contractors. All these ensure that you have funds for unexpected overheads.
You also need to divide invoices. A stretched out cash flow cycle destroys cash flow so if you want to improve it, buy only the inventory you need, receive payments upfront and hire extra staff during busy seasons. If you break up invoices, you will have more funds in your pocket and even improve customer experience. Some customers want to pay in instalments than in big lump sums to ease their cash flow so it is a win-win situation for them and you.
You should also accept automated payments by incorporating an invoice software system. This system can create estimates and issue invoices and receipts so you can receive payments faster. Xero and other invoicing software can help you simplify daily business tasks such as paying bills, bank connections, claiming expenses and calculating GST. Using automated payments through an accounting software can help your customers make prompt payments.
It’s also ideal to hire accountable project managers to monitor the movement of your money so you can quickly tighten your cash flow. Your project managers must have the right training and experience in cash management and allocation. Make sure your project managers are responsible and experienced in business software so they can input correct data and monitor project expenditure and budgeted figures.
It’s important to plan how you will use the above strategies in managing your business cash flow. Some may be used in the pre-planning stage while some must be used proactively throughout the job or project. Call an accountant who’s experienced in the construction industry and its cash flow cycles to help you see other potential avenues of revenue that you may be overlooking.
As you look for different ways to grow and improve your business, seeking professional advice could prove to be an important and helpful decision.
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We would love to help you formulate investment strategies and streamline your processes to take your business to the next level. Our goal is to help you grow your business, find ways to invest more and increase your productivity.
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