The common theme running throughout many of these tips is that you can improve your cash flows on construction projects by improving the processes behind the movements of cash – both inflows and outflows. Many of these parties are of course subcontractors, with many of them reporting that they don’t get paid once the project is completed, which is obviously terrible for cash flows. This means the subcontractor or other party is incurring all of their costs and outlays at the beginning of and during the project while they only receive the cash inflows once the work is complete. Many subcontractors (and other construction parties) struggle with their construction cash flows. Studies have found that 84% of construction companies report to have cash flow problems.

The financial success of a construction business depends largely on its ability to manage cash flow. Throughout a project, contractors face a significant outlay of cash for materials and other… The process begins by considering the total budget or cost of the project. This figure is the foundation upon which all cash flow projections are based. In the early stages (or predevelopment phases) of a construction project, cash outflow generally begins with initial investments or down payments. This includes costs for planning, design, permits, and initial mobilization of resources.

Estimate seasonal or one-time expenses

The average number of days it takes to get paid in construction is between 60 and 90. Strongly consider setting a realistic goal to reduce that number to 50 days. You can do this by sending invoices immediately, offering payment incentives, writing clear terms, checking credit reports before making any deals, and restructuring terms with non-payers. Remember that a cash flow projection is just a projection, and things can change quickly.

On the other hand, the company’s cash flow will be the difference between the company’s total income and total expense at the construction level. What we discuss here is, determining the actual flow of money for the contract duration by dealing with construction project cash flow. Optimizing your processes in order to serve your effort to improve cash flow management is always an ongoing process, much like personal finance.

Building company-specific cash flow practices

If your collectibles are net 60s and all your payables are net 30s, timing’s definitely affecting your cash flow negatively. Shopping around for the best deal for supplies and materials can help boost your cash flow—just remember to finance your purchases rather than pay with cash. It’s always a good idea to comparison shop between suppliers to make construction cash flow sure you’re getting the best price. If you let them know you’re shopping for the best offer, a supplier is likely to give you the best deal possible, especially if you’re not bluffing and willing to walk away. If you’re in retail, chances are your busier months are November and December, while a gardening store will likely be busier in the spring.