Many businesses end up seeing their efforts go to waste when they end up with cash flow problems. Construction companies are especially susceptible to this as there are usually long lead times for invoices to be paid and there are sometimes gaps in between projects.
It is especially important for a construction company to have a well-oiled machine working so there are fewer times when things can’t be done because there isn’t enough cash for certain things. In this article, we will go over several ways for construction companies to take control of their cash flow and be able to grow.
1. Reward Early Payments of Invoices
Waiting on payments for invoices that have been sent out is the leading cause of cash flow problems. Between construction retention of invoices and waiting on the term of the invoice to end, there are many times when there simply isn’t enough money coming in.
A way around this is to offer a discount when customers pay their invoice as soon as they receive it. It is customary to give a 10% discount when payments are made within the first 10 days or so of getting the invoice. That can make a big difference to those customers that are looking to save money and improve their finances, as well.
2. Increase Productivity
When your processes are streamlined and working well, then you finish projects on time, or early. This means that you can then get paid for that project much sooner. Since you get the rest of the payment when the job is done then it is a good incentive to work quickly and efficiently.
Another bonus is that you will be starting the next project much more quickly, as well. If you continue the process of getting that job done on time and on a budget then you keep that cash flowing in and on time.
3. Forecast Well
Properly planned projects will allow you to see ahead and understand when money will be coming in. This allows you to plan expenses well so you don’t spend on things that can wait when there is little cash coming in.
The best way to forecast is to look at past jobs and see what time of year certain government works or even private ones were being put up for bid. You can then extrapolate and figure out what times of the year you are likely to have certain jobs coming in.
There are certain parts of your operation that don’t really require a full-time team to be working on. This can increase your labor costs and don’t give much of an ROI.
Rather than keep a big staff, look to outsource some of the work so you only pay for things when you need them done. This can be the marketing of your company or even the accounting. Even things like hiring an outside crew for specialized work on a project can be outsourced so you aren’t training your crew to do work that doesn’t get done a lot.