When it comes to proper financial management in your construction company, it is important to put an emphasis on cash flow. The term cash flow is essentially used to describe the movement of money in and out of your business. It’s that simple! However, it could also be a very complicated task to manage. Even though the term itself is self-explanatory, the actual process is complex and requires consideration into various areas. The construction industry in itself is big, requiring different financial needs for different areas within the field. For instance, a homebuilders workflow is very different from a subcontractors workflow and requires a different focus when managing finances. This means their cash flow management will be different. Regardless of the difference, there are some main tips that can be provided to make sure your business is on track and your company’s cash flow process is where it should be.
Tip #1: Make sure to negotiate payment terms properly.
In order to complete any project, you need materials. How and when you pay for those materials can affect your cash flow. You don’t want your account in the negatives while trying to complete a job/project, which is why it’s important to negotiate payment terms. Many material suppliers offer discounts based on quantity of materials purchased as well as offering net 30 terms. This gives you the opportunity to collect money from your customer before having to pay off the material expenses.
Tip #2: Stay on top of your invoices.
When you have a lot of jobs coming in and going out it’s easy to lose track of which customers completed all of their payments and which ones still need to be billed for the job. It is important to regulate and have a schedule in place when it comes to sending out all of your invoices. You should consistently follow up to customers to make sure they received them and keep notes of any issues that may have occurred. By doing this, you are minimizing any confusion that might take place, especially if you have a few jobs being worked on at one time. Your main focus at that moment is getting the projects completed properly and in a timely manner, which is why it’s easy to lose track of the technicalities surrounding payment. If you notice that you’re becoming overwhelmed, this might be a good time to consider outsourcing some of those financial processes that take place.
Tip #3: Reduce overhead costs.
Taking a look at what you are spending on a monthly basis for overhead costs and make sure you in turn are charging enough markup to cover those expenses. You can also reduce unnecessary costs by setting company budgets to make sure you are staying on track with overhead expenses. It’s important to take a look at what you are spending money on every month and try to remove expenses to things that you might not be using. Sometimes we sign up for things such as applications, and then later find that we are not using them as much as we thought we would. You can also control your spending by using credit cards or other systems other than debit cards for things like fuel. Credit cards allow you to take a look at the bigger picture of what you are spending a month which can help you decide on what expenses should be reduced or eliminated.
There are many more tips involved in managing cash flow properly, these are just a few, however, they are a great place to start! Cash flow is your way of keeping your business moving forward, so every piece of it needs to be aligned properly in order to do so. Cash flow keeps your employees paid, it helps pay for materials, and it helps fund future projects and goals. If you ever feel like your cash flow has been unmanageable or that you’ve fallen behind, please feel free to contact us and we can help resolve any issues or answer any questions you may have.
