Managing cash flow and remaining profitable can be a problem for many construction businesses. A healthy cash flow is important to grow a business but it is one of the problems that plagues speciality contractors. This is the reason why construction owners face challenges as lack of cash could be the reason behind insolvencies.
Speciality contractors need to devise ways and plan how to manage cash flow in construction. As there are smaller margins, tighter credit flow and less work, cash flow has always been a top cause of worry for speciality contractors. It’s a challenge that needs to be solved and grappled with and it all begins with taking prudent steps for cash flow by specialty contractors.
To scale a given construction business, big or small, it all starts with better cost management practices. A construction accounting software can provide improved insights and can increase transparency and provide visibility over operations. It also enables speciality contractors to analyze financial risks and make better decisions to save costs.
It all starts at the project level where speciality contractors should focus on empowering each stakeholder to standardize and streamline operational tasks. This will provide the financial team with the right data and help in achieving positive cash flow.
Let us now examine what steps speciality contractors must take to improve cash flow:
1) Review Your Contract Carefully
A specialty contractor spends a good amount of time, effort and money in lining up all the materials needed and coordinating with the field and stakeholders. They must review the contract quite early and must be wary of no-lien contracts or waving off all lien rights before signing up. As unpaid jobs means you are putting yourself at significant risk. Consult an expert before signing up for a clause that you do not understand.
Also, to wait until the project is under way and then cash flow problems crop up, can be quite risky. Eliminate the blocks before you receive your payment as there is no need to put your livelihood at risk and plan proactively instead.
2) Switch to Technology to Streamline Operations
With the help of technology you can stay updated and keep tabs on whether the information is accurate or not. You can also have a more streamlined workflow and you can keep track of change order payments that are often considered the reason for interrupted cash flows.
By connecting the field and office, you can strengthen control over your construction business. This way you can generate invoices, track due payments and create a change order request when necessary. Digitization will help you track liens and waivers easily. ProjectPro with Business Central as an all-in-one construction accounting software can easily help you with job forecasting and can provide added accuracy with resource management, time and budget.
Construction software ensures proper planning and a cloud-based system can provide meaningful insights on your expenses and income that will help you with improved cash flows.
3) Pay Attention to Change Orders
Cash flow is a complicated function in construction as estimates often fall short and having more money than liabilities is what is desired. This is why paying attention to change orders is crucial. As change orders are a sign that a project needs more money, resources and time than originally planned, they should be processed immediately. There is no need to wait and delay the payment process till the project is complete as the money needs to be received on time.
Hence, standardizing operational procedures will help specialty contractors to drive better cost management and strive toward growth plans.
4) Prepare a Cash flow plan
Planning for cash flow is never easy and making projections about your future cash flow is a difficult task. It is more complicated for speciality contractors as future cash flow depends on a lot many factors. A construction accounting software can help you with the varying degree of jobs, change orders and track project progress while addressing your need for document tracking.
5) Speed up the closeout process
A contractor must do everything in its power to increase the receivables and speed up the closeout process. Make sure you receive your retainage payments on time as this will have a positive impact on your cash flow. There is no need to wait for months or days as you need cash to pay your workers, construction expenses and invest in other projects. Work out the closeout documents as soon as possible by offering payment incentives, clear instruction for timely payments and by sending invoices quickly. This will help you restructure terms with non-payers.
If your business struggles with cash flow, it is time to deploy ProjectPro with Business Central powered by the latest technologies of Microsoft. As construction companies are prone to facing higher risks, we can help them streamline their accounting process and can help them with the payment cycle as we have in-built payroll integration capabilities.
For contractors who use spreadsheets to get the job done it is time to step-up and adopt construction technology. The ability to track and generate progress billings and lien waivers, will help you in solving your cash flow problem and help you stay afloat in difficult times.
As we all know, managing cash flow is the key to survival in the construction business. It stands for getting paid for the business you are doing so that you can fulfill your monthly monetary obligations.
Not all construction projects are the same and this is the reason why construction companies operate differently than other businesses. Therefore, each firm will need to improve cash flow and that requires a mix of different strategies. A lot will depend on the contractor's ability to manage cash flow and anticipate what might happen in the construction landscape.
So if you are looking for a construction accounting software to solve your cash flow woes then ProjectPro with Business Central should be on top of the list. Schedule a demo with our construction experts today!