As construction companies continue to remain busy and competitive, monitoring the day-to-day operations often overshadows monitoring cash flow. Although the operations of a project are important, accountants and project managers must effectively track cash flow and find ways to better improve their business. There are many strategies for achieving this, including increasing operational efficiency and reducing expenses. This article outlines various ways your construction company can maximize and increase cash flow.
Projecting Future Cash Flow and Budget Accordingly
It is important to take the time to look ahead and predict what your cash flow may look like a in a year. By doing this, you are working towards creating a budget that is accurate and realistic. Because construction projects are extremely multifaceted, various cash flow management software can be used to help you project future cash flows in the most accurate way possible. Planning and anticipating for the future will help prevent payroll and payment problems down the line.
Use Cash Flow Management Processes
Picking up on the first point, tracking and monitoring cash flow can now be done through technology and software. By implementing these programs, you can automate and optimize your billings and expenses in an extremely efficient manner. You can also better track your expenses and payroll with are often integrated within a single software. This can help balance your cash flow and keep better track of your expenditures.
Various Software options can be used to create analytical and predictive models for future cash flows. Pre-planning and proactive planning also go a long way in establishing the foundation needed to carry out an entire construction project from a financial perspective. Software is also capable of designing pay schedules that can be integrated into your billing format seamlessly.
Spread Out Costs
The price of construction equipment and materials is often steep. The best way to pay for these is through spreading out your costs. Negotiate with vendors and suppliers on payment processes, like settling on monthly installments, rather than one large payment in the beginning. By minimizing your monthly costs, it is much easier to balance your budget, and most importantly, leaves more cash flow that can be put towards other resources.
Shop for the Best Prices
Much like your business, suppliers are looking to make the most money as possible. When searching for equipment and materials however, make sure you shop around and find suppliers who provide you with the best offer. This does not necessarily mean finding the cheapest option, but strategically selecting a supplier that provides quality construction equipment for reasonable prices. Also, finding a supplier that has flexible payment options can also work to spread out your costs.
Combine the Use of Subcontractors and Hired Staff
By creating a mix of subcontractors and hired staff, you are able to alleviate your payroll expenses. For most companies, hired staff is paid every two weeks. With subcontractors however, periods between pay are much longer. Negotiate a contract with your subcontractors that allows for payment system that best works for you, like monthly payments, to alleviate more cash flow. Also, set strict timelines for work hours, monitor their productivity and limit overtime.
Accept Electronic Payment
By enabling your company to accept electronic payment, money will be received much faster, increasing your cash flow immediately. Electronic payments are also far more trackable than checks or other modes, and can be fully integrated into your cash flow management software. Immediate electronic payments also frees up money that can be put towards other things in the course of a given project.
Have Accountable Project Managers
Along the course of any given project, cash and payments are exchanged daily. It is up to the project manager to be ready for the job. This means being well-informed and capable of whatever stresses and problems may come their way. Project managers must be equipped with the proper experience and training with regards to cash management. It is essential for project managers to be proficient with whatever management software you may be using to ensure that the entire project runs smoothly. Find more tips on on construction management here.
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These tips and strategies provide a guideline for construction companies who wish to better manage their cash flow. Some of these tips must be implemented in the pre-planning stage, while others must be worked on proactively throughout the course of a project. Most importantly however, these strategies aim to help construction businesses improve their cash flow and facilitate success in the future.