In today’s construction landscape, contractors won’t run out of work; but if their accounting strategies aren’t up to par, they will run out of money. The good news is: this is an avoidable issue. The bad news is: many contractors aren’t properly managing cash flow, and with time (approximately five to 10 years), 70 percent of small- to medium-size contractors will be closing their doors.
A contractor’s biggest fear is waking up in the morning and not having enough cash in the bank to pay employees or to write a check to buy necessary materials. The advice given to most contractors is to front-load costs (bill as much as possible at the start of the job), and then hold on to as much cash as possible, for as long as possible.
But as all contractors know, that’s easier said than done. And front loading poses many risks toward the end of the project, such as securing another job and justifying billings or change orders. There’s a better way, and it starts with trust.
The best advice from financial executives is to communicate openly about billing. While frightening, and often something contractors want to keep close to the vest, up front discussions about financials and billing help establish trust and an ongoing rapport. Transparency throughout a build ensures all parties can stay accountable to a billing and payment schedule.
Master cash flow
It sounds simpler than it is, but one key to cash flow is not purchasing materials that won’t be immediately used. Materials sitting in the corner of the jobsite collecting dust are a liability and draw from the immediate cash that could be better used elsewhere.
So how does a contractor manage their build efficiently? A project execution platform. Project management efficiencies are built into an extensible platform, allowing the project manager to schedule, budget and collaborate in real time––maintaining a more accurate and accountable project timeline. In turn, this helps the project manager make better-informed decisions regarding their budget, including when, and how much, to bill or payout on any given day.
Equip the PM
Project managers (PM) are on the front lines with the most accurate project information. When armed with a system that helps them maintain greater control and insight into the build and budgets, the PM can make more informed decisions and collaborate easier with key stakeholders. Empowering a PM with the most accurate, up-to-date information allows them to take greater control of money flowing in and out of the project. This helps reduce the money squeeze many companies face throughout the end of one build and into the next one.
Increasing efficiency by increasing transparency, mastering cash flow and equipping the PM to make better cash decisions can help increase profits and solve cash flow problems.