Cash flow refers to the movement of money into and out of your business. It's based on the amount of money you bring in minus the amount you spend. A positive cash flow means bringing in more than you're spending. A negative cash flow means you aren't bringing in enough to cover your expenses.

 

Your construction company can run into problems by not charging enough for goods or services, having late-paying clients, growing too quickly, or simply spending too much money.

 

Solid cash flow management is vital to ensuring your contracting business survives, but not everyone understands what cash flow is or how to manage it. That's likely what makes it a leading cause of stress for small business owners. 

 

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Topics: Construction Cash Flow, Cash Flow, Construction Bookkeeping And Accounting, Increase Cash Flow, Construction Systems And Processes, Contractor Guidance

Managing cash flow is a vital part of running a successful construction business. Some contractors think managing cash flow means keeping track of how much money enters and leaves their business, but there's actually more that goes into it. 

[Starting Cash + Cash In - Cash Out] = Cash Flow

Contractors and sub-contractors know there is more to profits than what is shown above, and most of you rely on your "gut feel" to see when the project has made a profit or not.

 

Cash flow forecasting is an incredibly valuable tool that helps you anticipate cash flow issues, plan for days when your cash flow is limited, and show the bank that you are prepared. It's a necessary process that you shouldn't ignore.

 

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Topics: Construction Cash Flow, Construction Accounting, Contractor, Contractor Tips, Contractor Operating Tips, crisis

Dealing with unexpected cash-flow difficulties, even if you're working hard to avoid shortfalls, is hugely distracting. A formerly reliable client might take much longer to pay than anticipated leaving you out of pocket. If you're starting a construction business, it could simply be taking longer than expected to turn a profit in these trying times.

 

Red light warnings

Develop red light systems to warn you automatically if something needs querying:

• Check as early as possible if leads, orders, or sales, fall below a certain threshold, or a substantial customer ends their subscription (recurring service).
• Pay attention to your Key Performance Indicators. Make sure you have regular feeds of how your business is performing.
• You also need to know about any substantial invoices that are in dispute, particularly overdue debts and clients exceeding their credit limits.

Building productive relationships with your key suppliers is important, so they are prepared to extend extra credit to you when you need it. 

If you have a properly set up accounting software, then it should be relatively easy to view your red flags weekly, monthly (or any period you set).

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Topics: Construction Cash Flow, Construction Accounting, Contractor, Contractor Tips, Contractor Operating Tips, crisis

When you own a small construction business, it's vital you understand how money flows into and out of it. At a basic level, you need to know where your income comes from and what your expenses are. At a deeper level, knowing how money moves through your business can help you make strategic decisions about growth, invoicing, and debt management. 

 

The consequences of not understanding money can be drastic—poor financial management is one of the main reasons businesses fail. That's why you need to understand cash flow. 

 

What is cash flow?

[Starting Cash + Cash In - Cash Out] = Cash Flow

Before you can start to understand your cash flow, you need to know what cash flow is. Cash flow refers to the movement of money into and out of your business. It's fundamentally understanding how much money is coming into your business (your income, loans, and transfers of personal funds into the company) versus how much is leaving (your expenses, taxes, and loan payments). 

 

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Topics: Construction Cash Flow, Cash Flow, QuickBooks Do-It-Yourself construction Bookkeeping, Contractor, Contractor Tips, Contractor Operating Tips, Construction Systems And Processes

Proper construction accounting is all about the details. The answers you need to operate and grow your company are in reports. Everything starts with cash because "cash is fact, profit is an opinion." All transactions in the bank account of your construction accounting system no matter if it is QuickBooks or Xero, must be assigned to the proper accounts:

• Income
• Job Deposits
• Payroll
• Taxes
• Cost of Goods Sold (Direct and Indirect Costs including Labor, Material, Other and Subcontractors)
• Other costs including permits, plans, bills from suppliers, and purchases on your personal credit cards
• Overhead

These tasks form the solid foundation of your small business. As a small business owner, you have more important things to do than to keep your own books. We take care of your books for you, so you can get back to the job of running your business and generating profits. 

 

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Topics: Construction Cash Flow, Increase Profits, Increase Cash Flow, Contractor Sucess, Contractor Tips, Contractor Operating Tips

Construction companies need short-term liquid working capital such as cash, lines of credits, loans, owner financing, credit cards, supplier accounts, and other forms of money to conduct daily operations. Small construction companies with annual sales volume less than $10,000,000 and other requirements enjoy some benefits that are not always available to larger firms. Likewise, larger firms can leverage economies of scale.

The larger your construction business grows, the more likely you could end up operating as a bank without the hundreds of ways to generate revenues from fee income and interest calculation that banks use. The most popular method designed by investors and developers and shrewd business people who understand the concept of divide and conquer is for contractors to get little or no down payment for a construction project, do all the work, including change orders and then try to collect their money.

What often happens is that contractors hate paperwork preferring to keep everything in their head. Then when it comes the time to collect their money, they find themselves having to re-sell the job and talk their customer into parting with their money. It's been said: "The value of services rapidly diminish after the services have been performed," which is why highly profitable companies like McDonald's gets your money before they deliver your meal. Compare the success and profitability of a McDonald's franchise to most restaurants.

 

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Topics: Construction Cash Flow, Increase Profits, Increase Cash Flow, Contractor Sucess, Contractor Tips, Contractor Operating Tips

Construction Cash Flow Example

[Starting Cash + Cash In - Cash Out] = Cash Flow

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Topics: Construction Cash Flow, Cash Flow Video