how liquidity can help you land bigger, better deals
Growing your Construction business involves several things, but one of the most important is how you manage your cash flow. As a contractor paying for materials, equipment, employee salaries, and other project expenses up front before collecting a single dollar from the client can be a heavy burden. If the jobs you're working on now are “bleeding you dry” or spreading you way too thin, how do you plan for future jobs and actually grow your business?
Obviously cash is important to any business, but there are additional reasons in the construction industry where contractors must balance cash challenging situations and must maintain positive cash flow to ensure access to capital, bonding capacity, and to meet contractor qualification criteria.
Here are a few cash management strategies that could add extra profit to your construction business, giving your business more liquidity, and give you access to more capital with favorable terms from lenders in the future.
Minimize Payroll whenever possible. If your company does work that is labor-intensive, the stress of having to pay your employees every week can make cash flow difficult. Employee payroll is usually the biggest reason for poor cash flow. If your client pays late you can’t tell your employees that you’ll have to delay their paychecks until your customers pay their bills.
Contractors who use subcontractors may not have as much of a problem. Their payments come only once a month and they can pass any payment delays down to their vendors with a paid when paid clause in the contract.
Finance instead of Paying Cash. Giving away all your cash to avoid interest payments doesn’t make sense when it comes to cash flow. By making smaller payments over time, you free up cash each month to use for necessary business expenses, like materials and payroll & planning for future jobs.
Another benefit of financing purchases is that you are building up a good credit rating. This rating comes in handy when you need to apply for a short-term loan or need other financing to help your business.
Get invoices out right away & Follow up. Make sure you have a system for sending out invoices promptly and regularly. Avoid delays in payment by following the billing schedule closely and include the required documents with each invoice. Also, follow up with your customer to make sure they received your invoice(s), and to see if there are any issues. Maybe even offer early pay discounts, or even payment options. The longer you must wait for payment from a customer, the longer you are without the cash you need to run your business
Negotiate with your Suppliers. Talk to your suppliers about how you can get the best deals for the supplies you need. This may include buying in larger quantities or even threatening to change suppliers to get better pricing. Your terms with your suppliers should ideally be equal to or longer than the terms you give your customers.
By incorporating best practices to improve your current cash flow will set you up for growth, not only for future jobs , but for improved business financing options.
Our Job Costing Calculator can help you manage your cash flow and know how much you need and how fast you need it. Get the Job Costing Calculator Here