Manage Construction Cashflow with these Methods
From seasonal lows to inclement weather to supply chain issues, many factors can disrupt the progress of construction projects. Despite slowdowns, it’s important to maintain steady cashflow throughout the year.
These strategies can help combat income inconsistencies and protect the fiscal health of construction businesses.
1. Conduct a cash flow analysis. Understanding the company’s cashflow availability is an important first step. A cash flow analysis will explore activities on the cash flow statement to determine how much money is available. This information can then be used to determine operating, investing, and financing expenses and predict the long-term cash position of the company. Starting with as much information as possible will better equip the company to identify needed changes to sustain financial health.
2. Consider new streams of revenue. During slower times, consider introducing new or additional services that address customer needs and utilize the capabilities of specific teams. Research geographic areas, seek new customers, or reach out to existing customers to find opportunities for additional offerings beyond the scope of building. Even if they only operate a few months of the year, additional services or types of teams can generate revenue needed to combat inconsistencies during the winter and other downtime.
3. Negotiate payments with suppliers. To provide more financial flexibility for payments throughout the year, try negotiating with suppliers to set up a payment method that will work best for each situation. Try negotiating a contract that allows more payments during busy months and fewer payments during downtime. Consider the best way to balance payments and help with financial stability throughout the year.
4. Adopt tools to manage cashflow. Keeping track of invoices, payments, and other cashflow management is vital to maintaining financial balance throughout the year. Utilize cashflow management tools to organize financial information, billing, and payment cycles. Work with customers to set up payment plans to increase chances of collecting bills to keep cash flowing consistently during the year.
5. Incorporate tax planning. Careful tax planning is crucial to maximizing tax benefits and avoiding a large tax bill at year-end. Take full advantage of any available tax incentives or deferrals to minimize surprises at tax time. A tax professional will have key knowledge and insights that can help the company save money while remaining compliant with applicable laws.
Despite the sometimes-unpredictable nature of the construction industry, these strategies may help maintain financial stability. Appropriate methods will depend on a variety of circumstances. A professional who is familiar with the construction industry can help determine the best approach for each situation.
If you have questions, contact HFM today. Our professionals are well versed on the latest issues to provide our clients with professional, personalized services.