The United States spent over $1.23 trillion in both private and public sector construction in 2017. There’s no doubt that the construction industry is booming. But the same cannot be said about new and growing construction companies. Startup companies are no strangers to the challenges of running a new business. But there’s one common problem new business owners face: proper cash flow management. If your problem is the lack of working capital, applying for construction financing can help solve your problem.
However, if managing available cash flow is the issue, here are five tips on how to properly manage cash flow for your construction projects:
1.Spread Out Payments
It’s better for construction companies to use a business loan to pay for materials and supplies, rather than buy them with cash. You’ll need to pay the interest on your financing, but you’ll be able to spread your working capital, leaving you with more funds to use on daily business operations.
2.Make a Cash Flow Forecast
Before starting any project, it’s best to create a cash flow forecast based on the length of the project, the amount of work needed to be done, and the billing amounts. You will also need to factor in vendor and sub payments so you remain on top of your working capital. Compare the forecast you made to actual receipts and disbursements. Din this will help you improve your future forecasts.
3.Create Accurate Estimates
By making accurate estimates, it’s easier for you to forecast and track the project’s cash flow. You can use estimating software to get the most accurate numbers possible. Construction professionals, such as surveyors, builders, estimators, and contractors can also use the software. Depending on the platform you choose, you can save all of you’re the pricing details in one place. By doing this, you’ll have all of the information you need whenever you need it.
4.Develop Your Project’s Billing Process
Under-billings is one of the main reasons why construction companies experience cash flow problems. This usually happens when you aren’t paid as much as you should have been for a project. Poor billing procedures may be to blame for under-billings. Fortunately, you can improve your billing process by using applications and other financial tools to accurately track your billings throughout the length of a project.
5.Only Work on Profitable Projects
This may seem like a no brainer, but many contractors make the mistake of working on a project that’s not even profitable in the first place. For this reason, start every project with a realistic estimate and decline the ones that aren’t worth your time. Cash flow management is challenging enough on lucrative projects – even more so on unprofitable ones.
Construction Financing for Small Businesses
The construction industry is capital-intensive. While the returns are great, business owners need to have working capital in reserve while working on a project. Construction financing can help bridge cash flow gaps by providing you with working capital as you wait for your accounts receivables to be paid. Fortunately, the experts at SMB Compass can help you. We offer construction business loans for you.
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Call us NOW for all the details at (888) 853-8922 or email us at firstname.lastname@example.org and our specialists will be happy to answer your questions and steer you in the right direction.