How to Boost Cash Flow for Your Construction Business

How to Boost Cash Flow for Your Construction Business

February 2018
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Keeping the cash flowing for your construction business is a challenge that is especially crucial when you're a "one-man operation." Without the backing of investors -- and often lacking the ability to tap into traditional avenues of cash, such as loans -- small business owners often have to get creative in order to keep the coffers filled.

Here are five strategies to help boost your cash flow (no loan application required):

1. Predict Your Future Cash Flow

This is the number one strategy for boosting your cash flow. Not surprisingly, can also be one of the most difficult to accomplish.

When you factor in the effects that change orders can have on current projects, future projections can become even more complex.

Start by researching data related to the income and expenses your company has seen over the years that you've been in business. This data provides a solid foundation to work from when it comes to predicting your cash flow in the future.

While you can collect this data on paper and compare it manually, investing in software designed to help small businesses more effectively manage their available resources can make this task easier.

2. Handle Payroll the Right Way

Payroll may be your biggest operating expense and it can also bring some of your biggest cash challenges -- whether it’s paying your full-time employees regularly, or making sure your subcontractors get paid on-time.

If your business has employees, you may consider a payroll service to help ensure everything is going smoothly.

Spending money to outsource something you’ve been doing yourself may sound counter-intuitive to freeing up more cash flow, but consider this: paying someone else to handle payroll could free you up to spend more time getting new clients or bidding new projects.

3. Take Advantage of Supplier Financing

Purchasing supplies and materials can make a big dent in a project's budget so it's a good place to look for ways to save money.

Unless you can negotiate a significant discount by purchasing in bulk, it may be a better idea to use the financing options offered by your suppliers. Though you'll amass some interest by going this route, the ability to spread out the payments over time could allow you to leave more cash on hand for your daily operations.

4. Make Processing Change Orders a Priority

Like it or not, change orders are part of business for many construction companies.

Making it a priority to process these change orders can help keep their impact on your cash flow to a minimum. Never wait until the project reaches completion before processing them as they are likely going to result in an increase in the money, time or other resources that you originally allocated to the project.

5. Embrace Automation

The construction industry is embracing new technologies in just about every facet. Are you?

New technology and automations can free up time, reduce errors, and help you get more cash into your accounts quickly. Say goodbye to the days of paper invoices and waiting for checks to arrive in the mail. Today, these are just a few of the ways you can get paid faster than ever:

Electronic Payments

Accepting electronic payments has many advantages, including having access to your money more quickly. You can save time and money by skipping trips to the bank to deposit checks, waiting for checks to arrive in the mail or having a hold put on the money while deposited checks clear.

Electronic Invoicing

Another way that automation can help is when it comes time to collect payment. Ideally, you should start sending invoices automatically and as soon as possible once a project starts. For the maximum in cash flow, send out automated invoices prior to the start of the project.

Relying on automated software to handle your invoices can make it easier to avoid over- or under-billing.

While billing more early on in a project can help your cash flow in the present, this strategy could leave you scrambling for cash as the project reaches completion.

If you put off invoicing for too long, you will be left with limited resources early on in the project. This is most definitely not a good strategy for keeping cash at hand for materials and payroll.

Your best bet is to invoice only according to the completion rate of the project.

Like any small business, the amount of capital available to your construction company fuels its health and growth. The five strategies above can help boost your construction company's cash flow. Picking and choosing the ones that work best for your business might take some trial and error, but the results can be transformative.

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