If you work in construction or as a contractor these days, it’s easy to get caught up in daily “run the business” activities and put more strategic things on the back burner. Even though it’s important to continuously monitor operations to ensure things are progressing as they should, it’s also important to effectively track your cash flow to make sure things are sustainable. Let’s look at some different strategies you can consider using for increasing your cash flow while improving your business.
Project future cash flow & budgeting
Even though predicting future cash flow can be tricky as a contractor or in the construction business, it’s important to take the time to at least make an estimate of what your cash flow will look like in a year. This will help you get a rough idea of your income and expenses so that you can work towards creating a realistic budget. Ultimately, both planning and anticipation will only help your business down the road if there are any problems with payments and payroll.
Spread out costs
The necessary equipment for construction and contracting business can come with a pretty hefty price tag. That’s why it’s important for you to spread out these costs by using financing to pay for the equipment. Take time to talk with your suppliers to set up payments in manageable installments rather than big lump sums. In the end, this will leave more cash flow for your business operations.
Shop for the best prices on equipment
Everyone you deal with is out to make a profit and this includes your supplier. When you begin your search for equipment – shop around. Don’t settle for the first “good price” you come across, do your due diligence and make sure you get your equipment for a reasonable price. Even though it can be a little more time-consuming shopping around, you’ll reap the rewards when it comes to your bottom line and cash flow.
Process change orders quickly
Change orders can significantly impact a project and the cash flow that was expected for the project. Change orders are quite common in construction as sometimes projects require more time, money, or resources than initially planned for. Therefore, it’s important that change orders are processed immediately rather than waiting until the project is almost complete. This will help ensure your cash flow doesn’t go negative as the project’s timeline is drawn out.
Send invoices immediately
As you could imagine, the longer it takes for you to send out an invoice for a project, the longer it will take for you to get paid. So, make sure your invoices are sent immediately and ahead of time. This will help maximize your cash flow potential. As a maker of one of the leading apps for contractors, JobFLEX, we know that the right technology can make invoicing a whole lot easier. Follow the link to learn more about this amazing invoice app.
Accept electronic payments
If you want to receive a payment from a customer, you should make sure that the payment process is easy and there are no hoops to jump through to delay a payment being processed. Accepting electronic payments will not only be more convenient for your customers, but it will also speed up the time that money is received and more cash flexibility for your day to day operations.
Use cash flow management processes
With the tools available today, tracking and monitoring cash flow can be made simple with the right technology. By using the right apps and programs (like JobFLEX), you can automate and manage your billings and expenses in an efficient way. This can help you balance your cash flow and allow you to keep better track of your expenses. Do your research to find which solutions are the best fit for your company and its demands.
Avoid over-billings and under-billings
Over and under billing is something that some project managers do in order to impact the current cash flow. However, there are consequences that come with these once the project is complete. If a project is initially over-billed, it will increase current cash flow but when the project is complete, your cash flow will take a big hit and could leave you in a bind. Keeping your billing as accurate as possible will help you avoid wild ebbs and flows in cash flow that could endanger your business.
Work to get paid immediately
Depending on your business type, it may not always be possible to get paid immediately upon a project’s completion. If it is an option for you, though, “due on receipt” be your default payment terms on all of your estimates and invoices. On top of that, getting paid before projects start can also make a huge difference in your ongoing cash flow. Getting 50% down before you start work keeps money in your pocket and can be vital if a project takes longer than anticipated. If your contracting or construction business doesn’t have the ability to collect full payment immediately after a project is complete, you should still set the most aggressive payment terms that you can to make sure receivable don’t pile up while you struggle to make payroll. Adding incentives for early payment can be another way to get customers to pay more quickly.
Clearly, there are a lot of different options for ways to improve your cash flow. However, each and every contracting or construction business has their own unique issues. So, it’s important to assess each strategy to see which can best be applied to your playbook.