If you’re operating a business in the construction industry, you’re probably quoting on jobs, calculating costs of materials, managing employees and contractors, invoicing and chasing up payments. Perhaps you’re also still on the tools on a daily basis, or managing principal contractor relationships. With all of these jobs to do, it’s not surprising that we meet so many construction industry business owners who don’t understand the critical financial numbers provided by their accountant, in particular, CASH FLOW!
Even if your business is profitable, if you don’t manage cash flow, it can still fail… Cash flow is KING!
Construction industry businesses need to understand their critical cash flow requirements, because without access to ‘cash’, payments can’t be made and insolvency becomes a real problem.
Fixed and non-fixed costs
Cash flow is critical when there may be new or unexpected expenses that need to be funded. For example, it could be repairs of a work vehicle, or replacing equipment that can take a big hit on the cash flow if you’re unprepared.any large projects on the horizon that you’ll need to purchase materials for upfront?
Cash flow is critical when there may be new or unexpected expenses that need to be funded. For example, it could be repairs of a work vehicle, or replacing equipment that can take a big hit on the cash flow if you’re unprepared.
Managing Payments
Not only do you need to understand what money is going out, and when; you also need to understand how and when money is expected to come in. What are the payment terms for your current jobs? What are the proposed payment terms for jobs you are quoting on? If they are different to the usual terms, how will you fund any extended payment terms successfully?
Strategically managing your cash flow, possibly through credit card purchases, (paid off before interest is due), invoicing for deposits where appropriate, sending invoices to clients on time (rather than simply when you remember) and having a process for chasing up outstanding invoices, will also help you to keep cash flow in check.
When to Review?
Understanding your cash flow isn’t something that occurs on an annual basis, when your accountant provides your annual reports. It’s instead something you need to be reviewing regularly, at least monthly, especially if there are new, large projects to be funded.
If you’re aware of downturns in your future, agreed work, this is definitely a time to review your cash flow position, however, it’s important to also assess when there are times of large expected growth, as there are often new expenses to accompany this growth.
If your construction industry business is facing what seems like endless cash flow challenges, talk to the team at Tax Strategies Australia. Our no-fuss, solution-focused approach means you can focus on growing your business in a strategic, profitable, cash flow positive way. Contact us today for your free construction industry financial reporting review.
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