5 Steps for Maximizing Cash Flow

Many business owners do not spend enough time effectively monitoring cash flow because they are so focused on day-to-day operations. However, cash flow is one of the key indicators of business performance.

In this uncertain market, demonstrating your construction business has adequate cash flow can help you secure a line of credit and also will allow your business to continue operating if your credit request is denied. Improving operating efficiencies and reducing expenses will allow you to maintain as much cash as possible.

Project and Budget

It’s critical that you take the time to project what your company’s cash flow will look like for the year ahead. After you establish your annual operating budget, estimate each month’s expected income and expenses.

Many accounting programs offer straightforward cash management tools that can help you create accurate projections based on prior figures and known variations. Compare your actual results against projections, and adjust for any big gaps. Budgeting and tracking expenses will help you know where you stand and what you can and cannot afford at all times.

Streamline Your Cash Flow Management Process

With the proper resources, you can automate and optimize your operations to improve billing and pay expenses in a timely manner. Many programs are available that can help you keep accurate and current books. This technology can provide real-time updates of your financial position and cash on hand, which can help you avoid penalties.

Renegotiate Vendor Contracts

Look for any available tax credits when you are acquiring big-ticket items, such as equipment or machinery, and alter the payment schedule to minimize the net bill.

Make sure you are getting the best values on all major purchases by bidding the purchases to several dealers, and negotiate the terms to reduce your overall cost. Depending on the size of your construction company, it may make more sense to lease rather than buy new equipment or machinery because leasing requires less short-term cash. If you opt to buy, pay off the loan as soon as possible to avoid major finance charges.

Subcontractors Versus Hired Staff

Balancing the use of subcontractors and your general staff can be challenging. Your company has to provide safe, quality work to maintain a solid reputation and prevent accidents, setbacks and unexpected expenses to redo work.

It’s important to control labor costs by being strict with time cards and limiting unnecessary overtime. Using subs in addition to employees can improve your cash flow because of the flexible payment structure that generally gives you a four-week period to pay their invoices, versus paying employee payroll every two weeks.

Bill and Collect

Implement an organized, automated system for billing and collections. Issuing invoices in advance will give clients adequate response time. If collections are an issue for your company, consider hiring a specialist to ensure that you bill and collect in a timely manner, which will allow you to pay your suppliers on time and avoid additional charges.

About the Author: Terri Richards is an accounting services manager at Kaufman, Rossin’s Boca Raton, Fla. office, and a QuickBooks ProAdvisor. Kaufman Rossin offers QuickBooks training, accounting and consulting services for a variety of industries, including construction. She can be reached at trichards@kaufmanrossin.com.