There’s a lot of money to be made in the construction industry, but you’ll also need to spend money to get your slice of the pie. And while you might broadly have a handle on your incomings and outgoings, the sheer amount of expenses means that experiencing cash-flow issues is an ongoing risk for many construction companies. While cash flow is easy to overlook, the fact is that it’s responsible for a huge percentage of construction company failures, perhaps more than 80%.
You can’t always be free of cash-flow worries. It’s par for the course when you enter a capital-intensive industry such as construction.
You can, however, take steps to reduce the risk. Take all of the strategies that we’ve outlined below onboard, and we’re confident that your cash-flow concerns will become few and far between.
Use Cash Flow Management Software
One of the reasons why construction businesses end up in cash flow problems is because they simply didn’t expect them. The truth is that most cash flow problems make themselves known well in advance — but in order to do anything about them, you’ll need to be aware that they exist.
Construction companies are more liable to cash-flow surprises due to continually fluctuating project costs. One way to retain a grip on your cash flow even during uncertain times is to use cash flow management software, which can provide a crystal-clear insight into your cash flow health both now and in the future.
Rent, Don’t Buy
There are some items that construction companies should buy. These include everyday tools, site equipment (such as scaffolding and ladders), and safety equipment. But there are also plenty of other things that it makes much more sense to rent, not buy — a good example of this would be temporary climate control equipment, which makes more sense to rent because it’s only used on a temporary basis for specific phases of the project. Ultimately, if it’s something that you’ll use again and again and which doesn’t break the bank, then look at owning it outright. If it’s expensive or only needed on a short-term basis, then renting will be the way to go.
Compare Suppliers
A simple way to improve your cash flow is to reduce your outgoings. One easy strategy for doing this that nearly always works is to compare your supplier options and choose the one that offers the right balance of quality and cost. This is also an area of your business where you shouldn’t feel bad about negotiating. Telling a prospective supplier that you’re looking for the best deal on the market can be all it takes to get them to lower their prices, especially if they know that you will genuinely walk away.
Send Invoices Promptly
It’s the money in the account that determines your company’s cash flow status, not the amount of money that you’re owed. Many construction companies fall into cash flow difficulties all because they’re waiting for their invoices to be paid. Sending invoices promptly and offering a small discount for early payment can make all the difference.
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