Three Tips for Managing Construction Industry Cash Flow
I understand that owning a small business in the construction industry can be incredibly stressful. Not only, with the long days and hazardous working conditions, then you have to worry about cash flow issues. It can take a long time to collect on payment from your clients or contractors who hired your business, and in the meantime you have to pay employees, cover other expenses, buy materials and pay your own subcontractors.
Here are three tips for managing your cash flow if you own a small business in the construction industry
1. Be aggressive in following up on invoices
Small businesses in the construction industry are at a risk of having their clients not pay them on time. Or at all. Being too passive in collecting on unpaid invoices or reminding clients when payment is due will not help you collect the money you need to pay your bills.
Sending out reminders of invoices that are due can not only speed up the process of getting you paid, it can encourage clients who were considering not paying you to reconsider. Reach out to clients if necessary to discuss payment options. Even a payment schedule is better than no payment at all.
Xero is the best accounting software I have seen (over 20 years) for sending overdue invoice reminders automatically. Once setup you don’t have to do anything else and usually get paid faster!
The worst thing you can do is sit around and hope your client will pay you
2. Watch for scope creep
Scope creep occurs when clients or other project stakeholders change a project’s goals or deliverables. Almost all projects experience some form of scope creep, but too many changes to a project can severely impact your bottom line, and it can hurt your cash flow.
Make sure the terms of your project are set out clearly and let clients know that any changes to the project will result in additional fees. If clients then attempt to change the project you can remind them about the original agreement and the additional fees. If they insist on making the changes, you are free to charge the agreed upon amount.
3. Consider delegating the financial tasks
Many construction small business owners become self-employed because they have construction skills, not because they want to be businessmen. The financial aspects of running a construction business are complex, and take a great deal of time and planning. That can add a lot of responsibility to the business owner.
Hiring someone to take care of the financial aspects of your business, or even to advise you about the decisions you face, can take the stress off you. That’s exactly how I can help. Having someone on your side who has the financial expertise can assess your business, advise you about your cash flow and help you be compliant is invaluable. It will be worth it in the long run with the time and money you’ll save.
Most small business owners face cash flow issues at some point in their career. Unfortunately, those in the construction industry typically have a more difficult time managing cash flow. The large scale of the projects, the multiple stakeholders involved, and the number of factors that can go wrong on a project all incease the financial risks.
Following a few steps can greatly enhance your cash flow and make financial management decisions in your business an easier process.
Please get in touch to find out how I can help your construction business.