5 Tips to Have Better Cash Flow For Your Construction Company
Jerry Aliberti • April 12, 2024
5 Tips to Have Better Cash Flow For Your Construction Company
Cash flow reigns supreme in every business. Yet, many construction businesses struggle to maintain healthy finances with fluctuating project demands and market conditions. Jerry shares his five indispensable tips for enhancing cash flow within your construction company.
I. Know Your Numbers:
Understanding the intricacies of your financial landscape is paramount. Unit prices that don't change with time and vague estimates can spell disaster. Instead, promote a culture of precise cost tracking and collaboration between estimators and project managers. Real-life examples underscore the importance of sharp and accurate estimates. The synergy between your estimating and project management departments is critical for the success of your company and projects.
II. Invoice Frequently:
Delayed invoicing can severely hamper cash flow. Implement systematic invoicing processes and leverage the expertise of a CFO to streamline accounts payable and receivable. Discover effective strategies for ensuring timely payment collections to keep the cash flowing steadily.
III. Manage Your Overhead:
Uncontrolled overhead costs can erode profitability. Identify and challenge common overhead expenses, from cluttered shops, old equipment, non-productive management to insurance rates. Regular assessments enable you to trim unnecessary spending and optimize resources efficiently.
IV. Handle Scope Creep and Change Orders Effectively:
Scope creep is the silent killer of construction projects. In addition, learn to manage and charge for change orders effectively, emphasizing daily T&M ticket sign-offs and clear communication strategies. Discover the pivotal role of morning huddles in aligning teams, mitigating rework and identifying change orders quickly. Don't forget to bill frequently and stay on top of change orders.
V. Avoid Delayed Payments:
Navigating through delayed payments requires finesse. Equip yourself to deal with challenging GCs and cultivate strategies for finding better-paying projects and clients. Negotiating retainage terms and understanding mobilization costs are vital steps toward cash flow resilience.
VI. Develop a Forward-Looking Finances Strategy:
Embrace a proactive approach to finances by front-loading projects responsibly and planning for end-of-project expenses. Front loading a project can be dangerous if you don't manage cash flow properly.
Incorporating these five key tips into your construction business can revolutionize your cash flow management. We invite you to engage with us, share your experiences, and join us on the journey to financial prosperity in construction.
Learn more about how Pro-Accel can help you maximize cash flow by visiting our Operation Assessment
page.
The Challenge One of the most overlooked problems in construction is confusion over who is actually in charge of the project. In smaller companies and on smaller projects, it often falls on the superintendent. They have the field experience, are respected by the crews, and drive the work forward, while the project manager plays a more supporting role. That structure works when the projects are small, but as the company grows and the projects become larger, the cracks start to show. Clients expect the project manager to lead. They want answers on budgets, schedules, and commitments. The word “manager” in the title makes them assume that the person has the authority, and in my years of experience, they should. Meanwhile, the superintendent’s value is in driving the day-to-day in the field and keeping production moving. When the lines between the two are not redefined as a company grows, tension builds. Superintendents who have always “run the job” struggle to let go. Project managers who have always supported now need to step into leadership. The lack of clarity creates a tug of war inside the company.
Welcome to the first edition of The Growth Accelerator. This newsletter is designed for construction owners who are serious about scaling their operations without compromising profit or control. After 22-plus years in the industry, managing hundreds of millions of dollars in projects in the field and leading estimating teams responsible for more than $12 billion in projects, I have seen the patterns that make or break contractors. Each week, I will share insights from the field and boardroom to help you run a stronger, more profitable business. So let’s dive into the first issue topic! I figured I would start with the topic of one of my most viewed LinkedIn posts, which received over 225,000 impressions!
Struggling with large-scale construction budgeting? I can help contractors and developers plan, manage, and optimize budgets for complex projects. Read on...
