Flooded with cash? That’s one kind of flood construction business owners welcome, right? Staying on top of cash flow is always essential, but navigating opportunities, shifting demand, material costs, labor challenges, and inflationary pressures make it more important than ever to know where you stand on a regular basis. Read on for guidance from pros.
Focus on Your Gameplan
“Revenue is one thing – profit is another,” as Deborah Doherty of vcfo importantly reminds us, further observing: “The construction industry is still dealing with a challenging mix – worker shortages and unpredictable material costs that can swing wildly from one project to the next. Projects that look profitable on paper can quickly become financial headaches without careful planning.” Doherty emphasizes the vital role of a financial roadmap–aka a gameplan–for construction businesses and shares these tips:
- Keeping an eye on cash flow is a game-changer because it helps spot potential financial issues before they become an issue. Regular cash flow forecasting is also essential for predicting shortages before they happen….One great way to keep track of cash flow is to use milestone-based billing instead of percent-completion billing. This approach keeps cash flow steady by ensuring payments arrive at set points rather than waiting until significant costs have already piled up.…
- Every business needs a set of metrics that serves as its financial heartbeat. Think of metrics like an ongoing performance review. Successful construction firms don’t just rely on gut instinct – they use data-driven decision-making to stay ahead. These key numbers help businesses understand where they stand financially…..Rather than waiting until a project is complete to assess financial performance, monitor the numbers throughout the process … .Adjust as needed instead of dealing with surprises later.
At Small Business Bootcamp, Shauna Huntington encourages business owners to develop effective daily, weekly and monthly processes for keeping tabs on finances, so they can use the data to course correct, and prevent challenges from turning into full blown business crises. As she explains: “Key performance indicators (KPIs) like job profitability, equipment utilization, and labor efficiency help contractors make informed decisions. If you’re not monitoring your job costs and profit margins, you could be taking on projects that lose money.” Specific examples of monitoring and validating financial data regularly include:
Daily or Weekly Tasks
- Reconcile job costs, invoices, and bank transactions.
- Review automated transactions for discrepancies.
Month-End Close Tasks
- Reconcile all accounts to month-end supporting documentation (statements, reports, etc.)
- Analyze job profitability and financial trends to make data-driven decisions.
- Verify that all expenses are categorized correctly to prevent misreporting.
At GB Financial Services, Gary Bartecki emphasizes that quickly converting short-term assets into cash, makes a world of difference in construction, and offers these pointers:
- Cash needs to be on a worksheet by week including dates when payments are due.
- Cash needs to be prioritized so you make the right payments at the right time.
- Review the billing process to see if you can speed up invoices by a week or two.
- Be told what checks or payments came in that day and whether they have been deposited.
- Actively chase your money.
- Immediately resolve any billing issues.
- Track days it takes to collect ( 30-40 day range)
- Calculate days sales outstanding and review monthly.
- Assign responsibility for these tasks.
- Remember, CASH IS KING, but more cash is better.
Solid Foundation: Surety Bonds
In construction, surety bonds are more than mere paperwork; they’re a testament to your financial stability and commitment to completing projects. Colonial Surety Company helps construction companies of all sizes improve bidding capacity, and demonstrate reliability. Our Hometown Bond Program provides local builders with credit based underwriting bonds for up to $250k—no financial statements required.
Got something bigger in mind? No problem. We’ve got something special for you too.
Receive Free Business Credit Scores instantly, just for submitting an easy, speedy Pre-Qual for a surety line of credit in writing. Once qualified, welcome new projects in, as you leverage all the benefits of The Partnership Account® for Contractors, including:
- Written Bonding Limits: Receive your single and aggregate bonding limits in writing.
- Instant Bid Bond Issuance: Gain the ability to issue your own bid bonds within minutes, using our powers of attorney.
- Real-Time Visibility: Use your private dashboard to view your underwriting profile and insightful financial data in real-time.
Surety Bond programs for construction businesses of every size are right here:
Bonding Programs at Colonial Surety Company
Founded in 1930, Colonial Surety Company is a leading direct seller and writer of surety bonds and insurance products across the USA. Colonial is rated “A Excellent” by A.M. Best Company and U.S. Treasury listed. Let’s connect today: Colonial Surety.