No matter the size or scope of your business, cash flow problems come with the territory.
Building businesses run into cash flow problems for a variety of reasons. Maybe project managers underestimate expenses or overestimate the amount of materials needed to finish a job. Maybe the client or the main contractor on the job isn’t paying you in a timely fashion, with net 30 days routinely turning into net 90 days. Whatever the reason, cash flow problems can severely restrict a builder’s workflow.
Without cash on hand, business owners like you, are unable to reinvest in their business. As such, you are unable to grow. When your funds are tied up, your business is unable to take on additional projects because you cannot afford to pay more employees. You’re unable to invest in new capital assets. It can also be harder to afford the materials best suited for a particular project. At worst, these kinds of problems can force business owners to close their doors altogether.
Conquering Cash Flow Problems
The following are six ways to do just that:
1. Stick to a reasonable schedule.
While you can’t control the future, you can position yourself to be versatile enough to respond to unforeseen complications. Be sure not to stretch yourself too thin. You don’t want to find yourself in a situation where you are expected to pay for an enormous amount of raw materials when you have not yet finished a job you thought would have been finalised last week.
2. Rethink your payment terms.
At the end of the day, your clients ultimately care about one thing: that the job is done right. As such, you might want to consider asking clients to agree to front-loaded contracts. You need cash to complete projects, and it is not unreasonable to convince customers to give it to you up front, so long as you fulfill your end of the bargain. The last thing you want is to end up with negative cash flow, paying bills out of your own pocket while you wait for a client to pay you 30 days after everything is signed off.
3. Consider offering an incentive.
By choosing to offer your clients a slight discount if they pay their invoices early—one or two percent off if payments are received within 10 days—chances are you will find your invoices will clear faster. Of course, you’ll have to sacrifice a little bit of revenue for that access to cash, but it might be worth it. Remember, once a payment is 120 days late, there is a high chance you’ll never collect it at all.
4. Hire fantastic managers and supervisors.
As much as 85 percent of the cash building companies have on hand comes from projects in progress. So, if your business manages all of its projects prudently, your business’s cash flow will be a source of comfort. Don’t forget that stellar project management starts and stops with the people you put in charge.
5. Shop your materials.
The prices of raw materials fluctuate. New suppliers enter the market. From time to time, it might be worth checking around to see whether you could get a better deal elsewhere, or at least have your preferred supplier meet its competitors’ prices.
6. Make use of invoice financing services.
Rather than waiting for what seems like forever for a promised payment to arrive, you could also consider making use of a service that allows you to get the money more quickly on outstanding invoices. This can be an expensive option, but if used prudently can be used to get you out of tight situations.
Many businesses encounter cash flow problems, even if they’re just on a temporary basis. However, by taking proactive steps, you can reduce the likelihood these problems will occur, which means you will be flexible enough to take on more jobs and grow your business.
Call us on 08 9221 1944 or email us on helpme@helmaccounting.com.au if you wish to discuss.
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Michael McAullay(https://www.helmaccounting.com.au)