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Avoid These Mistakes that Construction Companies Make with Their Cash Flow

Avoid These Mistakes that Construction Companies Make with Their Cash Flow

by Proforma Construction, August 20, 2019

Don’t run into a cash flow problem with your construction company.

According to a recent survey of construction companies, approximately 1 in 5 respondents admitted that they have problems getting paid on time.  Cash flow problems are worrying for a number of reasons.  They make it difficult for your company to grow, can negatively affect future goals, and can affect your company’s ability to operate as usual.  Before cash flow problems to get out of hand, it’s important that you take steps to combat this issue now.  Your Pleasanton contractor explains some of the common mistakes to avoid with your construction cash flow management.

  • Failing to Plan for Contingencies

There are many unpredictable events that can create cash flow issues for construction companies.  For instance, inclement weather, shifting market conditions, accidents, labor shortages, and so on can all affect cash flow.  When businesses are achieving success, they often forget that this growth will not last forever.  Subsequently, they fail to save for problems that they may have in the future.  To ensure that an unexpected change doesn’t leave your company in dire financial straits, it’s best to keep an emergency cash reserve to maintain business operations no matter what your company is dealing with.

  • Failing to Create a Cash Flow Strategy

If you do not have a strategy for dealing with cash flow shortages, then your construction company is sure to experience issues.  While maintaining a cash reserve for emergencies is a good start, this is only a temporary fix.  To shorten a cash flow shortage and prevent future ones from happening, you need to create a strategy that outlines the steps and processes that you will take to manage the flow of your company’s money.  For instance, your plan should look at business processes, monitor expenses, analyze debt collection, and study sources of revenue.

  • Failing to Be Proactive About Collecting Payments

Finally, many construction companies are too passive when it comes to collecting payment for a completed project.  Rather than allowing clients to drag their feet when it comes to payment, you need to be more proactive.  One way to accomplish this is by creating a regular invoice schedule.  You can also be more proactive by including a payment schedule in project contracts so customers know what to expect.  Finally, imposing late payment penalties is another way that you can improve your collection rate.

These are some of the mistakes that construction companies should avoid when it comes to their cash flow.  Are you looking for more advice for your commercial construction company?  If so, then contact your Pleasanton contractor at Proforma Construction.   Serving Pleasanton and the surrounding California area, our highly-trained team is ready to make your commercial construction dreams a reality.