Managing cash flows is an important consideration for any business. Construction companies in particular need to manage cash flows to ensure that all elements of a construction project run smoothly.
Jobsite spoke with Chris Strode, the founder of Invoice2go, a mobile platform that assists businesses with billing and expense-tracking, about some top tips for general managers to control cash flow, and about why managing cash flows is so important for the construction industry in the first place.
Tracking Cash at all Times
Monitoring the cash flow of a business is important to keep track of expenses. It ensures that enough money is flowing in at regular intervals in order to support the business. Studying cash flows over the course of each year can help contractors identify and plan for major expenses.
“Analyzing slow periods can help guide you when it comes to planning major expenses, ordering more inventory, and scheduling in larger projects,” says Strode.
Managing cash flows allows teams to identify the busiest period for their business and prioritize earning as much as possible on major projects.
“Fixed costs will be there all year round, so the more money you can put away during bigger paying projects, the better. Putting money away while you’re at your busiest will put your construction business in the best position possible, and it will help you not to fall victim to seasonality,” Strode notes.
Building an emergency fund with three to six months’ worth of expenses can help insulate businesses during slow periods and can allow one to keep up with rent, utilities and other payments.
“While this does take time, you’ll be grateful when business slows and you still have reserves to see you through,” says Strode.
Cash Flow Applications in Construction
Enough cash is needed to support construction businesses should any unexpected expenses come along. Having to hire new employees for projects, needing to replace equipment, and buying materials are all significant expenses that can hit construction companies at any time.
Sometimes, clients might delay payments. That’s why it is crucial businesses keep a close eye on cash flows to ensure their business can run successfully during ‘down’ periods.
“Cash flow is the lifeblood of any construction business. Without it, you’ll be hard-pressed to function,” says Strode.
How Technology Can Improve Cash Flow Management
Technology like Invoice2go or Procore’s Invoice Management solution, can assist businesses in managing expenses and billings. Small construction companies can use this type of technology to help speed up payment processes and manage their more difficult cash flows.
“Small businesses tend to be the last to get paid, especially when the invoice is quite a large sum as it often is for construction businesses. This hurts cash flow and can put you in a sticky situation during slow periods,” says Strode.
“Not only does the app help you capture expenses to make tax-time easier, it can help you send invoices on the spot to speed up the payment process.”
Using financial technology solutions can provide construction companies with an easier method for payments, helping businesses to get paid faster.