Cash flow is the lifeblood of any construction business. Managing it well can be the difference between success and failure. In this blog post, we'll discuss common cash flow issues in the construction industry and provide practical solutions to help your business stay financially healthy.
Common Cash Flow Issues
Slow payments: Getting paid on time is a big challenge in construction. Slow payments can disrupt your cash flow and make it hard to cover expenses.
Failing to Budget for Retainage: Retainage is a portion of the payment that is held back until the project is completed. Not budgeting for this can leave you short on cash.
Paying cash for Assets: Paying cash for equipment or materials can quickly drain your cash reserves, leaving you with less money to cover day-to-day expenses.
Practical Solutions
Forecast with a Constructions Cash Flow Statement: A construction cash flow statement helps you see where your money is going and when it's coming in. By forecasting your cash flow, you can plan ahead and avoid surprises.
Good Accounting & Financial Practices: Keep accurate records of all transactions. Use accounting software designed for construction to track expenses, payments, and retainage. Regularly review your financial statements to stay on top of your cash flow.
Finance Assets & Materials: Instead of paying cash upfront, consider financing options for purchasing equipment and materials. This allows you to spread out the payments over time, keeping more cash available for other expenses.
Avoid Heavily Over or Under Billing: Billing too much too soon (overbilling) or not enough (underbilling) can create cash flow problems. Aim to bill accurately based on the work completed. This ensures a steady flow of cash and reduces the risk of financial shortfalls.
Josh Hardin
Producer
601-360-8800
Jackson Office
Josh is a Producer at Ross & Yerger on the construction team. He specializes in construction and trucking.
ABOUT ROSS & YERGER
Ross & Yerger – one of the largest independent, privately-held insurance agencies in the Southeast – was established in 1860 and is headquartered in Jackson, MS. The firm has over 170 employees throughout their five offices in Jackson, Tupelo, Hattiesburg, New Orleans, and Memphis. Ross & Yerger is licensed in all 50 states and offers a full range of brokerage services, including insurance, employee benefits, bonds, financial services, and risk management consulting. For more about Ross & Yerger, visit www.rossandyerger.com.
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