Six tips to achieve better control of cash flow
The construction industry is a world in which things change on a daily basis, meaning being in control of your cash flow is vital to survive. Hasib Howlader, a director at London-based insolvency practitioner Hudson Weir, on keeping the cash flowing.
1. Know your client
Don’t just accept to work with someone because it looks like a good deal for you. Make sure they will be able to pay all of their bills and don’t be afraid to do some research about their previous work.
Getting references from people they have worked with in the past can allay any fears you might have and is certainly something to consider before signing any contract.
2. Keep on top of changes… and make sure your clients are kept in the loop
Changes to original plans are inevitable in any project and are one reason why some businesses find it so difficult to control their cash flow. However small a change might seem, it’s vital to make a record of any alterations to the original plan so you can work out the impact it might have had.
When a change does occur, make sure it’s quickly communicated to your client in accordance with the terms of your contract.
If your customers are late with payments, don’t be worried about upsetting them by promptly asking where the money is. Some clients will avoid paying out unless they are hassled to do so, meaning you need a proper system in place to alert you as to when payments are due and if they are missed.
Delays in payments are a quick way to get into trouble with your cash flow so you need to do everything you can to get the money into your bank as soon as possible.
4. Consider selling old or out of date equipment and leasing new
While this won’t apply to everyone, some construction companies will have old machinery or tools stored away, never to see the light of day again.
You might tell yourself they could come in handy “one day”, but if you’ve got more modern and up-to-date equipment in place, getting rid of old stock is an easy way to increase cash flow and help out when times are tight.
5. Be organised - or make sure someone in your business is
You might be predicting a great year because you have three highly profitable projects lined up, but how busy you are doesn’t automatically translate to feeling flush. One of the biggest reasons companies have issues is because they are due to be paid at a certain time but aren’t and then in turn can’t pay anyone else.
Keep on top of your books and try to work out a schedule that best suits you to ensure your own staff aren’t going to be left short because you’re still waiting for the client to make a payment.
6. Close a project efficiently
Don’t take your foot off the gas when you reach the end of your work. Some people avoid officially closing a job because of the paperwork involved – an attitude that quickly creates cash flow problems. Having all documents prepared and ready to send means the final bill can be sent to the customer straight away.
It can often be the case that closeout is rushed or neglected because you are rushing to begin the next job – but starting another new project without sorting out final issues and payment for the first one can cause multiple problems further down the line.
Following these simple tips should make a big difference to anyone in the construction industry and will help keep your business profitable and ready for the next project.