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Cash flow is vital to nearly all businesses, but there are few industries in which it's more crucial and less steady than construction. Even for profitable contractors and construction management companies, healthy cash flow and strong cash flow management practices can be the difference between success and insolvency.
Put simply: cash flow is one of the best indicators of the health of your construction company. Yet, many in construction struggle with cash flow, challenging their ability to pay salaries, hire employees or purchase project necessities like equipment and materials.
Construction companies that can forecast and control cash flow effectively, can make the most of profitable periods while preparing to better weather slowdowns. Read on to learn seven essential ways to improve your cash flow and how financial analytics and automation can assist your efforts.
1. Quickly process change orders
Change orders are so common in construction they might appear inevitable. As change orders frequently alter timelines or scope, they have a significant impact on cash flow, and so there are intrinsic incentives to process them rapidly. From a management perspective, having a financial automation platform that acts as a hub between project management systems and financial software is a powerful method to confidently ensure change orders across your project portfolio are processed promptly so you can better track your cash. In addition, the ability to identify change orders across the company that are lagging behind the standard approval timeline can help identify cash flow related risk for you and your trade partners.
2. Automate invoicing
As tedious and time-consuming as invoicing is in the construction industry, it’s obviously unavoidable. Manual invoicing takes tremendous time and attention to detail, slowing the process and using accounting resources that could be better applied to higher-value tasks. This manual process creates an additional lag in an already lengthy process and introduces potential human error or oversight. By using software to automate this mundane and repetitive — but essential — activity you not only speed up the invoicing process, allowing you to better track cash flow, but also improve invoice, and ultimately cash flow, accuracy.
3. Create a cash flow forecast
It might seem obvious, but accurate and timely cash flow forecasting is critical to a contractor having a solid grip on their financial status. Due to the various models that construction companies use for billing and contracts, assessing profitability at any given time is a challenge let alone forecasting future cash flows. Here, again, software proves invaluable. A financial automation platform that unifies financial workflows — combined with consistent, diligent cash flow practices — can help you make better decisions about the future based on analyzing past performance.
4. Avoid underbilling
A common challenge in construction projects with extended timelines or incremental billings, overbilling or underbilling result in unpredictable cash flow. If you’ve overbilled on a project, you could find your business cash flow positive while expenses catch up; if you’ve underbilled, your expenditures might not match the money coming in, potentially leading to negative cash flow. A financial automation platform like Briq can overcome this challenge, helping you predict jobs more accurately by leveraging financial data from across your systems. In addition, it provides project budgeting, forecasting, and scenario planning capabilities that allow users to map out diverse potential future financial states of your business.
5. Get control of spend
Having an accurate sense of expenditures and their allocations is key to understanding your cash flow. Syncing credit cards, debit cards, and bank accounts with your financial system is an excellent way to achieve that. It allows you to capture costs at the source in real-time, understanding what you owe and how your cash flow will be affected. But for this to be effective, your financial platform must, of course, support it (and vice versa). This will help create more accurate forecasts and speed up processes as costs are incorporated into the billing cycle more immediately.
6. Build a regular closeout cadence
Because of the nature and complexity of construction projects, closeout is no easy task for bookkeepers and accountants. For some organizations, it can be nothing short of an administrative nightmare, but it’s nonetheless necessary. In fact, the more regularly you conduct closeout processes, the more accurate your numbers allowing you to more effectively track and monitor cash flow into and out of the business.
7. Implement a robust financial automation platform
As we’ve seen, the right financial automation platform can help improve cash flow by aiding in all these essential tasks. It can connect people and other financial and operational systems across the company to provide faster sign offs and processes, automate invoicing, sync spending, and give you a complete picture of your cash flow.
Briq does all that and more, while ensuring your financial data is unified and accessible in real-time for better forecasting and analysis and, ultimately, more strategic planning around cash flow. It breaks down silos between departments and lets you set up financial workflows, so people have the information they need when they need it — not weeks and months later.
Don’t just take our word for it, set up a demo so we can show you how much Briq can improve your cash flow.
