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Contractors can benefit from implementing cash flow projection charts, which help predict either future financial surpluses or shortfalls. Companies that prepare cash flow forecasts can more effectively strategize for the future based on what they anticipate. They can also determine how potential changes to their business will impact operations and finances.
For instance, a contractor may discover that the next few months will be highly profitable, in which case they could determine how much of those funds to save. Another contractor may expect a decrease in volume during certain months, which could lead them to take steps to help boost sales during those typically slow periods. Meanwhile, one company may plan on purchasing new equipment, with cash flow projection indicating precisely how this purchase would affect the company's finances in the long term.
If a contractor isn't forecasting cash flow, they're missing out on a great opportunity to gain valuable insights into their financial status.
The difference between cash flow and profit
Sometimes, business owners confuse cash flow with profit, viewing the two as interchangeable terms and concepts. However, the construction industry features a variety of models for billing and contracts, which can make it challenging to gauge profitability within a specific period. For example, some companies may spend more over a certain period, but bill their clients during another.
Through accurate cash flow projection, construction companies can better determine how much they actually need to save to cover upcoming expenses. Using a cash flow forecast chart, companies can gain clear insight into how much money is actually coming in compared to what's going out, whether for individual projects or all operations. From there, contractors can develop an actionable plan to help maximize profitability while covering expenses.
Elements of a cash flow projection chart
Using certain software, contractors can easily develop cash flow projection charts based on the data they collect. With today's technological advancements, it's possible for a corporate performance management (CPM) to create in-depth and accurate reports that detail both income and expenses. By utilizing an intuitive CPM, forecasting becomes faster and more powerful.
Generally, there are three types of activities that a cash flow projection chart will cover. These include:
Operating Activities
These are cash flow activities pertaining to business operations, including income from clients and other sources, potential payments to subcontractors and suppliers, payroll expenses, and other potential expenses on items such as taxes and licensing.
Investment Activities
These activities track the money that a company plans to spend throughout a particular period on certain fixed assets, along with the projected income received through the sale of others. These assets could include new construction equipment, such as cranes or trucks.
Financing Activities
Financing activities include aspects such as lease expenses, dividends, stocks, and long-term debt payments, among others. Determining the cash flow for these can help contractors identify certain trends and figure out what's bringing in more money or taking more money out.
Plan for the future with the help of cash flow projection charts
If you aren't already using them, cash flow projection charts can be an invaluable asset for your construction company. With the help of the right software and consistent cash flow projection practices, you can find out exactly where your money is going and determine where it will go in the future. In turn, you can make smarter financial decisions that help boost profitability as you manage various costs.
Briq is a financial automation platform built specifically for construction professionals. Briq unifies your financial workflows, making them more efficient, accurate and timely. If you want to learn more about what Briq can do, set up a demo.
