Many construction companies have problems with cash flow - if you have experienced this yourself and feel it is a recurring problem, it is time that you in your company start to become proactive about your cash flow.
But what does cash flow really mean, and why is it so important?
Cash flow can be translated as cash flow and is a statement of deposits and withdrawals in a company. There must be a balance between these - you risk a negative cash flow if the payments take up more than payments. It is therefore important for your company's liquidity to maintain a positive cash flow, where the deposits take up the most space.
The payments in your cash flow are also called cash outflow and are a term for the expenses you have in connection with your project. I will elaborate on this later in the article.
The payments are called cash inflow and are thus, among other things, your turnover and the products/services you sell.
To get a good cash flow, it is about balancing your cash inflow and your cash outflow. If your expenses are higher than your turnover, there is a high probability that your business is heading in a negative direction.
Especially in the construction industry, there is a risk for this, as there are many expenses in the form of, among other things, construction projects. Therefore, I have gathered some good advice for you who stand or may risk standing, in this situation.
To understand how fundamentally important it is to have a good cash flow, I have written here the things that have the greatest impact on cash outflow and cash inflow:
When you start a building or construction in this industry, you must - as you probably know - start with having the building blocks to start the project. These are materials such as concrete, wood, brick, and the like that you buy from your suppliers.
There are many overheads for running a construction or construction company. These include the rental of construction sites and scaffolding as well as water and heating bills, petrol for kilometers driven, and other miscellaneous expenses.
Unless you have a one-man business and therefore do not have any employees, you are also spending your expenses on paying salaries to your employees.
Beware of taking too many jobs where the big profits do not come. It can be motivating to see a booked calendar, but if the salary is not profitable, it is of no use in the long run.
Many companies experience customers paying late, which is often due to the company sending the invoice late. It can have major consequences for your cash flow, so it is a good idea to send the invoices as soon as possible.
If the scope of the project changes, it may be because the work is extended and thus takes longer, which is a disadvantage if you have agreed on a fixed fee, or if the scope is reduced, and you thereby get a lower payment.
To strengthen your cash flow, you must have control of the accounting. This is done, among other things, by being organized and having control of your key figures.
You can control your cash flow by following these tips:
This gives you the best possible overview of costs and other expenses compared to the amount you earn.
Salaries for employees can quickly run up and become a big expense for your business, so think about which employees you really need.
Check your old debtors regularly and be structured and consistent around sending invoices and sending reminders to those who pay late.'
Customize your chart of accounts and use the unique code at all costs so you can record and review your business expenses.
Always include VAT and both normal tax and corporation tax in your calculations, so you are always sure to have the money when it is deducted.