Owning a small business in the construction industry can not only be costly but can also be incredibly stressful. Not only are the days long, working conditions hazardous, but you also have to worry about cash flow. It can take a long time to collect payment from contractors who hired your business or your clients, all the while still having to pay employees, cover fixed expenses, pay subcontractors and pay your bills.
Here are three tips for managing cash flow if you own a business in the construction industry:
1. Be aggressive and follow up on invoices
Businesses in the construction industry are at risk of having their clients not pay them on time. Or at all. Being too passive in collecting unpaid invoices or reminding clients when payment is due will not help you manage the money you need to pay your bills.
Regularly sending out reminders of invoices that are due can speed up getting you paid and encourage clients who were considering not paying you to reconsider. Keep in contact with clients if necessary to discuss payment options. Even a payment plan is better than no payment at all.
The worst thing you can do for your business is waiting around, hoping your client will pay you.
2. Watch for scope creep
Almost all projects will experience some form of scope creep, too many changes to a project can impact your bottom line, hurting your cash flow.
Scope creep happens when clients or other project stakeholders change a project’s deliverables or goals.
Always make sure your project’s terms are set out clearly and let clients know that any changes will result in additional fees. This then means if clients attempt to change the project, you can remind them about the original agreement and the extra fees, and if they insist on making the changes, you are free to charge the agreed-upon amount.
3. Consider delegating the financial tasks
Construction workers are great at construction, but that doesn’t mean they go out independently and are automatically great at business. The financial aspects of running a construction business are complex and take a great deal of time and planning, and this can add a lot of responsibility to the business owner.
Hiring someone to take care of your business’s financial aspects or even to advise you about all the decisions you will face can take the stress off you. This is precisely how we can help by having someone on your side who has the financial expertise like ours and can assess your business, advise you about your cash flow and help you secure funding is invaluable. Once you decide to seek financial help, you won’t look back. In the long run, it will save you time and money.
Final thoughts
Being a small business, most owners will face cash flow issues at some point in their careers. Unfortunately, those in the construction industry will typically have a harder time managing cash flow, and there are many reasons for this. The multiple stakeholders involved, the large scale of the projects, and the number of factors that can go wrong on a project all increase the financial risks.
Following a few steps can significantly enhance your cash flow and make financial management in your business a more straightforward process.
Get in touch with us to find out how we can help your construction business and Join the Conversation…