Steady construction cash flow is vital for subcontractors due to the nature of their work. The majority not only start projects on spec, but also tend to be paid after the work has been completed—running out of cash could mean a halt in production, missed payroll, a drop in profitability, or even financial ruin.
To run a business successfully and continue to produce good value for customers, subcontractors need to manage their construction cash flow. Here are some tips on keeping your business in the green…
Why is construction cash flow important?
Here are some reasons having healthy construction cash flow is vital:
- Paying your employees on time (if you have staff)
- Purchasing materials or equipment and paying for other business necessities (e.g., advertising, utilities, site maintenance)
- Steady construction cash flow puts you in good standing with banks and other creditors, which is good to get loans
- Having funds to fall back on in the event of a late payment
15 ways subcontractors can keep their construction cash flow healthy
There are several steps subcontractors can take to help manage their construction cash flow. These include knowing when and how to say “no” to projects, staying organized, establishing a line of credit with their bank, working with suppliers who give them better terms, and more.
1. Get organized
2. Create a forecast
4. Market your business before you run out of work
5. …but don’t let marketing stop you from getting jobs done
6. Be flexible
7. Communicate with your clients—let them know what to expect and when, and when payment will be due
8. Manage scope
9. Have a backup plan
- If possible, have funds set aside
- Have peers on call as a backup
- Be prepared if something goes wrong and you can’t complete the project, or if a payment is late
10. Maintain accurate expense records and send invoices as soon as work is completed
11. Get paid in advance whenever possible
Payments are key to avoiding late fees or bounced checks. One way to do this is by offering a discount for early payment. For example, 3% off if you’re paid within 5 days of the invoice being sent out. When there is an opportunity, ask the client if you can be paid upfront.
12. Keep track of your time
- Remember to establish dates in your contract
- Use project management tools to track milestones and run daily reports
13. Establish a line of credit with your bank
14. Negotiate better terms with your suppliers
15. Use tools that make construction cash flow management easier
eSUB’s project management platform is built especially for subcontractors. It seamlessly integrates with accounting software so you can manage your construction cash flow better while minimizing errors. It also works on your mobile, so you can track construction cash flow on the go and stay up-to-date.
If you’re interested in using construction management software to improve your construction cash flow, and more, schedule a demo to learn how eSUB can help.