How To Build Predictable Construction Cash Flow

In an unpredictable industry, being able to see and understand what’s coming is priceless. That’s especially true when it comes to cash flow in construction, where every day operational and commercial process issues can have serious consequences.

Cash flow is not always about poor profitability. Instead, your problems are most often caused by delays, blind spots and lack of coordination between commercial and operational teams. By making small process improvements, such as investing in construction cash flow forecasting tools, construction businesses can make their cash flow more predictable and resilient.

Why Cash Flow Can Feel Unpredictable In Construction

Cash flow problems can often feel like the defining problem for construction companies. So much money goes in and out of every job that staying on top of it can be a real challenge. Furthermore, so much of it goes out in the early stages, often with little transparency into which fees correspond, that there can be a real disconnect between the work done and the cash spent.

This can lead to many profitable projects facing cash-flow issues, even though they look good on paper. Overall, it creates the impression that cash flow in construction is unpredictable and that construction companies are at the mercy of events to a far greater degree than they need to be.

Common Cash Flow Blockers In Construction

There are common cash flow blockers in construction that can appear out of nowhere and require significant spending on short notice. A good example is delayed variations. Every project experiences variations when on-site reality conflicts with drawings and plans, no matter how well thought out the project is. These inevitable variations can be made worse by:

• Late identification
• Slow submissions
• Disputes caused by inadequate data and records

All of these can lead to cash flow issues for construction companies. Similarly, slow cost approvals can make your cash flow less predictable and cause budgeting issues. Common problems include:

• Internal bottlenecks
• Lack of visibility across teams

Both are symptoms of disconnected workflows and inefficient communication between teams. The result is that cash leaves the business at the wrong time due to slow sign-off, making your cash flow feel unpredictable.

Lack of collaboration and unsuitable workflow processes also lead to failures in plant and resource cost tracking. Get this wrong, and you could experience:

• Costs incurred but not recovered
• Poor linkage between site activity and cost reporting

It’s yet another example of how construction companies often lose track of where their money is, creating unnecessary cash flow issues which can harm the business – even on profitable jobs.

How Cash Flow Issues Compound And Become Worse

A cash flow issue is never contained to one area, and every variation, delay and cost is part of the larger picture. Small cash flow issues are almost always a symptom of a larger concern.

That’s because cash flow problems are almost always caused by inadequate processes, poor communication, and inefficient workflows. Therefore, a small problem in one area can easily compound with other issues and contribute to a larger, worse problem in a short time.

Before you know it, late identification of a potential variation can lead to internal bottlenecks as various departments and team members try to work out what is going on, how it happened and what they need to do about it. That can be delayed further by a lack of data or information sharing, and then cause other problems as everyone tries to work out the solution and who is responsible for implementing it.

All of that costs more money, and your construction cash flow is likely to suffer. If you find yourself regularly paying out emergency costs that no one saw coming, it is a major warning sign for your construction business.

Simple Changes You Can Make To Improve Cash Certainty On Your Construction Project

However, it doesn’t have to be this way. The technological tools exist to eliminate many of the issues that lead to cash flow problems in construction through a range of small process improvements.

Creating and integrating a unified work platform which is a single source of truth for everyone is a good start. Also, construction cash flow forecasting tools can give you control over your data and provide certainty through:

• Earlier variation capture
• Clear ownership of approvals
• Better alignment between the site and commercial data
• Regular cash-focused reviews (not just margin reviews)

Taking control of your project in this way makes your construction company’s cash flow much more predictable. That certainty is priceless and attainable for construction businesses of all sizes.

Read: Top Methods to Improve Cash Flow Management in Construction

Want to learn more about how a technological solution can help you develop a more predictable cash flow? Contact the team today for more information and book a free demonstration.