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Business Advice6 min

5 Tips to Conquer Cash Flow Challenges

84% of construction companies experience cash flow issues

If you’re feeling the pinch in cash flow this month, you’re not alone. In fact, 84% of all construction companies face tough cash flow challenges, enough that it stalls company growth. Without good cash-on-hand, companies find they are unable to hire more employees or take on additional projects.   

Before you experience another money crunch, here are five tips to improve your company’s cash flow:

  1. Save Time with Easy-to-Install Products. Time is money on the jobsite, so reduce overall labor costs and increase jobsite production by choosing to work with efficient products. This means identifying building products that eliminate steps in the installation process, reduce waste or increase overall jobsite productivity. A good example of this is to use a product like engineered wood siding—it’s easy to cut, weighs less and comes in longer lengths.

Tip: Here’s a blog that dives deeper into how high-performance building solutions help on the jobsite. 

  1. Hire Skilled Project Managers. Did you know 85% of your current cash flow is tied up with the projects you’re working on now? Hiring a highly skilled project manager can optimize productivity and reduce project expenses, adding more cushion to your cash on hand.

Tip: To attract the best in your area, consider offering performance-based incentives to sweeten your offer. 

  1. Automate Employee Time & Scheduling. Working multiple projects can challenge cash flow. If employee hours run over budget and labor costs creep up, it’s time to ditch the paperwork and consider an automated system.

Tip: While employee time & scheduling apps log worker hours and breaks, a cloud-based solution can reveal trends in overtime, hiring gaps and other factors, allowing you to make adjustments that can positively affect profitability.

  1. Rethink Your Payment Schedule. Are you among the 1/3 of construction companies who don’t receive payment until the project is complete? Ease cash-flow challenges with a front-loaded contract and invoice clients for a certain percentage of expenses. For some projects, consider offering a small incentive for paying invoices quickly, like within 7 to 10 days.

Tip: To encourage on-time payments, charge interest or add a late-fee clause to your contracts.

  1. Negotiate Retainage Fees. It’s not uncommon to withhold a certain percentage — between 5 and 10% — until the paperwork on a project is complete. To reduce this drain on cashflow, negotiate retainage fees with clients. Some construction companies have found success when clients agree to a lower percentage or a sliding scale that decreases the percentage as the percentage of completion increases.

Tip: Another idea is to limit the retainage fee to certain areas of the project, such as labor. That way, the percentage held back is lower.

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