In response, companies may choose to use debt financing or adjust project timelines to ensure they have enough cash on hand to fulfill their obligations. By evaluating known (and expected) expenses and known (and expected) revenues, companies can determine where they may have upcoming cash flow shortfalls. While a cash flow statement gives a good sense of how cash has been flowing in the past, cash flow projections provide an estimate of how cash flow will be in the future. A construction company can also have positive cash flow but be unprofitable, which is why it’s important for businesses to look at several measures of financial health.įinally, businesses generally look at both cash flow statements and cash flow projections. In construction, this can happen due to retainage, slow payment, long-term capital expenditures, or poor invoicing procedures. This happens when a company has recognized revenues higher than its expenses-but it hasn’t yet received all of its earned income. Notably, some construction businesses can be profitable but still have negative cash flow. Many different financial metrics can evaluate the health of a business, but companies with negative cash flow may have problems with liquidity, meaning that they may not have enough cash on hand for immediate obligations, like payroll, insurance, materials, or other project costs. Positive cash flow means that a business has more money coming in than going on, while negative cash flow signals that a business is spending more than it’s earning. Many construction businesses produce cash flow statements on a monthly, quarterly, and annual basis in order to get a sense of their current cash flow situation.Ĭash flow can either be positive or negative. Unlike an income statement, which may include revenue that has been recognized but not received, a cash flow statement is a record of all cash (or cash-like assets) that has been received or spent by a construction company. Managing cash flow is key to survival in constructionĬash flow is a measurement of the cash coming into and leaving a business during a given period of time.Process change orders as quickly as possible Offer payment options or discounts for early payment Be visible on the job by filing preliminary notices Finance materials to keep more cash on hand Finance fixed asset purchases whenever possible Protect your company’s right to file a mechanics lien Establish good accounting & financial practices Forecasting with a construction cash flow statement The problem: Mistakes that drain cash flow.
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