The construction industry may be booming, but growing construction firms still face serious cash flow issues. According to one survey, 28 percent of construction firms cite cash flow as their biggest challenge during their first year in business.
A lot of your cash flow issues during your first year of operation will stem from simply being new and largely unestablished, but there are still some helpful tips that will help ease the worst of your problems. Here are just three to keep in mind.
Find Anchor Clients
While you can earn a lot of money in construction as a subcontractor, you’ll often have to deal with payments that don’t arrive for 60 to 90 days after a job is done. That is a long time to wait when you’re just starting out, so it helps to have a few anchor clients who will provide you with consistent work while you’re waiting for subcontracting invoices to be paid.
You can and should take subcontracting work when it comes your way, but you should also look for direct clients, especially corporate clients. They tend to pay invoices quickly, which will help keep you afloat when you find yourself waiting for other payments to come in.
Break Up Invoices
The industry standard in construction is to bill clients in three or four large installments over the course of a job. As convenient as that sounds for both the client and the construction firm, breaking things up into smaller invoices often creates more cash flow. This means sending separate invoices for demolition, sheetrocking, window installation, and every other step of a construction job. The total bill will be the same, but you won’t have to wait until the end of the job to receive any payment.
Have a Cushion Ready, and Take Advantage of Discounts
You can never know when things will go south in the construction industry. You might be doing very well for a few months only to have all of your work suddenly dry up. When this happens, it helps to have some cash on hand as a cushion. This also involves having a stockpile of equipment and supplies, something you can build by looking for local vendors who offer discounts. While you will ideally have consistent work for months at a time, having a cushion of cash and supplies will help you get through the leaner months when they inevitably happen.
WCK Financial provides cash flow solutions to construction companies nationwide. Contact WCK Financial today to learn more.