Four Steps to Maintaining High Cash Balances During Busy Season

When the busy season comes, the last thing on your mind is accounting for your projects. You and your employees are concerned with only one thing: keeping up in delivering quality projects on time.

Bookkeeping comes long after your firm’s other priorities such as…

• a broken down delivery truck with five pallets of job-site materials on the highway,
• a crew locked out of a public building job-site on a graveyard shift electrical installation,
• a big change directive coming from an owner that adds work and totally changes the design of work already underway.

Your back office can support your busy season by taking certain steps to increase your cash on hand. Here are some good ones:

Step 1: Insure Job Profitability

The best way to insure cash flows stay high is to keep jobs profitable. Yes, profitable. That means current job expenses should be less than current job revenues at all times.

Think of profits as one of the dials in the cockpit of a large jet airplane, with you as the pilot. Job profits signal to you where your cash flows will be in the next 30 to 90 days, like an altimeter might signal your plane’s altitude as it dips and jumps. Accrual-based accounting, when properly done, insures that job profits tell you in which direction your cash balances are heading: up or down.

If you want help in understanding the direct relationship between job profits and high cash balances, ask your accounting or tax advisor for a consultation. Boost your bottom line by arming yourself with this knowledge.

Step 2: Plan For The Pipeline

Many construction executives know well in advance of a new project’s start date. You usually get lead time when you are awarded a big project that is going to eat up a lot of your resources: manpower, equipment, vehicles and cash. In other words, you are not going to be told today that you are starting a half-million dollar project tomorrow.

That “lead time” is one of the most valuable pieces of information you’ll ever have. That’s your backlog. Using this lead time to finance your projects wisely can save you tens of thousands of dollars in interest charges on working capital lines of credit and short-term loans that will no longer be necessary.

In fact, self-financing big construction projects is worth the trouble. Specifically, this involves setting aside enough cash in bulk at the beginning of the project to fund all the payrolls, materials, supplies and subcontractor cash payments necessary until the incoming payments on the project start to carry the entire weight of the project’s expenses.

A project’s income generally lags behind its expenses. Use this fact to your advantage. Talk with your accounting or tax advisor about effective construction cash management strategies.

Step 3: Meet The Infrastructure Demands

Your technology and manpower needs will change as your workload of current projects changes. If you anticipate this and lay out the cash to meet these demands at the start of the project, you will stay ahead of the curve. The alternative is to always play “catch up.”

To be on the safe side, make sure you have the capacity to hire enough workers and create inroads to tap into more manpower. Do this by building relationships with union halls, trade schools, and workers themselves so that a large deployment is possible if you land a very big project. Sign-on bonuses are always a good incentive to draw back good workers from their “time-killing” second jobs. And the bonuses will wash right out when the big job becomes profitable due to effective deployment of skilled manpower.

Don’t underestimate the value of state-of-the-art technology, either. If you don’t upgrade when the need arises, you might have a hard time in future projects where that technology would be needed. Mobile devices are getting more prevalent and more powerful on job-sites. Make sure all the key men have adequate handheld devices before a big project hits. You’ll need the infrastructure already in place and well established, if you want to keep up with the demands of a new, much bigger project.

Ask your accounting and tax advisor to produce specialized reports which help you see your construction labor and material costs for what they truly are: a predictable, manageable, useful tool you can use to hone your estimates to produce more profitable jobs.

Step 4: Fully Utilize Your Estimating Department

The estimates are where the money is either made or not made on construction projects. A good estimate leads to profit while a bad estimate leads to a project where the foreman is always playing “catch up.” It can also mean that your firm has to rely on getting change orders approved in order to make any money.

Just remember where your estimator’s expertise comes from: cost data. The price you quote your customer per square foot, per square yard, or per piece is a summation of the costs and profit of producing that work in the field. And what better source of cost data than from your current projects? Your construction accounting system is a storehouse of information on current cost levels for both materials and labor.

This article appeared in Walz Group’s August 24, 2022 issue of The Bottom Line e-newsletter

Keywords-Construction, Cash Flow, Project Management, Bookkeeping, Technology