At Finalyze CFO Services we work with goal oriented ambitious business owners like YOU. These businesses are the backbone of the real estate and construction industry to help bring projects of all shapes and sizes to life!
A key component to ensuring the success of any skilled trades/construction company is effectively managing your cash flow. Without it, businesses will struggle to take on additional projects, leverage optimal payment terms, and hinder overall growth. The industry is notorious for its complex financial challenges involving juggling multiple projects, fluctuating costs, and long vendor payment cycles.
To help you navigate these obstacles, here are several strategies you can implement TODAY to help you increase YOUR cash flow:
Accurate Job Costing – With so many types of costs required for every project including labor, materials, and overhead, precise tracking of expenses is crucial. It’s very easy to underprice services, which can significantly damage your profit margins. Consider categorizing profitability by job, service, or customer type to gain better insight of earnings and optimize job costing. It can be beneficial to invest in and implement systems or services that can help improve this or refining your existing system to capture data accurately at a low enough level.
Pricing Optimization – To improve your project profitability, consider including different factors in your pricing strategy. This will help you optimize pricing while staying profitable and continuing to win project bids. For example, take advantage of supply and demand with surge pricing. Don’t be afraid to increase prices during the holiday season or in more remote destinations where other contractors are more unwilling to work. Also, consider exploring different pricing structures, such as fixed-price or cost-plus contracts. Are you confident that your fixed contract will remain profitable upon completion of the project? Or, do you need the flexibility to add a fixed fee on top of your costs to guarantee a return?
Negotiate Supplier and Subcontractor Payment Terms – Negotiating better payment terms with suppliers and subcontractors can be another way to significantly improve your cash flow. Investigate if you can agree on longer payment terms or consider advances from your client to provide the subcontractors enough cash flow to keep the jobs moving on schedule. Taking advantage of bulk purchasing can also reduce costs and improve bargaining power for other negotiations.
Manage Cash Collection – Working with many construction businesses, we’ve noticed that cash collection can become a major area of concern. High accounts receivable can severely affect the cash flow of the firm. Draining the working capital needed to take on new projects and reducing the capacity for growth. Enforce and tighten your payment terms with customers to penalize late payments. Work seamlessly with your client to ensure you are providing the appropriate level of reporting to expedite client loan disbursements or draws. The added service in helping your client get funded is a win-win situation for both sides!
Owning and operating a skilled trades or construction company involves juggling multiple projects, successfully coordinating teams, and ensuring every aspect of the organization is running smoothly. Effectively managing cash flows is the first step for those looking to expand their business. Partnering with a fractional CFO Services firm such as Finalyze CFO Services can allow you to focus on what you do best, while leaving the financial management to experts who will support your company’s growth.
At Finalyze CFO Services, we help businesses streamline their finances, improve cash flows, and deliver long-term success. Work with a trusted advisor with expertise in the real estate and construction industries in Canada and the United States.
Ready to learn more? Click here to book a complimentary consultation today!