Starfish Coaching · Finances and Metrics
For design and construction business owners, anywhere
Most construction companies that run short of cash are not short of work, or even of profit. They are short of timing. Labour, materials and subcontractors are paid for first, and the client pays later, sometimes with part of the money held back. The strategies below are practical ways to close that gap, in plain terms and in the order most owners can use them.
A job can earn a good margin and still put the business under strain, because the money goes out before it comes in. This is the cash cycle: the time between paying for the work and being paid for it. The longer that cycle, the more working capital the company needs to carry it.
Growth stretches the cycle. Every new job you start is another job you are funding. That is why owners so often find that the busiest year is the tightest one for cash.
Cash flow is one half of the money picture. The other half is whether each job earns enough in the first place, which the overhead and profit calculator helps you check. Fix the margin and the timing together, and the business stops depending on luck.
Decide when you invoice, and tie it to events that are easy to prove, such as stages of the work or fixed dates. An invoice sent late is a loan to the client that nobody agreed to.
A deposit covers the first materials and mobilization, so the job begins funded rather than on your money. State it in the contract, and do not start without it.
Put the claim date in the diary, measure the work done, attach what the client needs to approve it, and follow up. Late or disputed claims are one of the most common causes of a cash gap.
Price a change and get it agreed in writing before the work is done, not after. Unpriced changes are work you are funding with no promise of payment, and they are hard to recover at the end.
Where a part of each payment is held back, record it job by job, know when it falls due, and chase it. Retention that nobody tracks is cash that is easily lost. Rules differ by place and contract, so check yours.
Pay suppliers and subcontractors on the terms you agreed, not early and not late. Paying early gives away working capital, and paying late damages the relationships you rely on. Agree terms at the start, ideally in line with when you are paid.
Buying early for a job that has not been funded ties up cash in the yard. Match purchases to the schedule and to the payments coming in.
Each job running at once is another to fund. Before taking on another, look at what cash it needs in its first weeks, not only what it will earn at the end.
The most useful single habit is a 13-week cash view, updated every week. List the money you expect in, job by job, by the week you expect it. List the money going out: payroll, suppliers, subcontractors, tax payments, equipment and overhead. Carry the balance forward. When a week goes negative, you have weeks of warning instead of days.
It will be wrong sometimes, and that is fine. Its value is in the weekly look, and in comparing what you expected with what happened, so the next forecast is better.
Every strategy above depends on knowing what each job costs and what it earns while it is still running. Job costing means tracking labour, materials, subcontractors and overhead against each job, so you see a margin problem in the middle of the job rather than a year later.
It is also the base for the weekly numbers every owner should have. Pick a small set, such as cash on hand, money owed to you, money you owe, and margin by job, and look at them at the same time each week. In Eric's work this is the Finances and Metrics component: running the business on numbers instead of emotion and instinct, with a number owned by every person.
You can do much of this alone, starting this week. Many owners find the hard part is not knowing what to do but keeping at it. If job costing is the one system holding you back, a Systems Sprint builds it properly with Eric alongside you. If the whole business needs its numbers, people and process in place, The Self-Sustaining Business Program builds all eight components. If you already have a plan and need someone to keep it moving, see the Master Plan Program. To see how you score on Finances and Metrics and the other seven components, take the free scorecard.
The ones that move money earlier or slow it leaving: bill on a fixed schedule, take a deposit before work starts, submit progress claims on time and accurately, price change orders before the work is done, pay suppliers and subcontractors on terms rather than early, and keep a rolling 13-week view of cash so you see a gap weeks before it arrives.
Because profit and cash are different things. A construction company pays for labour, materials and subcontractors before it is paid by the client, and retention can hold back part of what is owed until the end of the job or later. A job can be profitable on paper and still drain the bank account while it is being built.
Working capital is the money that carries the business between paying for the work and being paid for it. Construction has a long gap between those two points, so a company needs enough working capital to cover that gap on every job it has running at once. Growth makes the gap bigger, which is why a fast-growing company can be short of cash even with a full order book.
It is a weekly list of the money you expect to receive and the money you expect to pay out over the next thirteen weeks, with the bank balance carried forward each week. You update it every week, dropping the week that has passed and adding a new one at the end. Its job is to show a shortfall early enough to do something about it.
Read the contract terms before you sign, record each job's retention separately, and diarise the date it becomes due so it is chased rather than forgotten. Rules on holdbacks and retention differ by place and by contract, so check them where you work and take advice when a contract is unusual.
It is for owners of construction, building and trade businesses anywhere who feel busy but short of cash. It gives general practice, not accounting, tax or legal advice, so use your accountant or a lawyer for those.
The free scorecard shows how the business scores on Finances and Metrics and the other seven components, and Eric is happy to talk it through.
Eric Lee · Starfish Coaching · 1937 Triumph St, Vancouver BC V5L 1K6
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