Cash Flow Management: Strategies to Meet Business Demand
The importance of cash to any construction entity is self-explanatory. It enables owners to operate with their day to day expenses, invest in capital items such as equipment, and help finance debt. More importantly, cash provides you with spending power. It makes your business liquid and versatile. The success of your construction entity is heavily dependent on the steps you take to manage this cash flow. A strategic plan set in place prior to forming your entity will pay you tenfold in the future years of your business.
The economy is a vital tool to use when analyzing cash flow. Its volatility can create great rewards or significant problems for the construction industry. For example, the U.S. subprime mortgage crisis in 2008 created problems. This crisis directly impacted construction companies throughout the United States. It resulted in a sharp decline in home building, widespread foreclosures, and a wounded banking industry. Foreseeing a recession is a daunting task, but companies that had the cash to withstand the decrease in revenues and stay afloat within the industry survived. Preparing, understanding, and monitoring the economy on a daily basis will help you adapt to future events, good or bad.
Monitoring Controls Around Cash
Two factors control cash, external and internal. The following chart will give you some examples of each and help you better understand a management strategy for your business:
The 10 Rules of Cash Flow
After analyzing your company’s specific internal and external factors, it is important to remember the ten rules of cash flow and act upon them. These ten rules obtained from a CFMA Webinar Series will help your construction entity succeed. Hang it up in your office and refer to it often.
- Take care of customers
- Have cash flow projections
- Cash flow problems don’t just happen
- Never run out
- Know the cash balance now
- Do the work or get someone else
- Do not manage from the bank balance
- Know your needs over the next six months
- Do today’s work today
- CASH IS KING!
For additional information or comments regarding this article, please contact the author Corey S. Robinson at firstname.lastname@example.org