Contractors take on tremendous risk when they perform work. However, more contractors go out of business due to poor cash flow than from lack of profitability. This is mostly due to the lack of emphasis on billing and collections in the daily environment of construction operations, where most companies in the industry could largely benefit by developing processes to efficiently collect their full revenue on a timely basis. A contractor’s cash flow is largely driven by individual projects; therefore, it is crucial for Project Managers to monitor their jobs closely in order to detect the warning signs of poor cash flow. Luckily, there are several ways to analyze financial data to detect a weakness in cash flow and provide a general overview of the company’s health. These can include comparing financial ratios, cash position, and turnover to other companies in the industry by using information from available resources such as the CFMA’s Financial Benchmarker.
These processes can help construction companies maintain a positive cash position, drive metrics, and incentivize the right behaviors to keep cash flow positive for each project and the company as a whole.
If you would like to participate in CFMA’s Financial Benchmarker, please contact Greg Elpers, CPA at email@example.com or 800.880.7800 ext.1352.