With the economy on the rebound, construction spending is picking up around the country and more construction-related businesses are taking on new projects because of increases in government spending contracts and real estate demand.
All of this signals good news for the construction industry, but immediately after a new project is awarded, a contractor must come out of pocket for materials, equipment, fuel, travel and labor – sometimes long before being paid. With most payment terms averaging between net 30 to net 90 (and government contracts upwards of net 120), managing cash flow can be tricky.
According to a recent survey by Intuit and Decipher Market Research, while 81 percent of owners handle their business’ finances themselves, 66 percent said they wish they knew more about how to handle their finances. With the new year in full swing, there are specific ways to ensure a fresh start and a prosperous new year. Whether used together or alone, these smart money tips can provide businesses with the proactive knowledge they need to effectively manage cash flow and increase revenue.
When you bid on a new project, always evaluate what the total cost of your project will be with a projected 10 percent increase in expenses. This buffer will prevent any surprises and help you to adequately prepare funds so there is enough cash flow to finish the project. Regardless of if a business believes it will need to borrow money, be it through a working capital loan, equipment financing or short-term capital; owners should always be planning ahead and anticipate the need for financing so that they are completely aware of their options.
Having a plan ahead of time is crucial to avoiding any unexpected curveballs with budgets and timing. Anticipate uncontrollable situations that may put your finances in flux – a hurricane that halts the groundbreaking on a new project or an unexpected change in inventory of a key material resulting in a higher overall cost. The key is to always be two steps ahead so that your finances aren’t in the red.
Master Negotiation Skills
Negotiation is a required skill in almost every field, but especially so in construction. The construction industry is often dictated by uncontrollable elements like weather, government limitations or material inventory and delivery, which can cause delays or cancellations in a project. To ensure a project is successfully completed and that your customers are happy, contractors should negotiate every contract to secure the best possible outcome of each project. Negotiation tactics could include offering a guaranteed maximum price or open book policy so that customers can understand each cost. When it comes to negotiation, creativity is key – and this will ensure that both contractor and customer are satisfied.
To help curb the outlay of cash and take advantage of tax benefits for brand-new equipment and office technology, business owners should also consider if it makes more financial sense to lease equipment instead of buying it for a new project or upcoming season. Longer term financing spreads your payments out, thereby making it a more manageable way to deal with the cash needed for each item and helping to relieve immediate cash flow issues.
Know Your Taxes
Paying taxes is inevitable for every American citizen, but small business owners know all too well the difficulties that taxes can pose. However, many don’t realize that they have myriad options through tax breaks that can lighten the burden. In construction, equipment and vehicles are main elements to the business. Fortunately, deductions on vehicles for the business or breaks on equipment leasing and financing can be deductions on your returns, in turn, saving a significant amount of money. Many small business owners have been able to successfully obtain the tools they need through equipment leasing and financing without going into the red. Even with business loans, rental payments, hiring employees and obtaining insurance, owners can save time and money knowing what they can deduct every April.
Avoid Billing Errors
The administration of billing and invoices is one of the most critical aspects of any business. The first step to ensure success is to identify the correct contact that should receive the invoice. Also, know your billing schedules and anticipate possible delays due to weather, incorrect information or bank disputes. Knowing how long it will take between issuing the invoice and receiving payment can help to avoid cash flow problems.
-By National Funding Founder and CEO, David Gilbert