Managing Your Company's Cash Flow

It’s no secret: Inadequate cash flow is a leading cause of financial failure. In a tough economic environment, it’s more important than ever to focus on cash flow. Adopting some of the following “best practices” can help you manage -- and enhance -- your contracting firm’s cash flow.

Prepare Cash Forecasts

Map out the way you will bill jobs before you begin work; then use that information when preparing cash flow projections. Err on the conservative side and be sure to forecast both regular expenses and those that come up infrequently, such as annual insurance premiums.

Control Spending

Keeping a lid on spending allows you to hold on to cash for those times when you really need it. Run the numbers and, if they appear compelling, look into
leasing equipment and heavy machinery rather than buying. To the extent possible, avoid job borrowing -- using overbillings on one job to finance another. Setting aside the money collected on a project to pay that project’s expenses avoids a cash squeeze down the road.

Manage Your Payables

Take advantage of creditor payment terms and time your payments to conserve cash. Don’t get too carried away, however -- you don’t want to take any actions that might negatively impact your credit rating. If you don’t already do so, use electronic funds transfer to make payments on the last day they are due. Review vendor discounts for early payment and take advantage of terms that are favorable to you.

Tighten Receivables

Know the payment terms outlined in your contracts. Issue invoices promptly, supplying any required supporting documentation, and contact customers as soon as you detect any delays in payment. Of course, you can also encourage customers to pay their bills quickly by offering a discount.

“Keeping a lid on spending allows you to hold on to cash for those times when you really need it.”

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