Staying in the Green: Cash Flow Analysis Tips For Contractors


For contractors, staying in the green is a daily battle. Due to the nature of business, cash is always on its way out and waiting for payment from customers can be a bottom-line killer. Here are some tips for developing a cash flow analysis that can help you get through both the busy and slow seasons.

Cash is King

There are two types of cash analysis in the contracting business, accrual and cash accounting. In the simplest terms, accrual accounting measures a combination of cash on hand and the projected cash to be collected.

Cash on hand is what you have collected from customers and is used to pay everyday expenses, operational costs, payroll, and materials purchases. In order to make sure your cash flow analysis is as accurate as possible for forecasting, always use the cash on hand method for your analysis.

Cash Flows Statement

The cash flow statement is essentially a breakdown of cash on hand collected from different areas of the business; namely, operations, investments, financing, loans, and lines of credit. This report should be run quarterly, but when times are rough, the report should be run as often as twice a month.

When running reports you should take note of when the largest deficits of cash occur throughout the month/quarter. This will give you insight on where changes need to be made in order to keep cash on hand. This will also provide you with information regarding cash flow patterns, which can ebb and flow during different times of the year, in turn allowing you to successfully predict slow periods and periods when you gain the most cash profits.

Cash From Operations

In the contracting business, this part of the cash flow statement is the most important. Under the “Operations” category, you will be able determine where your cash is coming from and where it is going on a day to day basis.

Your cash flow from operations should include:

  • Your beginning balance for the time period you are calculating
  • Cash received from customers
  • Cash that went out to purchase job related materials
  • Cash paid out to employees
  • Cash generated from daily operations
  • Income taxes paid for the period
  • A net cash summary

Once this is down on paper, you can determine what areas of operations are costing you the most, which are generating the most cash, and where and how adjustments can be made.

Cash From Investing

Cash from investing in the construction industry will include:

  • Cash used to purchase equipment
  • Cash used to purchase property
  • Cash garnered from the sale of assets
  • A net cash summary

Though this section is mostly devoted to maintaining and purchasing equipment and property, it also displays information regarding “cash in,” which is collected due to the sale of an asset.

Cash from Financing

This section is reserved for cash used to pay off debts or loans. For example, if you are paying off a business loan or are paying of a lien, this is the section where these debts are recorded.

Reviewing Your Terms

After reviewing your statement of cash flow, you should be able to determine during which times of the month you are paying out more than you are receiving. One way to eradicate this problem is to change or adjust payment terms with your clients or creditors.

Clients will often agree to changes to their payment terms if they are offered some kind of incentive. This can include a reduction of the total payment, percentage off for certain materials, or a materials upgrade at a reduced price. Making changes to client terms can can be a win-win, providing the client with attractive incentives to help promote loyalty and getting the cash you need in during times of the month when money is tight.

Getting Your Credit In Check

Starting off on the right foot for your fiscal year is essential. Contractors need good credit to purchase job supplies from distributors and to purchase office and job site equipment. If your credit has slipped due to excessive expenses or non-payment, you may want to contact an expert credit repair specialist. One such company, Lexington Law, says their average clients see 84% of the damaging information removed from their credit reports within 1 year.

Choosing the right credit repair specialist is crucial to make sure that the company or firm you choose has the experience to back up their claims of credit repair success.

The Bottom Line

Once you have collected a statement of cash flow for a fiscal year, you will be able to determine when your company is most profitable and during which times you can expect a deficit. Your cash flows statement is designed to help you successfully forecast your cash on hand, allowing you to more easily mitigate risk and allocate your resources; in turn, allowing you to keep you credit in check and your company in the green.


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