Contractors: Do You Have The Right Cash Flow Management System For Your Business?

We’ve all heard that overused saying – cash is everything in a business, so the theory goes. By and large that is correct – without cash, a business grinds to a slow, painful death.

The same is true for contracting companies. After three decades of serving contractors in our firm, the most common interpretation of this saying is often misdirected in many contracting companies. Cash is always evaluated based on events that have already taken place rather than what is to come. In essence, the focus is on revenue and gross profits derived from projects. While those are two important components of cash, by the time these are known in final form for any current project, the amount of cash derived is set in stone. It isn’t a planning tool to monitor completed jobs in this manner.

The success of managing cash is much higher when the flow of cash is monitored and managed. Yet, most contractors fail to do this, focusing on traditional tools like balance sheet and income statement results from their accounting system. The problem with traditional financial statements in this format is that they have very limited predictive ability. If you focus strictly on your traditional financial statements, you will often fail to see the cash flow trap that is ahead. It is rare to meet a contractor who doesn’t struggle with cash from time to time. This “reporting on past results” is at the heart of the matter.

An alternative cash flow management program that monitors current cash flow but also predicts cash flow over the upcoming fiscal periods has proven to be a useful tool for our contractor clients.

By using this type of tool, adjustments to cash flow fluctuations can be made before they happen. By having an ongoing monitoring system in place, this information is available at any point in time to contractors who monitor in this fashion.

When you are considering the upcoming fiscal planning for your business, make certain to have a predictive cash monitoring system as one of your essential tools. The difference in thriving versus surviving is often found in this key indicator of your business’ success.