Managing Finances in Construction
Construction is a tricky business involving various tasks related to different sectors. But as in any sector, cash is king. Therefore, proper management of finances is vital to the survival and thriving of a construction company. Understanding the financial workings of a construction company is necessary for doing this. Other executives like quantity surveyors are often employed to help in accomplishing these tasks. Quantity surveyors specialise in monitoring the costs of construction projects and managing finances accordingly.
The responsibility of managing finances is not limited to some executives or the top brass. Each employee should ensure that communication is done properly and efficiently, especially between the office and fieldwork. In addition, gaps in knowledge should be prevented so that every process is accounted for.
One of the most important terms when dealing with finances is cash flow. This measurement is vital to all businesses. Cash flow refers to the amount of money moving in and out of business at a given time. This includes the movement of cash equivalents too. Positive cash flow means the business has more money than liabilities. Conversely, negative cash flows are not desirable and can affect the survival of the company.
Companies tend to rely on financial strategies based on measurements like cash flow and other data from both the field and the office. Making such plans are highly beneficial and can ensure the smooth running of the company. Here are some of those strategies
Projection of Cash Flow – Projection of cash flow is a very common method of anticipating future expenses and planning for them. But doing this isn’t that easy. There are many factors to account for while making predictions. The inclusion of many levels of employment in construction makes predictions harder to do.
Spreading Out Costs – This refers to the exclusion of cash from purchases. Instead, finances are used to fund purchases. Many contractors also have other options like credit cards, credit lines, and loans to make payments. The interest rate for these finances can sometimes be written off as business expenses. This allows more cash to be kept in hand, which can help in continuing the operations of the business.
Purchase Prices – This refers to looking for the best deals before fixing a purchase. This is often overlooked even though it is a very obvious thing to do.
Payroll Management – Payments in construction are different from other industries as payments are almost always made bi-weekly. Even though subcontractors can be hired to make monthly payments, it should be done only when required. This is because permanent employees do higher quality work, and additional expenses from accidents and setbacks can be avoided or at least minimised.
Processing Change Orders – Change orders refer to orders placed concerning any modification work. These often require more resources than their estimate and should be processed as quickly as possible. Fast processing will bring in more cash and improve cash flow.
Automated Invoices – Invoicing is a very important task that affects the cash flow. Writing them out by hand can be tedious. Moreover, this leaves margins for error. Many software are available for purchase to automate this process and make it more efficient.
Electronic Payments – Incorporating various payment methods can be very beneficial as this ensures that the company gets paid faster. This, in turn, contributes to the cash flow.
Construction companies are different from others in many ways, the operation being the main. Employment of quantity surveyors and employment of strategies are the best ways to improve cash flow and run a successful business.