The Surprising Cashflow Solution You Might Be Overlooking

Have you ever found yourself staring at your company's bank statement, wondering why the numbers don't add up? 

Understanding the Real Issue

Many builders look at their bank balance and equate a healthy number with profitability. But cash is not profit, and profit is not cash.

This misunderstanding can lead to reckless spending, like buying that new boat or truck, without considering the actual financial health of the business.

So, what's really at the heart of cashflow problems?

It’s typically a symptom of deeper issues like poor financial management, inadequate knowledge of the numbers, and inefficient internal processes.

If you're in the dark about your business's financial metrics, you're more likely to face a cashflow crisis.

The Vicious Cycle

When cashflow tightens, tunnel vision sets in.

You hustle to get work done and pay the bills, neglecting the strategic aspects of your business.

You might even accept low-margin jobs, thinking it's better than nothing, only to find yourself in a worse position a few months down the line. It's like running on a treadmill – you're moving but not getting anywhere.

Worse yet, this can lead to taking on debt under unfavourable terms, further exacerbating the issue.

It's All in the Numbers

The key to solving your cashflow challenges lies in understanding and managing your numbers. This isn't just about monitoring your bank balance. It's about comprehensive financial management.

Understanding every aspect of your finances, from revenue streams to expenditures, is crucial. This includes implementing a Work In Progress Accounting Adjustment (WIPAA) to accurately represent your financial position and reduce tax liabilities.

You should also aim for at least three months (ideally twelve) of operating expenses as a financial buffer. This reserve acts as an insurance policy, allowing you to make rational decisions rather than reactive ones.

Regularly track and analyse your workflow. This insight allows you to scale resources up or down, maintaining a healthy balance between expenses and revenue.

You could even consider invoicing strategies like progress billing to maintain a steady cash inflow. It’s about getting paid sooner and shortening the time between doing the work and getting the cash.

Perhaps most importantly, when you're facing cashflow issues, resist the urge for quick fixes like excessive borrowing. Instead, focus on rectifying the root causes – your business model and financial management practices.

The Time to Act is Now

Cashflow problems in construction are not just about a lack of funds; they're a sign of deeper operational issues.

Addressing these issues requires a proactive approach to financial management and a willingness to dig deep into your business.

Don't wait until it's too late. Start with a thorough analysis of your financials, build those reserves, and ensure your growth is sustainable. And remember, the best time to solve cashflow problems is before they start.

Ready to transform your business's financial health?

Join APB to access practical financial tools and expert guidance tailored to the building industry.

Don't leave it too late – take control of your cashflow today.