Tag Archives: cash management

Construction Cash Management Series: Part Five – Contract Closeout

cashflow-icon-01Managing Company and Project Cash Flow for Profitability

In this final post in our cash management series for construction companies, we will address how the last section of the project life cycle can be hazardous to effective cash flow due to the difficulty on collecting final payments. Earlier installments in the series have focused on Pre-Bid and Bid, Contract Award, Pre-Construction and Contract Performance.

TIP: Typically, problems related to collections originate in the customer’s dissatisfaction with the delivered product or with the management in charge during the project. Therefore, it is critical that the company works to satisfy the customer throughout the entire life cycle by completing the project to the customer’s satisfaction and in accordance with contract documents.

Though the above may seem simple and straightforward, construction companies often find themselves deviating from the fundamentals of cash management for a variety of reasons. The cash manager’s ability to keep a construction company focused on these fundamentals will be beneficial to the cash flow of the company as a whole.

We hope you enjoyed this five-part series on cash management. For more information on how you can improve your company’s chances for success, contact Michael Corcoran of Aronson’s Construction Industry Services Group at 301.231.6200.

 

Related Articles:

Construction Cash Management Series: Part Four – Contract Performance

cashflow-icon-01Managing Company and Project Cash Flow for Profitability

In previous posts in our cash management series for construction companies, we discussed how the decisions you make in the Pre-Bid and Bid stage, the Contract Award phase, and in Pre-Construction can have a significant impact on your cash management prospects for the rest of the project. This article focuses on your contract performance and the activities that will either positively or negatively impact cash flow.

TIP: The following processes impact cash flow most significantly:

  • Contract Performance | Deliver the project in accordance with the plan and followperformance and billing schedules to enhance cash flow.
  • Contract Costing | Follow the SOV to minimize errors. Remember that successful negotiation with vendors and subcontractors may result in cost savings.
  • Contract Billing | Bill in accordance with contract terms.
  • Payment Tracking | Pay in accordance with contract terms.
  • Collection and Posting | Ensure the project manager assists in this process for maximum profitability.

Stay tuned to the Aronson Construction Report to read the final part of our five-part series on cash management. For more information on how you can improve your company’s chances for success, contact Michael Corcoran of Aronson’s Construction Industry Services Group at 301.231.6200.

 

Related Articles:

Construction Cash Management Series: Part Three – Pre-Construction

cashflow-icon-01Managing Company and Project Cash Flow for Profitability

In parts one and two of our cash management series for construction companies, we discussed the Pre-Bid and Bid stage, as well as the Contract Award phase. This article focuses on how you can make effective cash management decisions in the Pre-Construction phase.

TIP: During the planning phase of the project, management should discuss the workpaper flow. This can be done by establishing a performance and billing schedule before construction begins so the owner knows what to expect.

Based on a schedule of values (SOV) consistent with the company’s management and accounting systems, the schedule illustrates the portion of the project expected to be executed each month, as well as the portions that will be billed for. In addition, holding a pre-construction meeting will allow all parties involved to meet and discuss the project overview and reporting / documentation requirements.

Stay tuned to the Aronson Construction Report to read the rest of our five-part series on cash management. For more information on how you can improve your company’s chances for success, contact Michael Corcoran of Aronson’s Construction Industry Services Group at 301.231.6200.

 

Related Articles:

Construction Cash Management Series: Part Two – Contract Award

cashflow-icon-01Managing Company and Project Cash Flow for Profitability

In the first part of our cash management series, we focused on how effective financial planning starts at the Pre-Bid and Bid phase. Today, we discuss the Contract Award Phase and the key areas of a contract that may adversely impact cash management further down the line.

TIP: Once a contract is awarded, a construction company should perform a more intensive review of the contract and engage in negotiations to obtain more favorable terms that facilitate desired cash flows.

Contract provisions to consider include:

  • Timing of payments
  • Method of payments
  • Penalty provisions for not adhering to payment requirements
  • Reporting and documentation requirements
  • Allowable contract costs
  • Performance penalty provisions
  • Retention terms

It is up to you to ensure that your contract’s language won’t hamstring your efforts to collect payment and keep cash flowing through your project. Don’t get caught out by blindly accepting contract terms without negotiation.

Stay tuned to the Aronson Construction Report to read the rest of our five-part series on cash management. For more information on how you can improve your company’s chances for success, contact Michael Corcoran of Aronson’s Construction Industry Services Group at 301.231.6200.

 

Related Articles:

Construction Cash Management Series:  Part One – Pre-Bid and Bid

Construction Cash Management Series: Part One – Pre-Bid and Bid

cashflow-icon-01Managing Company and Project Cash Flow for Profitability

More than 80% of construction company failures are due to budgetary and macroeconomic issues1, so how does a growing contractor avoid these pitfalls? Effective cash management is a key factor in determining a construction company’s financial success.

Cash management is the art of organizing, planning and controlling the collection, investment and disbursement of cash. In the construction industry, it is crucial to keep an eye on a company’s overall cash flow, as well as the cash flow on major projects. Comprehensive knowledge of this process, which begins at the project level, is essential to successfully managing a construction company.

From start to completion of a construction project, cash management ensures that project expenses are adequately funded and the project is profitable. In each stage of the project life cycle, decisions are made, actions are taken, and business practices are implemented that ultimately will determine the company’s ability to manage profitability and positive cash flow. Applying basic cash management fundamentals through the life of the project will allow managers to improve their confidence when working with project managers, vendors, subcontractors and owners.

Our cash management series of blog posts will address how cash management should be addressed throughout the five sections of the construction life cycle:

  1. Pre-Bid and Bid
  2. Contract Award
  3. Pre-Construction
  4. Contract Performance
  5. Contract Closeout

Today, we focus on the Pre-Bid and Bid stage. Decisions made in this phase will impact accounts receivable, work in progress, accounts payable based on contract terms, and company business practices. Ultimately, they will determine the project’s cash flow and profitability.

TIP: Project or cash managers should consider reviewing the potential customer’s credit and the contract during this phase. Key provisions that could impact project cash flow and profitability include the payment provisions and financial record-keeping requirements.

Stay tuned to the Aronson Construction Report to read the rest of our five-part series on cash management. For more information on how you can improve your company’s chances for success, contact Michael Corcoran of Aronson’s Construction Industry Services Group at 301.231.6200.

 

1 Arditi, D., Koksal, A. and Kale, S. (2000) Business failures in the construction industry, Engineering, Construction and Architectural Management, 7(2), 120-132.

View Archives

Blog Authors