One of the largest problems facing construction companies in Utah and elsewhere, perhaps only with the exception of finding skilled workers, is how to effectively manage uneven cash flow. Uneven cash flow is caused by numerous factors including: slow client payments, large upfront material and project start-up costs, cost overruns, and retainage. One of most common reasons for uneven cash flow in a construction business is gaps in work and delays in project start times. This is particularly true in states, like Utah, which tend to see extended construction shut-downs during winter months.
Many construction companies are faced with the unenviable choice of reducing staff during these months, or tapping their credit line(s), as their operations and revenues shrink. Unfortunately, this often causes an even greater challenge in keeping the skilled workers that these companies will need to be successful during their peak construction season. It can also dramatically add to a company’s overhead cost(s) because it is much more expensive for a company to “ramp-up” with men, trucks, material, supplies, etc., versus gradually adding more resources over time; not to mention, the issues that come when you have to repay your line of credit.
Caron Beesley, with the U.S. Small Business Administration (SBA), suggests some ways that companies can better handle uneven cash flow. We believe her three best suggestions are:
- Negotiate Flexible Payment Terms From Your Suppliers. Many suppliers are open to providing more flexible payment terms, if you are customer in good standing and they feel like there is also something in it for them, like a larger share of your peak time business.
- Find Alternative Sources of Income. Diversify the services you offer, or see if you customers have projects in other trade areas in which you are licensed. For example, if you are a landscaper, get involved with snow removal during the winter, or look for work in warmer climates like St. George, UT or Phoenix, AZ. Who knows, if you get creative, you might even find a long-term and sustainable niche.
- Use Your Downtime For Planning. Let’s face it, too often during the super busy months, we let things we know we should be focusing on slide. Non-peak months provide the perfect time to re-focus and make the coming year your best year yet!
Obviously, none of these suggestions represent the “silver bullet” to ensuring your organization’s long-term viability. The construction industry, especially in light of consolidation, limited projects, and gross margin pressure, is only becoming more and more competitive. Like always, though, the companies that continually refine their business practices, will not only be the ones that survive in times like these, but they will also be the ones that thrive.
- Beesley, Caron. “Six Ways to Manage Cash Flow as a Seasonal Business Owner.” SBA.gov. Web. 21 May, 2012. http://www.sba.gov/blogs/six-ways-manage-cash-flow-seasonal-business-owner.