How to improve cashflow – 8 things a builder can do.

Builders operate in a very fluid environment.    You need to be always light on your feet and ready to change what isn’t working to your advantage.  Need I say, the smaller you are the more important this is.  However there are some headaches that every builder has, whether large or small, and cashflow is one of them.

Your cashflow, or lack thereof,  will keep you awake at night.   Various factors affect it.  Some are obvious and more direct e.g. a wage rise given to a site manager. Others aren’t as easy to identify.  Like inadequate document control systems and tender pricing procedures. These may not be as obvious but they do affect cashflow and in a more far reaching way as they are not confined to any one project. Using inefficient, time-consuming systems invariably means your staff’s time is wasted. Not to mention the costs that can arise from variations because subcontractors might be pricing the wrong revisions of documents.

Here are some of the things you should be looking at.

  • Technology and systems need a regular spring clean It could be your computer system or an inefficient method of distributing documents to project users.  A lot of innovations have been made in recent years, the application of which leads to efficiencies and positive affects on cashflow in the long term.
  • Signing with the wrong client.  Yes! always a problem! Do your ‘due diligence’ stuff before signing the contract. Conduct a thorough check on the potential client’s financials and credit history.  Get a couple of referrals/testimonials from previous builders the client has dealt with in the last two years. Make sure you call these people, or meet them face to face.  Ask around the people you know who may know the prospective customer. Subbies can be a good source of ‘info’ as they go between builders and hear what’s going on.
  • LDs – Liquidated Damages – get them out of the contract, or if you can’t, negotiate them as low as possible. Make sure if they’re present there are bonus amounts for early completion and these are similar in size to LDs.
  • Nominated Suppliers.  Prior to signing the contract with the client, check for any nominated suppliers e.g. for tiles.  If you do not have accounts with those proposed this could flag as a potential problem. Account applications need to be submitted for new suppliers.  These can take up to 6 weeks to open and even then as a new account they may still require a 20-30% deposit to get the order in the system.  If you can’t get rid of them or change them to your preferred supplier, aim to negotiate a payment from the client for the deposit and get this in the contract. New suppliers are also an unknown quantity so get some referrals for them as well.
  • Supply and install subcontracts with large pre-install payments required for the supply component e.g. lifts or carstackers.  More often than not, you can’t get paid for any part of the payment prior to the install, unless you supply the client with a bank guarantee, with them nominated on it as an interested party. Painful.  Some Carstacker companies can be even more painful.
  • The basics.  Submit progress claims on the correct date, to the correct contact, in the correct manner, as specified in the contract.  Double check carried forward figures and percentages claimed in head contract progress claims and marry up to subcontractor claims and major supplier invoices e.g. concrete and reo.
  •  14 day payments – standard response to request – NO, WE DON’T DO THEM.  Only entertain IF the quote is substantially less than everyone else’s – I’m talking at least 15%
  • Finish on time, to the requisite quality – goes without saying really

Builders operate in a very fluid economic environment.  Continual review and improvement is needed to stay relevant to clients, maintain a positive cashflow and be profitable for owners.