Spring 2009 issue of Horizons

INDUSTRy u

Contractors

Cash – the Difference Between Thriving and Surviving

Success in the construction industry is not always simply about getting the contract. Success begins with a mindset: Can the company perform the job on time and at or below budget with no lingering cash issues? Additionally, contractors should understand that business practices can have a major impact on cash flow. It’s easy to blame the financial management department if money dries up, but both accounting and operations should work together to make the business run smoothly. Often, the finance department can provide a perspective that might otherwise be overlooked. Contractors should continually evaluate the structure of their business procedures and operations, from pre-bid to contract closeout. In the pre-bid phase, it is important to research a potential customer, looking at work previously performed, payment history, credit, ethics and experience. Having this information beforehand can save the contractor from entering into a contract with an unreliable customer. When a contractor is awarded a job and has the opportunity to negotiate terms, industry standards should not necessarily be the norm. At this point, the contractor can negotiate conditions that will improve the company’s cash flow. For instance, instead of simply accepting a standard 10 percent retainage, negotiate for a reduction at certain contract milestones. Further, one

By Frank Hogg, CPA, and Greg Paulus, CPA

For contractors, cash is far more than just dollars and cents. In these challenging economic times, more contractors will go out of business because of poor cash flow than from a lack of work or fading profits. In the leanest of times, a strong cash flow can be the difference between success and failure for a construction company. So in today’s economy, it’s more important than ever for contractors to closely monitor their operations and determine how they can improve their cash flow.

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u spring 2009 issue