Let’s face the truth: financial management is tough. You have to deal with clients who do not want to pay on time, manage your costs and adapt to unpredictable changes in the market. Taking all of this into account, how can you take care of cash flows and expenditures without risking your company’s financial stability? Check out to find the answer!
To be successful, your construction company needs a stable financial situation, a clear view of expenses and a fast invoice process. Sounds easy, right? Well, in real life, financial management can be a real challenge as you have to deal with delayed payments, unexpected costs or a time-consuming invoice process.
Even though taking care of finances is not easy, you still need to do it to make your company successful.
What can you do to manage your cash flows better?
How can you better plan your expenditures without risking the company's financial situation?
And finally, are there any tools that can support your financial management?
We believe you will find all the answers in the article. So let's take a look!
Late payments are an issue in the whole construction industry. Did you know that only one in ten construction businesses is paid in full? The average time for receiving payment varies between 40 and 60 days, but one in five subcontractors has to wait even longer!
Nowadays, when the whole industry has to deal with post-pandemic consequences, the problem with timely payments is even more severe! In 2019, up to 61% of businesses got paid fully, while now it is only around 11%! Longer waiting periods can be related to issues with cash flow management as you cannot really manage your money properly (e.g. spending it on a new investment).
Lack of an overview of a current financial situation
Many companies, especially small and medium ones, do not know the actual profit from the project until the very end. It is because they lack the financial overview during project execution. Instead, they wait to receive all financial documents and then calculate all the data on their own. But, unfortunately, it is already too late!
Such a way of "controlling" the financial situation gives you no possibility of reacting to challenges and unpredictable changes to your project. It’s more like a person driving with covered eyes, hoping nothing will happen than a proper financial management strategy.
Slow invoice process
Your customers will not pay you if they do not receive an invoice. It seems not much but yet it is. Many companies tend to send invoices only after the project (or more extensive parts) has been completed. Well, that’s one way to do it, but when you operate within big budgets and high costs, it might impact your financial stability.
Adding to it the construction industry's issue with slow payments, we have a ready recipe for disaster. A slower invoice process means a longer waiting time for payments, which means a more extensive period with no money for new investments and salaries for workers or subcontractors, resulting in the company's unstable financial situation!
Do you face the challenges above? Do you feel they might affect your financial stability in the future?
You are not alone in this! Almost every construction company has to deal with financial challenges. However, you need something more than just a good attitude and Excel Spreadsheets to overcome them. A proper solution can be construction management software, like Archdesk, which helps you control the financial health of any project, monitor budget spending and support your invoicing process. Thanks to digital tools, you can better plan your expenditures and manage your cash flow. But how does it work exactly?
In our construction management software, you can find many different features that can support your financial management. However, we can distinguish a few main ones, especially beneficial for controlling your expenditures and cash flows.
Financial Dashboard is a place in the system with all crucial financial information regarding a specific project. The values are updated automatically with every new approved financial data, so you can always check and make decisions based on up-to-date numbers.
Let's focus on some crucial indicators in the Financial Dashboard:
Budget - the anticipated cost of delivering a project based on predictions about the amount of money spent on specific categories
Project Cost - predicted and actual expenses in a project; the exact cost of delivering a project.
The difference between those two is the profit of a project. Thanks to the numbers shown in easy-to-comprehend charts and diagrams, you can clearly see how your project is managing and if any action from your side is needed.
Also, our Financial Dashboard gives you the possibility to keep track of payment records against all the invoices. In the system, you can see two indicators:
Received to date - comes from sales invoices and shows you the value paid by your customers.
Outstanding - value based on purchase invoices indicating how much you still need to spend on payments.
The ratio of these two amounts provides us with information about cash flows. You can see how much money you have got in your project versus how much you need to pay and thanks to that, you can plan your future payments without risking your financial stability.
Last but not least, on the Financial Dashboard, you can easily control project expenses:
Cost Categories - shows project cost split into separate categories that can be customised according to your company's needs.
Thanks to the division of costs, you can check on which part of the project you lose the most and why. Then probably, there will be a chance to fix it or learn from this experience to avoid such mistakes in the future.
Appropriate financial management should not end at the project level! In Archdesk, we know that, this is why the software gives you the possibility to track financial stability and an overall company performance. At the same time, the software has significant flexibility in choosing specific information that you want to track and monitor.
For example, one of such values could be the numbers of total sales and purchases in a given period of time (yearly, monthly, quarterly). Thanks to the comparison, you can see how the company is profiting and how it was changing throughout the time (which can be useful while planning next investments).
Apart from controlling expenses at the whole company's level, you can do the same with cash flows. If you want to check how much money your company still needs to pay and how much the clients owe you, you can use the due accounts tool. This is where you will find the comparison of these two values with more specific information for each debtor or creditor.
Such a solution allows you to better plan your cash flow without risking your company's financial stability. Also, it can help you identify the client that is very late with payment and react accordingly. As we mentioned before, timely payments are not a strong point of the construction industry, so you should be prepared for that!
Of course, these are only a few tools from the variety of financial solutions our software offers. That is why, if you want to learn more about how we can support your company and customise our tools to your specific needs and challenges, schedule a call with us. We will show you how our software works in practice and answer all your questions and doubts!
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We have already mentioned the software's solutions for planning your processes in the previous paragraph. After all, controlling and planning are inseparable. The better you monitor your money spendings and profits, the more precisely you can organise them.
However, there is one more tool that can support you in planning your processes. You can check the actual profit for a specific project (or portfolio of projects) compared to the anticipated one inside the software.
This solution gives you a clear view of the company's future profits and supports the decision-making process. Imagine receiving information that you will get half a million pounds from your work in six months. Thanks to that, you can plan your expenditures or possible new investments without risking financial stability.
Taking care of finances is never easy. Let's admit it, you have to deal with clients who do not want to pay on time, manage your costs and react quickly to unpredictable events on the market, such as the Coronavirus Pandemic or the Materials Cost Crisis.
However, even with all these challenges, proper financial management is key to the company's be or not to be. Therefore, we want to highlight the word proper as many companies lack an overview of the project (or the whole company) during execution, not knowing the actual profit till the very end!
If you also have been making that mistake, luckily, you can easily change that! A modern construction management platform can support your daily activities, gather all crucial information and help you take care of your financial stability.
You might have already read how our construction software supports controlling, planning and managing cash flows and expenditures. However, we have more than one ace up our sleeve. If you want to discover our other solutions for your company, do not hesitate to contact us!
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