“Cash is king” is an easy rule to cite for those offering advice on how to effectively run a business. While this age-old rule still has value, construction company owners know that running their business isn’t as simple as hoarding all the cash that comes in the door.
The nature of the construction industry—characterized by long project timelines, substantial upfront costs, and slow-paying upstream parties—demands a disciplined approach to managing cash. While I can’t argue that cash is king, the ability to accurately forecast cash flow is becoming an increasingly vital skill in the construction world.
Forecast Your Flow
Planning for cash inflows and outflows can support contractors in countless strategic pursuits. This exercise applies no matter where a company is in its lifecycle. A young, growing firm can benefit just as much as a well-established one.
Cash flow forecasting can help shape Go/No-Go strategies, build operational stability, navigate backlog growth, manage project delays, enhance creditor relationships, influence capital expenditure decisions, improve risk management, support continuity planning, and maximize profits.
Accurate forecasting also builds confidence among a construction company’s internal and external stakeholders. For many, the surety company is one of the most critical of those stakeholders—and one with a strong interest in effective cash flow management.
Get Your Surety’s Buy-In
Sureties use backward-looking financial statements and job schedules to build their own projections. Contractors who can provide forward-looking financial data—including cash flow forecasts—to supplement those statements will be in a stronger position to maximize their surety credit.
No reasonable underwriter expects a perfect cash flow forecast months into the future. But even a basic projection demonstrates to sureties—and other creditors—that a contractor is thinking proactively to avoid financial pitfalls tied to cash deficits. More advanced forecasts can serve as the basis for strategic decisions, deepening surety buy-in when it comes to a contractor’s future business plans.
Having an informal idea around how cash flow will play out isn’t always enough—especially when backlogs, balance sheets, and capacity are stretched. Developing a formalized cash flow forecast could make the difference in gaining surety support for your next big project or backlog spike.
Calculate Your Cash with Confidence
At Holmes Murphy, we help our construction clients build thoughtful cash flow forecasts that gain buy-in from sureties and other key stakeholders. Forecasting is one of the many ways we support our construction clients and help tell their story—to maximize surety credit and support their business plans.
Cash may always be king, but strategic cash flow management is what keeps the kingdom running. Reach out today to get started!
