Lack of Reliable Operations Data Promotes Negative Subcontractor Cash Flow
To meet existing financial obligations and to fund future company expansion, contractors must learn how to maintain a healthy and positive cash flow. Problem is: Many subs lack access to real-time jobsite data feedback during projects. As such, they tend to come up short on information necessary for accurate measuring of the current and projected cash flow situation. This cumulative lack of reliable jobsite data feedback promotes negative subcontractor cash flow. But even more serious is the possibility that such a negative cash flow condition can reach critical status before anyone becomes aware of the problem.
Is Your Firm Enduring a Negative Cash Flow Condition
Points that indicate problems with cash flow are easy to define, but not necessarily easy to repair. Comparing cash receipts to cash payments across a measured unit of time provides limited understanding of what causes problems with contractor cash flow. Effective and reliable income balance monitoring involves much more detail. According to ASA’s, The Contractor’s Compass, falling short in any of the following key indicators may be a sign of an upcoming cashflow problem:
- Days Sales Outstanding runs higher than seventy days
- Working Capital drops below eight percent of annual revenue
- Working Capital Turnover drops below eight times your working capital
- Debt/Equity Ratio rises above 2.5
- Current Ratio drops below 1.5
- Quick Ratio runs lower than 1
- Cash Demand and Cash Demand Days promote a significant availability of usable resources.
Cash Flow Problem Awareness Not Equivalent To Cash Flow Improvement
Knowing that problems exist is not the same as knowing how to fix the problems. According to the ASA report “Improving Cash Flow,” nearly eighty-five percent of contractor cash derives from in-process project work. Thus positive subcontractor cash flow comes in due to positive project cash flow. Reasonable methods for assuring a positive cash flow include:
- Avoid lump sum billing
- Breakout and pre-bill startup activities
- Sequence activities
- Break out, categorize and bill large system and material expenses
- Accurately collect and apply labor costs
- Allocate overhead, direct costs and profits toward more efficient positive cash flow cycles
- Establish traceable costing, measurable goals and processes of review and accountability
- Work with customers simplify scheduling, billings and planning
- Establish joint resources for tracking and costing labor, material and other direct jobsite expenses
- Identify monthly material and equipment expenses before they are incurred
- Track percentage of project completion as compared to percentage of your overall budget
- Use software for construction contractors that integrate with other construction jobsite data collection and monitoring apps.
Reap The Benefits of Real-time Project Data Collection, Sharing and Jobsite Feedback
Maintaining a positive subcontractor cash flow is not easy. But with the right tools, the right client relationships and a focus on shared goals, the task of managing subcontractors can be greatly simplified, and in a manner that aids and promotes better cash flow for the subs as well as the general. Assignar workforce and asset allocation and planning construction software incorporates components custom-designed for the promotion of effective communication with subcontractors. For General contractors and subs alike, Assignar drives:
- Better communication
- Reliable methods for identifying points of failure
- Reasonable project planning and sharing with subcontractors as well as material suppliers
- Streamlined subcontractor efficiency
- AND On-time project success for all concerned parties.
To be successful, subs must track project costs including chargeable items, payroll and out of scope work on a day-to-day basis. Assignar enables the use of such data to generate an invoice for the General contractor faster and with greater accuracy and reliability. When the General contractor is confident that the invoices are accurate,
Subcontractors get paid faster. Payroll is fulfilled quicker. And cash flow remains positive.
On those occasions when a sub needs to float a loan on the basis of an invoice, opportunities are more flexible. Assignar empowers subcontractors with the reliability of detailed itemized invoicing, a tool that moves subs into a better position for taking out loans as needed.
Paper-based forms and timesheets can heap days upon the invoice processing time. This can easily result in subs holding a negative rather than a positive cash flow. On the other hand, real-time jobsite data collection promotes accurate invoicing at any given time. Assignar eliminates delays while ensuring up-to-date input of labor, material costing and more. Learn more about how Assignar promotes “Subcontractor Efficiency Via Streamlining Business Activities.”