In the construction industry, it can take time before contractors feel the effects of a recession or economic disruption. Jobs you’re working on right now can offer a sense of security, yet as contracts are canceled and clients delaying upcoming projects, the situation can become more stressful.
As the industry navigates the economic downturn brought about by the pandemic, it’s crucial that contractors maintain sufficient cash assets. To determine the appropriate amount, contractors must rely on data, specifically data that is accurate, updated, and clear.
This can be accomplished by creating a 16-week rolling cash flow forecast. The cash flow forecast should be straightforward and understandable so that key stakeholders are able to interpret what it is telling them.
The example shown here illustrates a format that could be adapted for many construction contractors and subcontractors. (The example shows only the opening weeks, but the projection should be carried out to at least 16 weeks.)
Because every business is unique, the example should be regarded as a template. Management can then tweak this model to accommodate each company’s particular needs. A rolling forecast such as this can help contractors project any future cash deficits so that they can determine in advance what resources will be available to fund those deficits.
This would also be a great time for contractors to alter their reporting strategy to deliver more timely metrics to stakeholders and managers, as opposed to relying on monthly statements that might not reflect the situation “on the ground.” These “flash reports” can better position your business to respond in a timely manner to real-time developments.
Here is a template for one of these reports:
Contact Dembo Jones for advice and insight into strengthening your firm’s financial position as we navigate the economic effects of the pandemic.