Strategies for Monitoring Cash Flow

Cash flow is the measurement of money earned versus money spent on a project. While all projects are unique, every project involves costs, such as labor, materials and equipment. Accurately monitoring these costs is crucial when determining a project’s success. Cash flows allow you to:

• Measure profitability
• Easily review available funds
• Avoid project delays and disputes
• Provide the necessary materials and labor
• Make sure you’re paid on time
• Ensure you’re paying others on time
• And more!

Cash flow is one of the most important metrics to review when completing a project.

Why is accurately measuring cash flow important for project success?

Precisely measuring cash flow allows you to set aside the necessary funds to complete a project while maintaining its timeline and budget. This not only maximizes your profitability, but it sets your field employees up for success by getting them the materials they need in a timely manner to avoid delays.

What are some steps to monitor cash flow?

There are a few simple steps you can take to maintain positive cash flow and increase your profits:

1. Set a realistic project budget.

Create an attainable budget that includes all potential expenses, including any overhead costs and permits. You should also include the projected potential revenue from completing the project so you can calculate costs versus earnings to determine profitability. Additionally, outlining this information upfront can reduce the likelihood of unexpected costs and help you more easily adjust when project changes occur.

2. Include payment terms in your contracts.

Make sure payment terms are clearly defined in your contracts before work begins so you know when you will receive payments. This allows you to create a detailed timeline to correctly allocate project funds.

3. Create a cash flow statement.

The cash flow statement accurately categorizes money earned versus money spent at specific steps of a project — meaning every dollar earned and spent is accounted for and easily reviewable. This step is crucial because it gives you critical information to assess project revenue and costs at every step and mitigate change order costs. If your company is working on multiple projects simultaneously, a cash flow statement is vital to ensure you’re not overspending.

How can construction accounting software help monitor cash flow?

Construction accounting software can compare estimated revenue versus costs, such as labor and materials. Some accounting software offers integrated job costing so you can receive updates to your cash flow while seeing the larger impact on your company’s finances.

With FOUNDATION® you can easily review your cash flow, build job costing reports with your company’s own job cost structure, track and manage change orders without altering the original project information and much more.