Cash flow can kill
It’s not unusual for cash flow to become a problem for business, especially in the construction game. While I believe cash flow crisis can be avoided by better planning, now that it’s upon you how can we get out the other side intact?
See the whole board.
When cash flow tightens up, the second thing a business owner loses (after a healthy bank balance) is perspective. To be successful at chess you need to see the whole board, not just one piece. When you’re one step away from checkmate, you only focus on your King.
Take a deep breath and look at the whole business that same way you would if everything was rosie. It’s more than the bank balance and the creditors demanding payment, it also needs to be how to finish jobs, what decisions will trigger more income, how to keep up staff moral, ensuing effective communication with all stakeholders and keeping staff accountable among other things critical to business success.
Too often focus is directed at the loudest issues, or in this case creditors, regardless of their importance to the future of the business.
Business as usual
In line with seeing the whole board, its important to maintain business as usual as much as possible. Don’t stop marketing, quoting for new work, putting off important hiring decisions, hiring cheap in place of quality, and other decisions you wouldn’t make if there were no issues.
Deal with the issue
Once you’ve put the doom and gloom back in the box, now you can focus on what needs to be done.
How do I get more money in quicker? Firstly, ask! Look at your customers and see if any of them can pay earlier than normal. There’s always someone out there that can pay a little earlier and if you think hard enough, you probably already know who that is.
What work should I prioritise? Look at all your work and see what will trigger a stage payment or final payment first. Focus your attention on that work even if it means putting other work on hold for now. You may upset someone when you put their work on hold, but its better than never finishing anything
How should I allocate the cash? Focus your payments or resources on what delivers outcomes which leads to payments. While in an ideal world of building houses, starting landscaping well before the house is finished is good scheduling, the landscaping is not critical to a certificate of occupancy which should trigger a payment from the home owner.
Can I borrow? When cash is tight, borrowing is harder. Don’t let this put you off, but also except that the big bank may not help and you may need to pay higher interest of borrow from short term lenders.
Can I cut spending? Of course, but be mindful you need to keep the business going and focus on what matters. Now is not the time to get fixated on the office tea and coffee.
Can I sack staff? Potentially! There’s a range of workplace laws that need to be considered and you may have to payout lump sums to those who do go. However, if staff are being underutilised and you can hire casual or subcontract out, paying full time staff to leave may be beneficial.
Do you really need that asset? It’s nice to have a home car and a work van, but if your honest, the van is more than enough to get around in. Look at all your assets, and if they’re not earning money or are used infrequently sell them! You can always hire cars, trucks, bobcats etc daily.
PLAN! Consider all these matters and write a plan down. Too often business owners look to the quick solution and execute. Even if it means writing down the plan today and executing tomorrow, that one night’s sleep may open your eyes to other options before you execute a bad plan.