By the nature of the way we do business, women often have different money management issues than men. In construction, women business owners are rewriting the rules. To give you the best chance to be successful, let's dive into cash flow management — an overlooked critical aspect. Here's a straightforward guide addressing seven common cash flow issues and offering practical solutions for women navigating business in the construction industry.
1. Paying Bills Too Early
I remember when I used to pay our vendors in full, not really taking into account which of those line items on the statement had been paid for and which had not. I just saw it all as one bill, to be paid all at once. Paying bills too early may seem like the responsible thing to do, however, it can adversely affect your cash flow.
Striking the right balance is essential; while delaying payments strains relationships, paying too early can strain your working capital. To optimize your payment schedules, consider negotiating extended terms with vendors without compromising your creditworthiness. This approach ensures a healthy cash flow while fostering positive supplier relationships.
2. Lack of Deposit
For so many reasons, getting a deposit for your work is the prudent thing to do. We waited way too long before we started collecting deposits and without deposits it turned into us funding projects — this is not a good idea! Negotiating reasonable deposits is crucial to set the tone for successful collaboration from the project's outset.
By securing upfront payments, you demonstrate your worth and ensure financial stability at the project's initiation. This upfront commitment from clients gives your business the financial cushion to cover initial project expenses, allowing you to approach each project with confidence and financial security.
3. Delayed Invoicing
The best thing you can do for yourself, your business and your cashflow when it comes to invoicing is to have a schedule for when you do it. Maybe it’s once a month, maybe it’s a couple of times a week, it will depend on your business and the type of service you do as well as the phase of a project you’re in.
Late invoices create a ripple effect, leading to delayed payments and impacting your cash flow. Adopting efficient invoicing systems is key to streamlining your finances. Invoicing tools that automate the process, ensuring accurate and timely invoices will help.
Prompt invoicing accelerates payment cycles and establishes a professional and efficient financial relationship with your clients, setting the expectation for timely payments from the beginning.
4. Slow-Paying Customers
When we start a new project with a client we really connect with, sometimes we “assume” they will be the perfect client by making quick decisions and paying as soon as the invoice pops in their inbox.
However, good people don’t always equal good money managers. Identifying clients who delay payments is crucial for maintaining a consistent cash flow. Clearly outlining payment terms in your contracts and invoices is paramount, no matter how nice they seem.
To encourage timely payments, consider implementing penalties for late payments and of course you can apply this at your discretion. This helps set expectations and acts as a deterrent, ensuring that clients adhere to agreed-upon payment schedules and fostering a healthier financial relationship.
5. Overstock of Inventory
I’m sure you’ve seen it, at the end of a long day, week or month on a job site, while cleaning up, everything just gets thrown into the back of the truck to be dealt with “later”. Excess inventory can tie up valuable funds that could be deployed elsewhere.
Implementing straightforward inventory management strategies is essential to prevent overstocking and that can be as simple as returning that unused material at the end of the day, or the beginning of the next day.
By being aware of the stockpiling of material and getting it returned, you not only free up funds for other aspects of your business you also ensure that your resources are working efficiently, contributing to a healthier cash flow.
Nobody wants to even consider the process of fighting for payment through the court system. Legal battles can drain your financial resources and disrupt your cash flow.
To avoid such pitfalls, explore strategies to minimize the risk of litigation. Incorporate alternative dispute resolution methods, such as mediation or arbitration, into your contracts.
These methods provide a quicker and more cost-effective resolution to disputes, ensuring that your financial resources remain intact and your cash flow remains steady.
7. Lack of Change Order Management
This is probably one of the top challenges in managing your money in projects and that’s because many companies do not have a process in place to identify when the need for a change order is triggered and what happens after one is triggered.
Change orders are common in construction projects, and effective management is crucial to prevent financial surprises. Train your team to understand what triggers a change order (hint: any change that impacts the scope, budget or schedule). Establish straightforward change order management processes that clearly define the procedures for approving and implementing changes.
By having a well-structured change order system, you maintain control over project costs and ensure that your cash flow remains predictable throughout the project lifecycle.
Tailoring Strategies for Women Business Owners
Being a woman in the construction industry presents distinct challenges that require tailored strategies for success. Embrace the power of networking to connect with other women in the field and share experiences, insights, and solutions.
Seek out mentorship opportunities to benefit from the guidance of seasoned professionals who can provide valuable advice on navigating industry nuances. Actively engage in support systems, both formal and informal, to build a robust network of allies who understand the specific challenges women face in construction.
And if you’re looking for such a community, I have one just for you! The Elite Warrior Women is a supportive, collaborative group of women business owners and leaders in the construction and service industry, working together to elevate and take active interest in the success of each other. The construction industry can be a lonely place for women business owners and here, you have found your community. You can learn more here.
Master Construction Finances with Coralee Beatty — Connect Now for FCOO Support!
Effective cash flow management is the backbone of your construction enterprise. Addressing these seven common cash flow challenges positions your business for enduring success. Explore tailored resources, tools, and networks for women business owners in construction. Connect with professionals who understand your unique journey and can offer valuable support.
Meet Coralee Beatty, a seasoned industry expert in construction providing practical insights and unwavering support. Connect with us today for a decisive step toward financial success in construction. Your path to mastery starts now!