Construction Cash Flow Forecasting estimates when cash is expected to enter and leave a construction business. For Contractors running several Projects, the forecast should combine expected Project receipts and Project expenditure with Payroll, Overheads, tax, finance payments and other business commitments. Forecasting Projects separately can also show which jobs are generating cash and which are requiring the business to fund them.
Why Is Cash Flow Forecasting Different in Construction?
Construction businesses regularly pay for work before they receive the corresponding Project cash. Labour may be paid weekly or fortnightly, Subcontractors and Suppliers have their own payment terms, Materials and Plant may be required well before the work is claimed, and the Contractor’s Progress Claim may not be paid until weeks later.
The funding requirement increases when Projects get larger or several Projects reach expensive stages at the same time. Retention Moneys reduce the cash received from Progress Claims, while Variation work may already have been completed and paid for before the Variation is approved.
A Construction Cash Flow Forecast therefore needs to follow what is happening on the Projects and when the related cash is expected to move. Monthly sales and expense figures alone will not show that timing.
From Work Performed to Cash in the Bank
A Progress Claim can pass through all of these stages before the money becomes available to the business. The dates can be weeks apart, so a forecast based on the claim date can materially overstate the cash available during the intervening period.
A Profitable Project Can Still Require a Lot of Cash
Profit and Cash Flow answer different questions. A Project can be expected to make a good margin over its life while requiring the business to fund a large amount of expenditure during delivery.
Assume a Contractor expects to earn a $200,000 margin on a Project. During one month, the business pays $450,000 for Labour, Subcontractors, Materials and Plant. It submits a $550,000 Progress Claim, but the payment will not be received until the following month and part of it will be withheld as Retention.
The Project can remain profitable while the business funds $450,000 before receiving the related cash. If several Projects reach similar stages at the same time, the combined funding requirement can become substantial.
This is one reason turnover, margin and Cash Flow need to be read together. A construction business can have profitable Projects, growing revenue and a strong order book while the amount of Working Capital required to deliver the work is increasing.
Should Cash Flow Be Forecast by Project or Across the Whole Business?
For Contractors delivering several material Projects, Project Cash Flow and Business Cash Flow answer different questions.
A Project forecast shows how much cash a particular Project is expected to generate or use. The whole-of-business forecast combines those Project movements with the other cash required to run the business.
Shows when an individual Project is expected to generate cash or require funding from the business.
- Progress Claim receipts
- Approved Variation receipts
- Retention releases
- Project Labour
- Subcontractors
- Materials
- Plant and Equipment
- Mobilisation and procurement
- Other Project costs
Shows the cash available across the construction business after Project cash movements and business commitments are combined.
- Opening cash
- Combined Project cash movements
- Payroll outside Projects
- Rent and lease payments
- Insurance and vehicles
- Software and administration
- Professional fees
- BAS, tax and Superannuation
- Finance repayments
- Other business receipts and payments
The Business Cash Flow Forecast shows where the overall cash position is expected to go. Project forecasts help management see what is driving that result.
A Project in a heavy procurement stage may consume cash while another is generating it. A recently completed Project may have Retention due for release while a new Project is absorbing cash during mobilisation. Combining those Project movements into the Business Cash Flow Forecast provides the overall position without losing the Project-level information behind it.
This also gives management a better basis for deciding what to investigate. If the forecast shows a shortfall in six weeks, the question becomes which Project receipts, Project costs or business payments are creating it.
Is the Forecast Showing You What Is Actually Happening?
A Cash Flow Forecast is only as useful as the Project information sitting behind it. Shannon works through expected receipts, current Project costs, WIP, Variations, Retention, Overheads and available finance to find out whether the forecast reflects what is likely to happen over the coming weeks.
He also looks at the differences between forecast and actual results. If receipts keep arriving later than forecast, Project costs are moving or one Project is absorbing more cash than expected, those differences need to be understood rather than rolled into another week.
Build Your Own Construction Cash Flow Forecast
Our free Construction Cash Flow Calculator lets you prepare a 13-week forecast using whole-of-business figures or build the Business Cash Flow Forecast from individual Projects.
You can include expected Progress Claim receipts, approved Variation payments, Retention Moneys expected to be released, Project costs, Payroll, Overheads, tax, finance payments and other business cash movements.
Once the forecast is complete, the Construction Cash Flow Boost Calculator automatically uses the same information. You can then test different scenarios without building the forecast again, including the possible effect of recovering overdue Retention, reducing Progress Claim collection time, receiving approved Variation payments sooner or changing controllable Overheads.
Build and Test Your Own Construction Cash Flow Forecast
Enter your business figures or build the forecast from individual Projects. The linked Boost Calculator then uses the same forecast so you can test different Cash Flow scenarios without entering the figures again.
What Goes Into a Construction Cash Flow Forecast?
The basic rule is to enter cash when it is reasonably expected to move. Revenue earned is not necessarily cash received, a Progress Claim submitted is not cash received, and a cost incurred is not necessarily cash paid that day.
The forecast becomes useful when the timing reflects what is expected to happen to the bank balance rather than when the accounting or contractual event occurs.
Opening Cash Balance
Start with the cleared cash available in the relevant business bank accounts at the beginning of the forecast period.
Keep available finance separate. If the business has a $500,000 approved facility and $150,000 has already been drawn, the remaining $350,000 may still be available subject to the facility terms. It is not another $350,000 already sitting in the bank.
Separating cash from available finance shows when the business expects to move from using its own cash to relying on additional borrowings.
Progress Claims Expected to Be Received
Enter a Progress Claim in the period when payment is reasonably expected to reach the bank account.
If a $600,000 Progress Claim is submitted in Week 1 and payment is expected in Week 5, the expected cash receipt belongs in Week 5. Putting it into Week 1 can make the business appear to have cash available four weeks before it actually does.
The same approach applies where the contractual payment date and the customer’s normal payment behaviour differ. Use the best current information available about when the cash is reasonably expected.
Approved Variations Expected to Be Paid
An approved Variation that is reasonably expected to be paid during the forecast period can be included in the expected receipt period.
An unapproved or disputed Variation is different. The Contractor may already have paid Labour, Subcontractors, Materials and Plant to carry out the additional work, but the amount claimed is not automatically certain cash.
Keep the outstanding Variation position visible without making the forecast stronger by assuming that every amount submitted will be received when hoped.
Retention Moneys
Retention should be tracked by Project. The business should know how much is currently held, when each amount becomes due for release, what is due now, what is overdue and when payment is reasonably expected.
Retention that has not yet become due should remain visible but should not be treated as available cash. Retention that has become due needs an owner and a follow-up process rather than simply being moved forward in the forecast.
The total can become material across a portfolio of Projects. Five Projects with $60,000 of Retention held on each means $300,000 remains outside the business. If $120,000 has already become due for release, management should know why it has not been received and who is following it up.
Project Costs
Enter Project expenditure when the business reasonably expects to pay it. Depending on the Project, this can include Labour, Subcontractors, Materials, Plant and Equipment, site costs, mobilisation and major procurement.
Large or irregular Project payments need particular attention. One procurement package or large Subcontractor payment can change the Cash Flow position for that week by hundreds of thousands of dollars.
The information also needs to stay current. A Cash Flow Forecast based on a cost plan prepared months earlier may no longer reflect procurement decisions, Labour requirements, Subcontractor costs, scope changes or what is happening during delivery.
Payroll and Labour
Include Payroll according to when it is expected to leave the bank account.
Where Labour has already been included in individual Project forecasts, make sure it is not included again at business level. Double counting can make the forecast look significantly worse than the actual position.
Business Overheads
The Business Cash Flow Forecast needs the costs that sit outside direct Project expenditure.
Depending on the business, these may include rent or lease payments, insurance, vehicle costs, software subscriptions, office and administration expenses and professional fees. They continue to be paid when a Project receipt is delayed.
BAS, Tax and Superannuation
Include BAS, tax and Superannuation according to their expected payment dates.
These amounts can cause large movements in cash. A forecast that includes Project payments and Payroll but leaves out a known BAS or tax payment is not showing the position management will actually have to fund.
Finance Payments and Available Finance
Include loan repayments, equipment finance and other finance commitments as cash outflows when they are expected to be paid.
Approved finance still available to draw should be shown separately from cash. This allows management to see when the business expects to begin using the facility, how much of it may be required and what remains available after that point.
Cleared cash already available to the business at the start of the forecast.
Receipts that are reasonably expected to reach the bank during the forecast period.
Approved borrowing capacity that may be available to draw. It is not cash already held by the business.
What Shannon Checks Before Relying on the Forecast
After more than 25 years working in Management Accounting, Cost Accounting and financial management, I want to know where the numbers came from before I spend time changing the spreadsheet.
If there is a Progress Claim in the forecast, I check whether the date is when the claim will be submitted, when payment becomes due or when the business actually expects to receive the money. Those can be very different dates.
I also look for amounts that have dropped out of the normal reporting cycle. Retention is a common example. A business may have money held over several completed or nearly completed Projects without one current record showing what is due, when it should be released and whether anybody is chasing it.
Variations need the same treatment. If the business has already spent the money carrying out the work and the Variation is still being negotiated, I do not want the forecast treating the full claimed amount as certain cash.
The accounting records tell me what has already happened. The Project team usually has better information about what is about to happen. I need both before I can decide whether the forecast is useful.
Progress Claims: Use the Expected Receipt Date
Progress Claim timing is one of the easiest ways to overstate the short-term Cash Flow position. The business may complete the work this month, submit the claim at month-end and recognise revenue in its financial reporting, but none of those events puts cash into the bank.
The forecast should follow the expected payment cycle. If a particular customer regularly pays at a particular point in that cycle, use that information when deciding which week to forecast the receipt.
When expected cash does not arrive, investigate the reason before simply shifting the amount into the following week. The claim may have been reduced, a Variation may have been excluded, Retention may have been deducted or the payment may simply be late. Each explanation has a different implication for the next forecast and for what management needs to do.
For more information about claiming payment under Construction Contracts, see our Payment Claims guidance.
Variations Can Consume Cash Long Before They Are Paid
Variation work can start costing money immediately. Additional Labour may be required, Subcontractors may carry out extra work, Materials may be ordered and Plant may remain on site longer.
The Contractor can therefore be funding the changed work while the scope, price or entitlement remains under assessment. If this happens across several Variations or Projects, the total amount being funded can become significant.
For Cash Flow purposes, the stages need to remain separate. Work performed is not the same as a Variation submitted. A submitted Variation is not the same as an approved Variation, and an approved Variation is not cash until payment is received.
The closer a Variation gets to an agreed amount and realistic payment date, the stronger the basis for including the receipt in the forecast. Until then, management should still know how much Variation work the business is funding.
If outstanding Variation amounts keep increasing while Project costs continue to be paid, the issue can move beyond Contract Administration. It can start consuming Working Capital needed elsewhere in the business.
Retention Should Stay Visible Until It Is Recovered
Retention can become easy to overlook because its release often occurs after the Project team’s attention has moved elsewhere. Practical Completion may have been reached, staff may be working on new Projects and the remaining Retention becomes an old balance in a report.
A construction business running several Projects should keep a current Retention record showing what is held, when each release point occurs, what has become due, what has been paid and what remains overdue.
Where Retention is already due for release, follow it up rather than carrying the amount from one forecast period to the next. Across several completed Projects, forgotten Retentions can represent a meaningful amount of Working Capital sitting outside the business.
The forecast itself does not determine whether Retention is legally due. Release conditions still need to be checked against the relevant Contract. Our Retention Moneys page covers the contractual position in more detail.
Know how much Retention is being held across every active and completed Project.
Track the contractual release point, the amount due and the expected payment date.
Identify amounts that should already have been recovered and who is responsible for following them up.
What Does WIP Tell You About Cash Flow?
WIP and Cash Flow need to be read together, but they do not measure the same thing.
WIP can show the relationship between work performed, costs incurred, revenue recognised and billing, depending on the accounting and reporting method used by the business. Cash Flow deals with the movement of money into and out of the bank.
A growing WIP balance can be a reason to investigate whether work and costs are getting ahead of billing or recovery. It does not automatically prove that the business has a Cash Flow problem.
Shannon will usually go back to the Projects behind the WIP figure and check what has been performed, claimed, approved, paid and still needs to be recovered. The point is to understand the number rather than simply report it.
Growth Can Increase the Working Capital Requirement
Winning another Project does not mean that Project immediately funds itself. Mobilisation starts, Labour may increase, Subcontractors are engaged, Materials are ordered and Plant is required before the first substantial Progress Claim reaches the bank.
When several Projects start or accelerate together, those funding requirements overlap. Turnover and order-book growth can therefore increase the amount of cash the business needs before the additional revenue is collected.
This is particularly important when deciding whether the business has the financial capacity to take on another large Project. Management needs to understand how much cash the existing and proposed Projects are expected to use, when the requirement peaks and what Working Capital is available to meet it.
The interaction between Project delivery and the business as a whole is also relevant to Construction Project Delivery.
A Large Order Book Does Not Show How Much Cash You Need
Two construction businesses can each have a $30 million order book and require very different amounts of Working Capital. One may have Projects spread across the year with manageable mobilisation and procurement requirements. Another may have three Projects starting together, substantial early procurement, significant Retention and long payment cycles. Margin changes the position again. A lower-margin Project with a large Working Capital requirement can place more pressure on the business than a smaller Project with better payment timing and a stronger margin.
Order-book value therefore needs to be considered alongside Project timing, Project margins, procurement, payment terms and the amount of Working Capital required to deliver the work.
What Is a 13-Week Construction Cash Flow Forecast?
A 13-week Cash Flow Forecast gives management a detailed view of approximately the next three months. For a construction business, that period is usually long enough to cover several Progress Claim, Payroll, Supplier and Subcontractor cycles. It can also capture BAS or tax payments, upcoming procurement, expected Retention releases and other material cash movements.
The 13-week forecast is mainly a short-term management tool. A business may still use longer forecasts for annual planning, major Project starts, growth and future funding requirements.
The benefit of a rolling forecast is that it does not get shorter as time passes. Each completed week is replaced with actual results, current Project information is updated and another week is added at the end.
Compare Forecast Cash Flow With Actual Cash Flow
A Cash Flow Forecast becomes more useful when management checks why the actual result differed from the forecast.
Suppose the business expected a $420,000 Project receipt and received $330,000. The missing $90,000 may be Retention, a reduced assessment, a Variation exclusion or a delayed payment. Once the reason is understood, management can deal with the issue and use better information in the next forecast.
Costs need the same review. If $250,000 of Project expenditure was forecast and $340,000 was paid, check whether the difference came from timing, additional scope, procurement, Labour, cost increases or an outdated Project cost forecast.
Repeated differences matter. If Project receipts are routinely forecast too early or Project costs are routinely understated, moving the figures into another week does not improve the forecasting process.
What Should You Do if the Forecast Shows a Cash Shortfall?
Start by checking the assumptions behind the shortage rather than immediately looking for additional finance.
Review cash that may already be due to the business, including overdue Progress Claims, approved Variations, Retention due for release and other receivables. Confirm the amount, why it remains outstanding and when payment is realistically expected.
Then look at the Project expenditure contributing to the low point. Procurement may have moved forward, Project costs may have increased or the Project cost forecast may no longer reflect what is happening during delivery.
Business Overheads also need to be checked, but that does not mean applying an arbitrary percentage cut. Identify costs that can realistically be removed, reduced, renegotiated or deferred without disrupting Project delivery or creating a larger problem elsewhere.
Compare the revised forecast with the cash already available and the approved finance that remains undrawn. If the business expects to rely on a facility, management should know when the forecast begins using it, how much is expected to be required and how much will remain available.
Amounts legally due to employees, Subcontractors, the ATO or other parties should not simply be pushed into later weeks to make the forecast look better.
Test Different Cash Flow Scenarios Before They Happen
Scenario testing allows management to see how a change in timing or amount could affect the business before the change occurs.
A Contractor may want to know what happens if a $500,000 Progress Claim arrives two weeks late, $80,000 of Retention is delayed by another 60 days or a new Project starts six weeks earlier than planned.
The same approach can be used to test possible improvements. Recovering Retention that is already due, reducing Progress Claim collection time or bringing forward an approved Variation payment may improve the Cash Flow position, but only if there is a realistic basis for the scenario.
Moving receipts earlier or expenses later until the spreadsheet looks better does not provide useful information.
Use Your Own 13-Week Forecast
The Construction Cash Flow Boost Calculator automatically uses the forecast you have already built, so you can change selected assumptions and see the possible effect on cash available over the same 13 weeks.
What Does a Cash Flow Forecasting Engagement With Shannon Drew Look Like?
When I work with a construction business on Cash Flow, I start with the information the business already has. I look at the current bank position, Projects, receivables, payables, WIP, Retention, Payroll, finance and whatever forecasting or Project reporting is already being used.
The next part is understanding the material Projects behind those numbers. I work through expected Progress Claims and payment timing, significant Project costs, procurement, Variations, Retention and anything else likely to change the Cash Flow position.
Sometimes the business already has a forecast and it needs to be repaired. Sometimes we need to build one. A Contractor with a small number of large Projects may need considerably more Project-level detail than a business delivering a large number of smaller jobs.
Once the forecast is reliable enough to use, I look at the periods where cash is expected to become tight and what is causing the position. That may lead into Progress Claim collection, Retention recovery, Variations, WIP, Project cost control, Overheads or Working Capital.
The next step depends on what the figures show. Some businesses need help setting up the forecast and can then manage it internally. Others want ongoing support to update the forecast, compare forecast with actual results and work through the financial issues that come out of it.
Shannon Drew, Management Accountant, Virtual CFO and Business Adviser
A Cash Flow Forecast Needs Inputs From More Than Finance
Someone needs to own the consolidated forecast, but Finance cannot reliably forecast every Project from the accounting system.
Finance can provide bank balances, Payroll, Overheads, tax, receivables, payables and finance commitments. Project Managers and Commercial staff are closer to upcoming Progress Claims, procurement, Variations, Project costs, Retention and changes in delivery.
The business needs a clear process for who supplies each input, when the information is updated and who checks it. If nobody owns the expected payment date for a major Progress Claim or the release date for Retention, the forecast will eventually contain old assumptions.
This is a management process rather than a spreadsheet problem. Changing formulas will not fix information that is not being supplied or updated.
Want Shannon to Review Your Cash Flow Position?
A Strategy Session can be used to work through the current forecast, the Project information behind it and the areas that need further investigation.
Construction Contract Terms Can Change the Cash Flow Position
The Contract affects when Project cash can be claimed and received.
Progress Claim provisions can affect when a claim can be made, how it is assessed and when payment becomes due. Retention provisions determine what can be withheld and the conditions for release. Variation provisions affect how changed work is instructed, valued, claimed and paid. Set-off and security provisions may also affect the amount the Contractor ultimately receives.
The Cash Flow Forecast needs to reflect the Contract position where it materially affects an expected receipt. If a Project team expects $700,000 to arrive next month but the relevant Contract process does not support that timing, the forecast needs to be corrected.
A Cash Flow Forecast does not determine legal entitlement. Where a significant expected receipt depends on a disputed Payment Claim, Variation, Retention release or another contractual issue, separate legal advice may be required.
Blaze Business & Legal provides Construction Contract Services and Construction Lawyer Brisbane services separately from Shannon’s Construction Financial Management work.
Cash Flow Forecasting Problems Shannon Regularly Checks
1. Progress Claim Dates Are Being Used Instead of Expected Cash Receipts
A claim submitted this week may not produce cash for another month. Using the submission date can make the short-term Cash Flow position look materially stronger than it is.
2. Unapproved Variations Have Been Treated as Certain Cash
The business may expect to recover the amount, but an unresolved Variation should not be forecast in the same way as an approved amount with a realistic payment date.
3. Retention Has Dropped Out of Sight
The Project has moved on but the Retention has not been released. Check what is held, what has become due, what is overdue and who is responsible for following it up.
4. The Business Forecast Hides What Individual Projects Are Doing
A consolidated forecast can identify the low point without showing which Project is creating it. Project-level information may be required before management can decide what to change.
5. Project Forecasts Exclude Business Costs
The Projects may look healthy while Payroll, insurance, rent, vehicles, professional fees, finance and statutory payments reduce the cash available at business level.
6. Available Finance Has Been Added to Cash
Unused borrowing capacity is not cash already held by the business. Keep the two amounts separate so management can see when the forecast starts relying on additional debt.
7. BAS, Tax or Superannuation Is Missing
Known statutory payments can materially change the forecast and need to appear in the period when the business expects to pay them.
8. Project Cost Forecasts Are Out of Date
Procurement, Labour, Subcontractor costs and Project delivery change. Old Project cost information produces an old Cash Flow Forecast.
9. The Forecast Is Updated Without Checking What Changed
Moving a missed receipt into the next week fixes the spreadsheet but does not explain why the original forecast was wrong. Material differences between forecast and actual results need to be investigated.
Worked Construction Cash Flow Example
Consider a construction business delivering three Projects. It begins the forecast period with $400,000 of cash and has a $500,000 approved finance facility, of which $100,000 has already been drawn.
The remaining $400,000 of approved finance is kept separate from the Opening Cash Balance because it is borrowing capacity rather than cash already held in the bank.
Project A is well progressed and is expected to generate cash during the next 13 weeks.
Project B has entered a procurement-heavy stage. Significant Material and Subcontractor payments are expected before the corresponding Progress Claims are received.
Project C is nearing completion. $90,000 of Retention remains held, including $45,000 that has already become due for release.
At business level, Payroll, insurance, vehicles, administration costs, finance repayments, BAS and other Overheads continue throughout the same period.
The consolidated forecast shows the lowest cash position occurring while Project B’s procurement expenditure peaks. The Project information gives management somewhere useful to start investigating the shortage.
The business can check whether the $45,000 Retention on Project C should already have been recovered, confirm the realistic payment date for Project B’s next Progress Claim and update the Project cost forecast before deciding whether additional finance is actually required.
If Project B’s Progress Claim is simply late, the response may be different from a position where Project B’s costs have increased or its margin has deteriorated. Looking at the Project behind the cash movement is therefore more useful than treating every shortfall as the same problem.
Test Your Own Figures With Our Construction Cash Flow Calculator
Construction Cash Flow Forecasting Checklist
Construction Cash Flow Forecasting FAQs
1. What is Construction Cash Flow Forecasting?
Construction Cash Flow Forecasting estimates when cash is expected to enter and leave a construction business. It combines expected Project receipts and expenditure with Payroll, Overheads, tax, finance payments and other business commitments so management can see how the cash position is expected to move.
2. How do you prepare a Construction Cash Flow Forecast?
To prepare a Construction Cash Flow Forecast, start with the cash available at the beginning of the forecast period and enter receipts and payments according to when the money is reasonably expected to reach or leave the bank. Where material Projects are forecast separately, combine their cash movements with the costs and receipts that sit at business level.
3. What should be included in a Construction Cash Flow Forecast?
A Construction Cash Flow Forecast should include Opening Cash, expected Progress Claim receipts, approved Variation receipts, Retention Moneys expected to be released, Project expenditure, Payroll, Business Overheads, BAS, tax, Superannuation, finance repayments and other material cash movements expected during the forecast period.
4. What is a 13-week Cash Flow Forecast?
A 13-week Cash Flow Forecast provides a detailed view of expected receipts, payments and cash balances over approximately the next three months. For construction businesses, it can capture several Progress Claim, Payroll, Supplier and Subcontractor cycles while remaining short enough for Project assumptions to be reviewed and updated regularly.
5. Why use a 13-week Cash Flow Forecast in construction?
A 13-week Cash Flow Forecast can show upcoming Project expenditure, Progress Claim receipts, Retention releases, Payroll, Overheads and other payments before they affect the bank balance. Longer forecasts can still be used for annual planning, growth, major Project starts and future funding requirements.
6. Should Construction Cash Flow be forecast by Project or across the whole business?
Construction Cash Flow can be forecast at both levels. Project forecasts show the expected cash generated or consumed by individual Projects, while the Business Cash Flow Forecast combines those Project movements with Payroll, Overheads, tax, finance and other business commitments.
7. How should Progress Claims be included in a Cash Flow Forecast?
Progress Claims should be forecast according to when the payment is reasonably expected to reach the business rather than simply when the claim is prepared or submitted. The expected receipt date may also differ from the contractual payment due date where the available information supports a different timing assumption.
8. How should Retention Moneys be included in a Cash Flow Forecast?
Retention Moneys should be tracked by Project, including the amount currently held, contractual release points, amounts now due, overdue amounts and realistic expected payment dates. Only include Retention as expected cash where there is a reasonable basis for forecasting the receipt during that period.
9. Should unapproved Variations be included as expected cash?
An unapproved Variation should not automatically be treated as certain expected cash because the work has been carried out or a claim submitted. Keep the potential recovery visible while separately recognising the Project costs the business has already funded.
10. What is the difference between Cash Flow and profit in construction?
The difference between Cash Flow and profit in construction is that profit measures financial performance while Cash Flow measures when money enters and leaves the business. A profitable Project can require substantial Working Capital where Labour, Subcontractors, Materials and other Project costs are paid before the corresponding Project receipts arrive.
11. What is the difference between WIP and Cash Flow?
The difference between WIP and Cash Flow is that WIP relates to work performed, costs, revenue and billing under the business's accounting and reporting approach, while Cash Flow tracks the movement of money. WIP can point to issues that may affect Cash Flow, but it does not replace a Cash Flow Forecast.
12. How often should a Construction Cash Flow Forecast be updated?
A Construction Cash Flow Forecast should be updated often enough to reflect material changes in expected receipts, Project expenditure and business payments. Where Cash Flow is being actively managed, a rolling weekly forecast allows actual results and current Project information to be incorporated promptly.
13. Why can growth create Cash Flow pressure in a construction business?
Growth can create Cash Flow pressure because new Projects normally require expenditure before substantial Project receipts begin. Mobilisation, Labour, Subcontractors, Materials and Plant can increase the Working Capital requirement as the business grows, particularly where several Projects start or accelerate at the same time.
14. Can a profitable Construction Project have negative Cash Flow?
A profitable Construction Project can have periods where more cash leaves the business than comes in. This commonly occurs when Project expenditure is paid before the related Progress Claim payments, Variations or Retention receipts are received.
15. What should I do if my Construction Cash Flow Forecast shows a shortfall?
If a Construction Cash Flow Forecast shows a shortfall, check the assumptions first and identify which receipts, Projects and payments create the gap. Review overdue Progress Claims and Retention, expected payment dates, Variations, Project expenditure, controllable Overheads, Working Capital and available finance before deciding what needs to change.
Get Help With Your Construction Cash Flow Forecasting
If your forecast shows a future Cash Flow shortage, Project receipts keep arriving later than forecast or you cannot readily see which Projects are using the business’s cash, Shannon Drew can work through the forecast and the Project information behind it.
Depending on what is required, Shannon can build or repair the forecast, review the assumptions, identify the Projects or costs driving the Cash Flow position and put a process in place for keeping the forecast current.
The work does not have to become an ongoing engagement. A Strategy Session can be used to review the current position and decide what needs further work, while businesses that need continuing financial management can engage Shannon for ongoing Construction Financial Management or Fractional CFO support.
Work Out What the Forecast Is Telling You
Book a Strategy Session to review your current Cash Flow position, the Project information behind it and what needs to be investigated or fixed first.
