Cash flow problems can have a major impact on your company's financial health. As a construction professional, the main challenge is to maintain a balance between cash inflows and outflows, taking into account the various payment deadlines applicable. To ensure the viability of your business, you need to avoid common mistakes.
Find out what the seven main cash management pitfalls are for building and civil engineering contractors, and how online pro accounts can help.
Confusing your assets
Depending on the legal status and designation of your construction company, opening a business account may be compulsory. This is the case, for example, when you set up a company with share capital, or a sole proprietorship with a commercial activity.
Apart from the regulatory compliance required in the above-mentioned cases, separating your personal finances from your business operations avoids confusion between your assets. This simplifies your accounting management and makes it easier to provide evidence in the event of a tax audit.
Online accounts offer low-cost packages that are particularly well-suited to the needs of small businesses. Unlike traditional bank formulas, online business accounts incorporate innovative features that make day-to-day administrative management easier for construction and civil engineering professionals.
No cash flow plan
A cash flow plan is aforecast, generally for one year, broken down by month. It anticipates your incoming and outgoing financial movements.
The cash flow plan takes into account your expenses, such as social security contributions, taxes, supplier invoices, investments and loans, current operating expenses for your premises... It also takes into account your income from advance payments and customer invoices, financing, VAT refunds...
Your forecast needs to be updated regularly to assess trends and anticipate your business needs. A poorly managed cash flow plan can put your business in difficulty.
Poor anticipation of your WCR
WCR, or working capital requirement, is a financial indicator not to be overlooked. It is a measure of the cash flow gap between your revenues and expenses. WCR therefore represents the amount of money needed to keep your business running, between your cash outflows and your cash inflows.
In the building and civil engineering sector, the calculation of working capital must take into account the inventories required to complete your projects, as well as the average outstanding trade receivables and the average outstanding trade payables. Working capital can be financed by equity and/or investments when you set up your company. It can then be re-evaluated according to the sales you generate.
A good estimate of WCR is therefore vital. To secure your funds, you can use Anytime sub-accounts, which work like piggy banks attached to your online business account.
Irregular monitoring of your cash flows
Keeping track of your income is just as important as keeping track of your expenses. If you don't keep a close watch, you won't be able to pull the levers in time to avoid a loss-making situation. You must therefore monitor all your cash flows with the same dedication.
Keeping track of accounts receivable is a time-consuming task, not least because of the different payment terms applicable in the construction industry. The online business account enables you to reduce your DSO and improve your WCR. In particular, you canidentify unpaid invoices and program a sequence of automated reminders.
As for cash outflows, your online account management interface gives you real-time visibility of your teams' spending, with the option of defining a budget not to be exceeded, and setting bank card parameters (limits, withdrawal authorizations, etc.).
Late billing
In the construction industry, administrative tasks are often put off. However, a backlog of invoices inevitably leads to longer payment deadlines. This is another pitfall to avoid in your cash flow management as a building and civil engineering craftsman.
The speed with which your documents are issued and their legal conformity have a positive impact on your company's finances. For this, you can rely on the invoicing tool integrated into your online account. In just a few clicks, you can go from costing to quotation to invoicing.
Poor relations with your suppliers
You need to procure a variety of materials to carry out your work. This means that suppliers play an important role in the delivery of your services and the management of your inventory. If you neglect relations with your commercial partners, you'll probably have to pay cash for your orders, which will have a direct impact on your working capital requirements.
Maintaining good relations with your suppliers has a positive impact on your cash flow. You can negotiate deferred payment for goods, pending collection of accounts receivable. From your online business account, you can easily choose the payment method you wish to apply to your business partners: one-off transfers or direct debits.
Lack of cash flow financing solutions
Your construction business is not immune to the unexpected. Your company's financial security also depends on your ability to manage crisis situations. That's why it's risky not to develop a contingency strategy.
While you can't plan for everything, you can still draw up an action plan, in particular by taking a look at the cash flow financing solutions available to you. The online account offers you a range of options, from factoring to short-term financing.