Managing cash flows is a problem for many businesses. It requires due diligence and essential skills for cash follow management. So, if you are wondering where all your money went, you might want to check your cash flows to identify the areas where you are spending the most.
When dealing with subcontracting business cash flow, keeping a track of where the money is going is imperative. It is best to have a clear picture of where you are getting money from and where outgoing money went. Let's find out a few reasons why your business can face cash flow problems.
Reasons Why Companies Face Cash Flow Problems
Cash flow issues and liquidity problems are not a concern for just a particular industry. It affects every company in different sectors in one way or another. Whether it is construction, manufacturing, or retail, there can be times where businesses in these industries are short on money. In fact, 62% of all small businesses have experienced a cash flow issue at some point in their existence.
In particular for subcontracting businesses, managing cash flow is imperative. Subcontracting business cash flow issues relating to liquidity for subcontractors or companies in the construction sector can arise due to many reasons. Here are a few examples of it:
- Overstocking on inventory or other supplies
- Payments made to suppliers before collecting funds from the project
- Billing and collection of receivables having significant time gaps
- Advances or grants for staff or workers
- Investments in strategic partnerships, as well as any other type of venture
- Judicial agreements that are unfavorable
- Internal time delays between the end of the period and the requisition's submission
Apart from these, other factors can also contribute to cash flow problems for subcontractors. It can vary from business to business depending on the inflows and outflows of their money and what kind of projects they are involved in. Subcontractors can have different expenditures that might drain their finances in ways that it would not for other occupations.
How to Fix Cash Flow Problems for your Subcontracting Business?
Subcontracting businesses need to have an adequate amount of cash in their hands to run their operations smoothly. A small issue, such as a liquidity crisis, can delay the entire project.
You won't be able to make progress on your current project, that can result in more problems. Therefore it is vital to know about these tips to fix any cash flow problems.
Get Long-term Loans Purchasing Non-current Assets
Any business that needs particular equipment or fixed assets should avoid buying it in cash. Rather, they should get a leasing plan for 10 to 20 years to make payment in installments. It will save you from losing a massive chunk of your capital immediately.
Subcontracting businesses often need new machinery and equipment from time to time. They can set up a credit line with a bank or any other financial institute to secure a loan with low-interest rates. When doing this, make sure to browse around so you can have the best deal for long-term loans.
Avoid Paying Cash for Supplies
It is best not to pay cash for goods and supplies unless you're getting a huge discount. Many suppliers offer financing options for contractors, including credit cards and personal loans. Take advantage of this and be sure to get supplies you need for small payments on finances rather than cash.
Since you'll have to pay monthly installments, you won't be out of cash for the entire sum. It means your company will have more cash on hand to continue running. Furthermore, you may be eligible to deduct interest and additional charges as business costs later.
Ensure Proper Billing
As a subcontracting company, you have to bill your clients once the project is complete. Billing is an important part that you need to look out for as it can lead to cash flow problems.
In the case where you under-bill the client for the work, you won't get the full cost of the project captured. As a result, you will have to pay from your own pocket to cover it. If it's vice versa, you can open yourself to future problems during the audit of the project so the best way to bill the client is as per the expenditure you incur on the project.
Recover your Receivables Quickly
Another way to ensure you don't face a shortage of funds is by asking your clients or receivables to clear your payments. A business can be profitable, but it won't be able to survive or grow if it faces liquidity issues. That is why you need to ask your debtors to clear out all payments.
You can give them some discounts on making payments early. Or you can ask them to pay by a particular date after which, you will charge interest on their payment. Either way, the goal should be to recover the money from your receivable as quickly as you can.
Request the Services on of an Accountant
The best way to deal with cash flow problems is by requesting the services of a professional accountant. A professional accountant can help you identify the main areas where your business is losing too much money. In addition, they can let you know about the best ways to recover money from debtors.
You can also take advantage of technology and use any robust accounting software or tools for cash flow management. There are many options available that are cost-effective and give you a wide range of features. They are also very easy to incorporate into your business.
Educate your Employees
Last but not least, make it clear to your entire staff that keeping your company financially sound is in everyone's best interest. You can begin by asking them to reduce company spending to bring down cash outflows. You can also set up an incentive package to encourage your employees to help be smart about money being spent. One great way to implement this is through profit sharing. If the employees know that when the business does better, they benefit too, they will be much more apt to be on board.
Takeaway
Any subcontracting company or business operating in the construction industry must have sufficient funds. It will make it easy for them to run their operations and complete their project without any disruptions. Therefore, cash flow management has an important role in their business.
In addition, if your business is looking for a credit line or a source of money that it can easily access, you can choose from the wide range of options available. Subcontracting business and other home contractors can get their hands on small-term loans from many lending services.
