Down The Drain? Strategies for Improved Cash Flow

Running a construction company is a balancing act, with success depending as much on financial momentum as on hard hats and heavy machinery. While strong project pipelines drive growth, steady liquidity is what actually keeps the job site running—funding day-to-day operations, meeting payroll, and securing equipment for the next build. Identify your cash killers, protect your bottom line, and get ready to grow. 

Focus on Business Practices That Are In Your Control

Lots of things are beyond your control in construction, including weather, cranky clients, and the twists and turns of supply chains. You can, however, control some things, and your ability to do so can make all the difference when it comes to your cash position. At Construction Business Owner, John Meibers of Deltek ComputerEase observes that inaccurate bidding, and paying cash for assets, are two practices that contribute to cash drains, and offers these pointers on improving: 

• Underestimating project costs can result in insufficient funds allocated for essential tasks, leading to financial strain and delayed payments to subcontractors and suppliers. To avoid this, conduct a thorough cost analysis, including materials, labor, equipment, permits and overhead, is crucial. Leveraging historical data, collaborating with experienced estimators and utilizing construction estimating software can help improve accuracy and minimize cost-related surprises.

• Paying cash for assets can be a significant drain on cash flow and lead to cash shortages. Many contractors and developers prefer to use financing options such as loans or credit lines to purchase necessary materials and equipment rather than pay in cash. This allows them to spread out the cost of the project over time while also freeing up their immediate cash flow.

Meibers also underscores the importance of prompt invoicing and timely payment in running a sustainable construction business, and notes that in addition to creating cash flow challenges for themselves, contractors “who are slow to invoice can create financial issues for their clients.” 

Change orders are another notorious cause of cash drains in construction, and Meibers reminds us that miscommunications exacerbate the challenges. Indeed, attorney Spencer Krebs urges construction business owners to prevent misunderstandings over changes from escalating into costly problems by paying more attention to the change order process before signing the contract, and subsequently: 

Instead of relying on good faith, before implementing any change, review the contract and familiarize yourself with all requirements for change orders, including time constraints, format, content and approval process. This may result in pausing the construction project for an hour or two, but a slight delay in the short term can dramatically decrease an expensive change order dispute at the end of the project.

Good To Do: Job Costing

It takes effort to implement a rigorous approach to job costing, but doing so has a big pay off in construction over the long haul. Essentially, job costing data improves profitability because it leads to “better estimating, budgeting and forecasting, ensuring that future bids are more precise and competitive.” Job costing data is also essential to an effective overall business strategy:

You could be making a significant profit on certain types of projects and losing money on others. Job-costing can help you determine the types of work you want to take on. It can also help you to refine how you price your work. As you review your job performance and profitability, you can see where you’re setting prices well and where you might be missing the mark. If you realize that your labor costs are always coming in higher than you had budgeted for each job, you may determine that you haven’t set your burdened labor rate high enough. 

Ready To Get Growing? 

Taking on bigger jobs is in reach with Colonial Surety Company at your side.

We help contractors grow strategically. We offer clear, direct bonding pathways tailored to where your business is today—and where you want it to be tomorrow:

1. Start with The Hometown Bonding Program
   Need quick bid or performance bonds for local work? If you have a solid credit score, you can avoid traditional surety line hurdles and secure bonds with our streamlined, credit-based underwriting program.

1. Graduate to The Partnership Account®
   Ready for commercial and public sector expansion? Secure up to $20M Single / $40M Aggregate surety lines, issue your own on-demand bid bonds online, and track your business’s financial health metrics for free.

Get on your path to growth, right here: 

Bonding Programs at Colonial Surety Company

Since 1930, Colonial Surety Company has operated as a direct seller and writer—cutting out broker markups and unnecessary friction so you can focus on winning and completing work. We’re rated “A Excellent” by A.M. Best,  U.S. Treasury Listed, and licensed for business in every U.S. state and territory.