Anyone who works in construction knows the job requires various moving parts. Working on a construction project is a bit like being a cog inside one of those old cuckoo clocks – for the operation to move forward, each cog must be turning at the correct pace. If someone shudders to a stop, the whole operation comes to a halt, and the construction timeline struggles to move forward.
Cash flow crunches are one of the biggest problems for construction vendors and, arguably, the most common reason that a construction timeline goes off course. This can lead to massive challenges for vendors, like:
Employees have a reasonable expectation to be paid on time. If the money goes dry, you may not have enough cash on hand to pay your team. As a result, you risk losing your best employees. Hiring and training costs money, which takes a chunk out of your profits.
You Can’t Afford Equipment
It’s hard to land a job without the proper equipment. If you don’t have the cash to rent it in the first place, you won’t be able to bid on new jobs. Without new work, it will be difficult to get the cash to start on your projects again.
While someone else may owe you money, you have your own creditors to handle. Having a cash flow problem inevitably puts your own credit at risk. Failing to fulfill your credit obligations on time can have a domino effect – it will not only scar your reputation within the industry, but it also may keep you from establishing a line of credit for needs, like construction equipment rental, in the future.
Customer Service Problems
At the heart of any cash flow problem is the risk of an unhappy client. Having an unsatisfied customer is even more dangerous now than it was ten years ago. With the increased popularity of Yelp and Google Reviews, a customer can go online and shout your cash flow problems from the rooftops. A string of poor reviews online might make it hard for you to garner more work in the future.
Inability to Grow
We all go into business not just to survive, but to thrive. Even if you manage to pay your bills on time, cash flow issues make it difficult for your business to grow. You may miss out on opportunities to acquire new assets and start new projects, since all your available cash is going towards paying employees and creditors. Stymied growth has a negative effect on your entire enterprise, from low employee morale to ineffective workflows.
You might not have shareholders to please, but everyone has stakeholders. Whether its investors, other vendors, or an architect, someone is expecting you to deliver. If cash flow problems keep you from fulfilling your promises, your stakeholders might be tempted to take a step back from your organization.
Your cash flow problems may have a snowball effect, especially if you’re relying on credit. One of the most common causes of cash flow issues is financial market instability. Inflation, exchange rates, and interest rates can all create a mountain of debt that is hard to overcome. Add late fees to the mix, and it’s easy to see how a company can get buried.
Fortunately, there is a simple way to avoid many of these issues. A construction lien provides legal recourse for those who are waiting for payments. Talk to us about filing a lien and collecting the money that’s rightfully yours. Staying solvent in the lean years can mean success in the future.