lutz logo
lutz logo
  • Services
  • News & Insights
  • About
  • Client Portal
Search
  • Services
  • Accounting
  • Consulting
  • Financial
  • M&A
  • Talent
  • Tech
  • Accounting Services
Services
  • Audit & Assurance
  • Employee Benefit Plans
  • Client Advisory Services
  • Outsourced Accounting
  • Tax
  • State & Local Tax
View All
Industries
  • Agribusiness
  • Construction
  • Family Office
  • Healthcare
  • Manufacturing & Distribution
  • Nonprofit
View All
News & Insights
Website Featured Content Images-2
Blog
Are You Prepared? Financial Access Checklist for Spouses

Share this checklist with your spouse to assure you each have access to manage important financial tasks independently.

Read More
  • Consulting Services
Services
  • Business Valuation
  • Healthcare Consulting
  • Internal Control Assessment
  • Litigation Support & Forensic
  • Risk Assessment
View All
Resources
Website Featured Content Images (1)-1
Guide
What is a Comprehensive Risk Assessment?

To start managing your business's risk, you will need to conduct a comprehensive risk assessment.

Read More
Business Insights
Website Featured Content Images (2)-1
Blog
Top 3 Financial KPIs Every Business Owner Should Track

Key Performance Indicators (KPIs) can help illustrate your business’s financial health and show whether your business will turn a profit.

Read More
  • Financial Services
Services
  • Financial Planning
  • Investment Advisory
  • Retirement Plan Services
  • Pooled Employer 401(k) Plan
View All
Resources
  • Lutz Financial Blog
  • Our Team
  • Client Portal
  • Charles Schwab Login
  • TD Ameritrade Login
Contact Us
NEWS & INSIGHTS
Website Featured Content Images
MARKET COMMENTARY
Financial Market Updates

Want to receive financial market updates straight to your inbox? Sign up below!

Subscribe
  • M&A Services
Services
  • Sell-Side Representation
  • Transaction Advisory
  • Exit Planning
View All
Resources
Website Featured Content Images (3)
Ebook
7 Factors to Consider Before Selling Your Business

We give you exclusive insights on the business sale transaction process to help you answer seven important questions.

Read More
Business Insights
Website Featured Content Images (5)
Blog
Key Items to Review During Financial Due Diligence
The due diligence phase is critical for a Buyer to better understand the Target’s business operations and the overall quality of the financial information.
Read More
  • Talent Services
Services
  • Search & Staffing
  • Outsourced HR
  • HR Strategy & Coaching
  • HR Consulting
View All
Candidate Resources
  • Job Seeker Process
  • Current Opportunities
  • Lutz Internships
Contact Us
News & Insights
Website Featured Content Images-3
Blog
5 Benefits of Using Gallup's StrengthsFinder in Your Company

Gallup’s StrengthsFinder assessment can help you identify the strengths of the people working in your teams.

Read More
  • Tech Services
Services
  • Data Analytics & Insights
  • Outsourced IT
  • Technology Strategy
  • Software Consulting
View All
Resources
Website Featured Content Images (1)-2
Guide
Introducing Data Analytics into Your Business

Integrating data analytics into your business can help your revenue grow, the organization mitigate risk, or gain insight into your business operations.

Read More
Business Insights
Website Featured Content Images (2)-2
Blog
17 Tech Tips & Tricks

We’ve listed 17 shortcuts and hacks that will help you use tech to your advantage and make your daily life a little easier.

Read More
Business Insights
BLOG
Explore Topics

Get the latest news and insights on relevant topics that matter most to you.

View All
Webinars & Events
Events
Register Today

Register for an upcoming event or access our library of on-demand recordings.

View All
Lutz Talk Business
PODCAST
Tune In

Subscribe today for entrepreneurially spirited episodes of witty commentary for young professionals.

View All
Resources
EBOOKS & GUIDES
Download Now

Take a deep dive into challenging business topics with these free educational resources. 

View All
  • News & Insights
  • Business Insights
  • Webinars & Events
  • Lutz Talk Business
  • Resources
Business Insights
BLOG
Explore Topics

Get the latest news and insights on relevant topics that matter most to you.

View All
  • About
About

Lutz is a business solutions firm for people seeking a partner to help energize and heighten economic and organizational success.

Our Company
Our Team
Offices
Careers
Internships
Contact Us
  • Contact
Client Portal

Log in to your relevant client portal to access your account, upload documents, or make a payment.

Make a Payment
Accounting Client Portal
Financial Client Portal
Charles Schwab Login
TD Ameritrade Login
Send Files Securely
Contact Us
  • Accounting

Construction Cash Management Tips

Ryan Cook, Audit & Consulting Shareholder
April 27, 2023
Construction Cash Management Tips

Construction contractors, whether large or small, have a unique set of challenges when it comes to running their businesses. At Lutz, we work with a number of contractors and are able to see from an outside perspective what these challenges are and how to best navigate them. As the low-interest rate environment and government programs (PPP Loans and Employee Retention Credits) come to an end, it is important to refocus on cash management. While many businesses tend to reinvest any earnings directly back into the business in the form of buying equipment, hiring more staff, or improving infrastructure, contractors need to consider the following: 

Bonding  

Unlike other industries, construction contractors always need to be aware of their bonding capacity. A bonding agent is always looking at a contractor’s working capital ratio as well as debt to equity when they are making their bonding capacity decisions, and cash is a major factor in both of these ratios. 

Seasonality  

More than other industries, construction is heavily influenced by nature. Whether your company is completely seasonal (such as lawn care) or is dictated by weather (concrete, for example), you need to make sure you are accumulating cash when your crews are able to work to account for shifts in the weather you did not anticipate. 

 

4 Important Cash Management / Bonding Capacity Tips:

 

1. Understand Your Contracts

Know how your contracts are written —especially when it comes to payment submission dates. How long is your billing process? 30-60 days is relatively standard in the construction industry and should mean that cash is coming in on a regular basis. However, you must make sure that your staff is billing at the correct time and submitting proper documentation. If they miss the submission dates, you will likely have to wait until their next scheduled payment day, therefore causing you to carry accumulated construction costs for the next month. 


Another important aspect of your contract is mobilization costs. Are you charging your customers for the time it takes you to set up a project, or are you trying to recoup those costs throughout the project or at the project’s end? Charging for mobilization costs upfront is a great way to improve cash flow. 

2. Watch the Distributions

Many contractors make the mistake of paying out a large percentage of their profits in the form of distributions instead of letting that cash accumulate in the company. While owners should certainly be getting paid a fair wage and taking money out to account for tax estimates, problems arise when they take out excess distributions and decrease their company’s working capital and bonding capacity. 

3. Don’t Pre-Pay if it isn’t Necessary

Many contractors think they are getting ahead of the game if they pre-pay costs such as insurance bills upfront or materials to earn a discount. However, if you’re pre-paying a bill for the upcoming year, you are probably doing yourself more harm than good. A bonding company will consider that money already spent and will no longer consider it an asset. Better to pay the bills when they come due or at least wait to pre-pay until the first of the year. 

4. Keep Year-End in Mind

Your bonding company wants to see that your business is liquid when it comes to year-end. That means, if you have a large purchase to make, it may make sense to wait until after year-end to do so. For example, if you are looking to purchase a large piece of equipment, you should consider holding off until after year-end, as this could affect both working capital and debt-to-equity ratios depending on the terms of the financing. Waiting until after year-end can make a big difference when it comes to bonding capacity. 

It is also important to point out that each individual company’s tax situation is different, and in certain circumstances, it may make sense to pre-pay items or make purchases at year-end. Understanding the balance sheet considerations of tax planning is very important. If you have additional questions, contact us. 

Understanding the unique needs of your construction company is important and one of the areas we specialize in at Lutz. Keep bonding and seasonality constantly in mind, and always remember this phrase: CASH is king. 

 

Contributor: Clarke Beller

  • Competition, Communication, Woo, Strategic, Command

Ryan Cook

Audit & Consulting Shareholder
Ryan Cook is an Audit and Consulting Shareholder at Lutz with over 11 years of experience in accounting and assurance and five years in business valuation. He provides accounting, auditing, and consulting services to privately-held companies, with in-depth experience in the construction industry.

402.827.2085

rcook@lutz.us

Connect on LinkedIn

Recent News & Insights

Accounting
Nebraska + Iowa Enact Pass-Through Entity Tax Laws
Iowa and Nebraska enacted Pass-Through Entity Tax (PTET) legislation during the 2023 ...
Read More
Market Commentary
A Few Large Growth Stocks Have Driven the Market in 2023 + Market Update
Story of the Week A Few Large Growth Stocks Have Driven the Market in 2023 After an incredibly ...
Read More
Data Analytics
Bots for Small Businesses + Power Automate
For small businesses, the idea of implementing Robotic Process Automation (RPA) or bots may ...
Read More
401(K)
May Retirement Plan Newsletter 2023
Is Your Retirement Plan "Catchy?" By offering — and encouraging — catch-up contributions, plan ...
Read More
module-bg-desktop module-bg-mobile

Let’s get you where you want to go.

We work to simplify complexities, help make critical business decisions, and confidently focus on the things that are truly important to you. We embrace your business as our own to spark the right solutions and help you thrive.
Contact Us
Lutz-Logo-white
  • Services
    • Accounting
    • Consulting
    • Financial
    • M&A
    • Talent
    • Tech
  • About
    • Our Company
    • Our Team
    • Offices
    • Careers
    • Internships
    • Current Opportunities
  • Client Portal
    • Make a Payment
    • Accounting Client Portal
    • Financial Client Portal
    • Send Files Securely
    Submit RFP
TOLL-FREE: 866.577.0780 | © Lutz & company, PC 2023 | Privacy Policy
Follow us on Facebook Follow us on LinkedIn Follow us on Twitter Follow us on Instagram Follow us on Facebook