NCS Blog

Cash Flow is Critical

Cash Flow is Critical -- Of Course!

The importance of cash flow is not a new concept. Cash is a necessity for running a business (not to mention personal livelihood).
 
This week we shared an article, via social media, from Construction Executive. The article, Tips to Measure and Maximize Cash Flow in Construction Businesses, by William Simon, offers readers ways to better understand and monitor cash flow. While the article is directed toward those in the construction industry, the concepts can be applied throughout many industries.
 
One issue that spans all industries? Billing: both under & over. Simon explains that underbilling is a result of “poor billing procedures, in which documentation isn’t being received in a timely manner.” And, in his example for contractors, this delay begins a domino effect of costly inefficiencies.

“This results in the contractor funding the job, increasing the use of financing tools (i.e., working lines of credit, owner contributions or advances, receivable factoring) to obtain the funds to satisfy cash requirements, which can overextend the contractor. Tracking the overbilling and underbilling status in a timely manner on a job-by-job basis can help catch these issues early.”

Another issue that can impact the masses? Taxes. Specifically, poor planning to reduce the “surprise” of high tax bills.

“Proper tax planning will create deferral opportunities, which will eliminate surprises come tax time. Hefty tax payments, whether on a company or owner level, can be a detriment to a company’s cash flow position, especially in down periods when cash is needed to start up projects.”

Simon recommends that businesses have either a strong internal accounting department or a partnership with an accounting firm.
 
Simon also reminds readers that it’s important to be familiar with “financial ratios” and he includes a table of a few common terms:
Graph 2
My parting advice? Take advantage of secured transactions! Whether you are using UCC filings or the mechanic’s lien process, both are proven to reduce DSO and improve cash flow.
 

NCS Infographic

Learn more about PMSI filings when you review this week’s infographic.
 

NCS Blog

Speaking of PMSI filings, this week’s 3-in-3 with Amy Poje teaches us how to use the PMSI as leverage to get paid. Check out 3-in-3: Utilize the PMSI UCC to Get Paid!
 
 

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