Thought Leaders: How do you build stability when prices are skyrocketing?

By Lisa Storey, CPA - Wipfli — 

Everything costs more right now, from lumber to labor. It takes money to make money. Construction firms need cash on-hand to mobilize projects and teams at exactly the right times.

Many firms received stimulus funding that is helping them stay afloat as the economy rebalances. That cash is king — and key to finding more stable ground. Use these six strategies to hold down costs and increase cash flow:

1. Renegotiate: “Business as usual” is long gone, so some of your business practices might need to be, too. Make sure your terms and conditions are serving your firm’s needs, right now. Negotiate for reimbursement policies that pay for materials upfront. Ask for longer payment terms with suppliers. Spread out the costs of bigger purchases, or finance at a low rate.

2. Make it easier to bill and collect: Stay on top of billing processes and remove barriers. Digital invoices go out faster, and electronic payments help cash come in quicker.

3. Shop around: Explore new vendors and sources, especially if you haven’t shopped around in a while. Local vendors may be more competitive since freight and transportation costs have risen.

4. Plan big: Try to combine companywide orders and buy in bulk to negotiate better pricing

5. Manage small: Create projections for every project and try to get each one cash-flow positive. Make sure you understand how much money is going out and coming in, and when. Stay on top of change orders. Micro-managing the financials will help avoid cash flow drains.

6. Stay informed: The amount and speed of change is staggering. Make sure to review stimulus programs, tax credits and lending changes to see if you qualify for opportunities or relief.

Managing costs is top-of-mind right now, but the benefits will outlast this pricing crisis. Every firm can take steps, even small ones, to increase cash flow and build stability.