A Typical Project - Understanding the Basics of Cash Flow

It is extremely important to understand the costs, billings, cash-in, and overhead.

D. Brown Management Profile Picture
Share
Cash Flow: A Typical Project. Understanding Costs, Billings, Cash-In and Overhead.

Previously we looked at a typical construction project’s profitability basics and then covered a brief description of cash flow.  Now let’s get into the basics of how that looks over the course of the project.  

  • In our example the project is 16 months in duration.  
  • The completion of the project during each month is an average of several real projects.  This will vary significantly based on each project and it is important to understand those variances.  
  • Costs per month are shown to be paid during that period.  This also varies significantly based on the project type. For instance labor is paid immediately each week where most subcontractors are “Pay-When-Paid” including retention.  This is why a labor-intensive specialty contractor must have higher profit margins than a general contractor that does not self-perform.  
  • Bills are paid in the month following.  For many contractors this is closer to 2 months on average which changes the cash flow dynamics significantly.  
  • Retention of 10% is held out of each billing.  It is billed for after completion of the project then paid a month after that.  Again this is very generous as compared to how it works most of the time.  
  • Billings match earned revenue perfectly.  There are no “Under Billings” or “Over Billings” shown in the model just for simplicity.  
  • Overhead costs are spread evenly across the whole project duration.  There are many ways to look at this but in general overhead costs don’t vary much each month.  

In future posts we will use this data table to show what cash flow looks like then go through strategies and tactics to improve cash flow.


Cash Flow
Great cash flow is a key driver of valuation and successful successions. Running out of cash is is the #1 reason contractors fail. Improving cash flow improves your Return on Equity. Protect yourself and never let cash flow be the limitation to your profitable growth....

Cash Flow
Great cash flow is a key driver of valuation and successful successions. Running out of cash is is the #1 reason contractors fail. Improving cash flow improves your Return on Equity. Protect yourself and never let cash flow be the limitation to your profitable growth....

Rigorous Questioning Develops Critical Thinking
Thinking is really just about asking ourselves then answering a series of questions to help us make a good decision. Critical thinking is quite simply asking ourselves a more complex set of questions then answering them from a larger base of knowledge.
Incentive Compensation for Contractors - Audience Question: Cooling Off Period and Closing
Sometimes, any change in the organization, including incentive programs, simply doesn't work.
Jeff Bezos - All Overnight Success Takes About 10 Years
Do you have the stamina for success? Being successful in anything worth having--relationships, careers, companies, health, and life in general--requires the daily discipline of working deliberately toward your goals.