Cash Flow Myth 4 - That's What Our Bank and Credit Line are For

Banks and sureties know that as a rule, poor cash flow is typically a sign of deeper problems.

D. Brown Management Profile Picture
Share
Cash Flow: Myth 4 - That's What Our Bank and Credit Line are for

Fact 4.1:  Banks will only finance a portion of your cash flow needs.  They will have specific loan covenants related to how much working capital you need to have, quality of receivables and customer concentration. 

Fact 4.2:  Banks and sureties know that as a rule poor cash flow is typically a sign of deeper problems. 

Fact 4.3:  When the economy is good the loan covenants and their enforcement will loosen up.  Combined with the optimism of strong backlogs this causes many contractors to take their focus away from some of the basics of great capital management practices.  

Fact 4.4:  When contractors are smaller; especially emerging ones the loan covenants and capital ratios that sureties work off of are significantly looser than when there are many millions of dollars at stake.  If you are a contractor planning to grow make sure you put great capital management policies in place early.

Fact 4.5:  When the economy tightens and contractors need the most help with cash flow banks and sureties will tighten their covenants, restrict lending and enforce much more rigorously. This cycle is what causes debt crises including the mid-1980’s and the recent one in 2010.

We are revamping our publicly available cash flow workshop that includes 18 techniques that contractors can use to accelerate cash flow. Stay informed of updates on release. 


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....

Plan Ahead, Adjust Early, and Accelerate Recovery
Construction in any given industry sector or geographical area is a cyclical business. There are four major levers a contractor can pull to ensure the business performs well throughout all economic cycles.
Talent Development Quote - Jack Welch
From 1981 through 2001 under CEO Jack Welch GE’s market cap (value) grew 18% compounded annually from $14B to $410B. A large part of this profitable growth was due to the rigor placed on their talent development processes directly from the CEO.
Cash Flow Metrics and The Continuous Improvement Process
Contractors can focus on 3 major metrics to continuously improve cash flow, truly making a “game” out of it.