Cash Flow Crunch: Healthy Reserves vs. High-Cost Loans

Weak cash management habits can push subcontractors into risky financing. Yet, healthy reserves allow construction contractors to regain control of their cash flow management. 

So, the big question is – how do construction contractors get to the point of having a healthy reserve when, by gosh and by golly, they have to borrow money to meet payroll, or pay the taxes, or purchase the equipment, or – you name it – spend money?

They use a cash management tool, of course! 

And I will tell you what that tool is in a minute. First, let’s look at an analogy derived from a time management tool.   

Time for Management

Is there someone among your family, staff, crew, or friends who has a problem understanding how to use a clock? Are they habitually late for everything? Has it been said of them that they will likely show up late for their own funeral? 

They may know that a clock is a time management tool, but they’re too busy with too many activities and distractions to take the time to learn how to use it. And the minutes continue to roll. 

Weak time management habits often push this person into strained relationships and missed opportunities. 

Just like mismanaging time often leads to significant problems, mismanaging cash often leads to unhealthy borrowing.

The Healthy Reserves Tool  

Healthy reserves for construction contractors begin with using the tool known as . . . wait for it!

Ta Da! The Envelope-Style Cash Management Tool.

For a full-blown explanation of how this tool works, read our article, Envelope-Style Cash Management. In that article, we note: “The envelope-style system is a way to know how much money you have in each budget category for the month.”  

If you have never heard of the system, use the link above. If you’ve heard of it but aren’t sure how to implement it, use the link above. If you’re simply ready for a solution to cash flow problems, yeah, use the link above.

The envelope-style cash management tool provides a cash flow boost that allows for capital purchases, salary upgrades, or other cash-necessary enhancements. It may also become a lifeline during downtime.

Envelope-Style Cash Management Example 

One of our clients, a successful plumbing company, didn’t have a struggle with cash flow issues when they first contacted us. They sought to enhance their financial management and boost their cash reserves. Our Financial Planning and Analysis (FP&A) team conveyed advice that changed how their management team looked at and handled cash flow.

They knew about tracking cash inflows and outflows. They needed more. That is when our envelope-style management system came into play. This method involved categorizing their income into different “envelopes” for specific purposes—such as operating expenses, taxes, savings, and investments—so they could see exactly where their money was allocated.

What happened next is impressive!

By adopting this approach, the plumbing company was able to increase its cash reserves by a dramatic 166%. This increase in liquidity provided a safety net and allowed them to take advantage of new investment opportunities that they might have otherwise missed. 

Having these healthy reserves enables construction contractors to do more than weather the storms; it allows them to Run With the Big Dogs!   

Essential Takeaway: Envelope-style cash management builds the reserves that protect against predatory funding sources.

Also, if you missed our triple hint, please read our article, Envelope-Style Cash Management. This is your opportunity to click and learn. Go ahead, use the link. 

Ambitious Construction Contractors look to The Profit Constructors to provide advocacy in dealing with:

• Clients and customers

• Employees and subcontractors

• Vendors and service providers

• Governmental entities 

Working with The Profit Constructors gives Construction Contractors the means to organize their operations in ways that help them:

• Remain informed

• Avoid hassles

• Reduce risks

• Be future-ready

Ready for action? Or want to know more? Get in touch today to schedule a complimentary discovery call. 866-629-7735