Project Cashflow: How Builders Stay Solvent
Profit and cash are different. A profitable builder can still go broke if cashflow is unmanaged. Cashflow forecasting turns “we’ll be fine” into a planned financing strategy.
1. Build a Monthly Cashflow Model
- Income: progress claims based on contract milestones, certification timing, and retention/security releases.
- Direct costs: subcontractor claims, supplier invoices, plant, cartage.
- Prelims: supervision, site facilities, temporary services, security, hire equipment.
- Timing: incorporate payment terms and realistic certification/payment dates.
2. The “Valley of Death”
Most projects have a period where costs accelerate faster than claims (frame → lock-up → services rough-in). The goal is to predict that dip and fund it.
3. Retention, Security, and Procurement
Retention withheld on progress payments can create a hidden working capital requirement. If you’re funding long-lead procurement while retention is held, your cash buffer must be bigger than you think.
4. WIP Discipline
Over-claiming creates short-term cash but long-term risk. If claim values are consistently ahead of real progress, the project becomes a cashflow cliff later.
5. Practical Cashflow Controls
- Claim evidence system: photos, measured quantities, and trade sign-offs captured progressively.
- Retention awareness: treat retention as a real cash cost; plan for it when ordering long-lead items.
- Stop “silent extras”: unapproved client changes are the fastest way to destroy cashflow and margin.
- Match procurement to programme: don’t buy early “just in case” unless storage and protection are planned.
6. Scenario Planning
Run two quick scenarios in your model: (1) progress payments slow by 2–4 weeks, and (2) a major trade delays their claim submission. If those scenarios break you, the job needs either different terms or different financing.