Understanding Construction Cashflow: The S-Curve
Profit and cashflow are not the same. This guide explains the S-Curve of construction spending, how to model project cashflow, and how to avoid the "Valley of Death" gap between expenses and income.
The S-Curve
Construction spend is rarely linear. It typically follows an "S" shape:
- Start: Slow spend (Siteworks, slab).
- Middle: Rapid spend (Frame, lock-up, fit-out). The steepest part of the curve.
- End: Slow spend (Defects, commissioning, handover).
The Cashflow Trap: Progress claims (Income) often lag behind supplier invoices (Expenses) by 30 days. In the steep middle phase of the project, your "cash out" can exceed your "cash in" significantly. A cashflow model predicts these dips so you can arrange working capital (overdrafts) in advance.
What to Model (Not Just “Total Spend”)
- Client payment timing: claim date, assessment period, scheduled payment date.
- Supplier terms: 7/14/30 days, progress claims for trades, deposits for long-lead items.
- Retention/security: how much is held back and when it releases.
- GST timing: GST collected vs GST paid can create short-term cash swings.
- One-off hits: windows, joinery, lifts, switchboards, major plant.
The “Valley of Death” (Why Good Jobs Still Break Builders)
Even profitable projects can fail if cash dips below zero mid-job. The usual causes are late claims, early supplier payments, under-claimed progress, and variations not formalised in time.
Controls That Actually Help
- Claim early and accurately: gather evidence progressively, not in a last-minute scramble.
- Match commitments to cash: avoid ordering everything at once “to be safe”.
- Chase paperwork: approved variations and time claims are cashflow controls.
- Plan working capital: set buffers and facilities before the dip arrives.