Discover the main reasons behind the high failure rate in the construction industry and learn how Cash Flow Mike can provide expert guidance to help your company achieve financial stability and long-term success.

In today’s ever-changing business landscape, managing finances effectively is crucial for company survival and growth. However, for many construction contractors and companies, managing cash flow can be particularly challenging, leading to serious financial difficulties. Construction companies play a vital role in shaping our communities’ infrastructure and landscape. However, the construction industry is also known for its high rate of failure. According to the Small Business Administration (SBA), the construction industry has one of the highest failure rates, with about 30% of construction companies failing within the first year, and nearly 50% failing within the first five years.

Throughout this blog, we will pinpoint 4 main areas as to why construction companies and contractors struggle.

1.     Poor cash flow management

2.     Inaccurate estimation

3.     Lack of strategic planning

4.     Lack of understanding of the Cash Conversion Cycle

1.     Poor Cash Flow Management: Cash flow management is the lifeblood of any business, and poor cash flow management is one of the leading causes of construction company failure. According to a report by Sitemate, “approximately 84% of contractor companies in the USA experience cash flow issues, indicating that poor cash flow management is a widespread problem in the construction industry”. Construction projects often have long payment cycles, with contractors and subcontractors often waiting weeks or even months to receive payment for completed work. Meanwhile, the company must continue to pay for labour, materials, and other expenses. Failure to manage cash flow effectively can quickly lead to cash flow gaps, which can be difficult to recover from, resulting in a construction company’s failure.

2.     Inaccurate Estimating: Accurate estimating is crucial to a construction company’s success. Underestimating a project’s cost can lead to financial losses while overestimating can lead to lost opportunities and an inability to compete in the marketplace. Inaccurate estimating can also lead to scheduling and productivity issues, as well as damage to the company’s reputation. It is reported that “Contractors lost $1.8 trillion globally in 2020 due to bad data” – Construction Dive. Cash Flow Mike can provide expert guidance and support to construction companies on accurate estimating, helping them develop detailed and realistic cost estimates, avoid financial difficulties, and position themselves for long-term success.

3.     Lack of Strategic Planning: Lack of strategic planning can cause significant cash flow issues in a construction business. Without a clear plan for growth, a construction company may struggle to secure new projects, keep up with industry trends, and allocate resources effectively, which can lead to financial difficulties. By implementing strategic planning practices, construction companies can set realistic goals, establish clear timelines, and allocate resources effectively, positioning the company for long-term success. This enables them to better manage cash flow, avoid financial strain, and position themselves for growth and profitability. Therefore, strategic planning is crucial for construction companies to achieve financial stability and long-term success.

4.     Lack of understanding of the Cash Conversion Cycle: A lack of understanding of the cash conversion cycle can negatively impact a construction business. The cash conversion cycle refers to the length of time it takes for a business to convert its inventory into cash. This includes the purchase of inventory to the receipt of payment from customers. In the construction industry, where projects often have long payment cycles, a lack of understanding of the cash conversion cycle can result in significant cash flow gaps, leading to financial difficulties for the business. By understanding the cash conversion cycle, a construction business can identify areas where it can reduce the time it takes to convert inventory into cash, such as negotiating payment terms with suppliers or speeding up the payment process with customers.

In conclusion, the construction industry is known for its high rate of failure, with poor cash flow management, inaccurate estimating, lack of strategic planning, and lack of understanding of the cash conversion cycle being the main reasons. However, with the help of Cash Flow Mike, construction companies can mitigate these issues and position themselves for long-term success. By providing expert guidance and support on cash flow management, accurate estimating, strategic planning, and the cash conversion cycle, Cash Flow Mike can help construction companies take control of their finances, avoid financial difficulties, and achieve their business goals. Don’t let poor cash flow management hold your company back. Contact Cash Flow Mike today to learn how to optimize your financial performance and position your construction business for success.

If you feel, want or need to understand more regarding Cash Flow here are 4 ways Mike can help you improve the Cash Flow in your business.

1. Grab a free copy of my book:

In The 7 Minute Conversation, you’ll learn how to analyze any company’s financial statements in 7 minutes or less. It includes a super valuable lesson on controlling expenses. — Download Here.

• Join the Clear Path To Cash – Mining Your Business For Hidden Cash Facebook Community:

This is our new Facebook community where business owners who are using the concepts taught in The Clear Path To Cash can share lessons learned and receive advice from my team and other members of the community. — Join Our Facebook Group.

• Participate in a Live Virtual Clear Path To Cash Seminar:

There are some people who prefer to learn concepts through self-study through books or video series.  For others, such as myself, it is necessary to be in a classroom environment and to be guided through the concept.  We offer a Virtual Seminar each month.  It takes only three hours each day for two days, during which you will learn about The Clear Path to Cash Program’s eight steps. I am so passionate about this one that I teach it myself. — Virtual Seminar.

• Work with me and my team privately:

If you’d like to go over something outside of a group setting, no problem.  All you have to do is click this link to schedule a 15-minute Triage Call. In 15 minutes, we see if my team can help you with your problem.  Sometimes we can give you some advice on the spot, other times we will invite you to a longer Burning Issues call, where we dig into the issue a little deeper and give you some great advice.  Even if we don’t believe our program is a good fit for you, we try to connect you with the right professional from our network of friends. —  Schedule Your Triage Call.