It may sound cliché, but the old adage that “cash is king” still rings true in business today. Contractors need to manage their cash wisely if they want to effectively stake their claim in the industry, and one of the simplest ways to control of cash is to capitalize on the capabilities of their accounting systems. With the right system in place, business owners can improve their cash flow and—in turn—their bottom lines.

Accounting Systems Improve Cash Flow

It is tough to manage cash flows without an adequate accounting system in place. A sound accounting system will record cash inflows and outflows so business leaders have a complete picture of their finances. With this information, they can easily track project balances and stay on top of customer payments. If there is a payment delay, they can promptly follow up with late payers to get the project back on track. This will help prevent the current project from pushing up against the start date of the next one, helping leaders avoid bottlenecks in the workforce pipeline.

Tracking cash will also help when bidding on new projects. It could even be the difference between winning and losing that work. When business owners know their current cash availabilities, they know exactly where their limits lie and can have the upper hand during the negotiations process. This knowledge will also come in handy with projects that are already in process. Business owners who have a good understanding of their cash positions will be better prepared to manage change orders and weather price changes on key supplies.

An accounting system is also great for optimizing expense payments. A good system will track payment deadlines and send reminders when an invoice is due. This will help owners avoid incurring late payment fees but, more importantly, it will allow them to control that cash for as long as possible and put those resources to use in other important business endeavors.

With a healthy control of cash and useful financial reports, business owners can stick to their budgets, project future cash flows and withstand environmental factors that threaten business continuity.

Cash Flow in a Crisis

During times of unforeseen circumstances such as the COVID-19 pandemic, contractors would do best to shift their focus from the profit and loss statement to the balance sheet. Cash, accounts payable and accounts receivable are areas that business leaders will want to pay close attention to. To keep tight control over cash, they should:

1. ensure accounts receivable balances are current and follow up on those that are outstanding for 90 days or more; and
2. stretch their payables as long as possible. Having an accounting system that provides relevant, up-to-date information is critical so that business leaders can keep close tabs on these balance sheet items.

Supply chain interruptions are another consequence of the coronavirus pandemic that contractors could not have anticipated. As the spread of COVID-19 impacts more businesses, it becomes even more challenging to source materials for future construction jobs and those already in process. An accounting system can help alleviate the scramble by tracking materials requests and sending notifications to order new supplies before the current inventory runs dry.

When and if there is a cash shortage, the government offers several different funding options to small and medium-sized businesses that are administered through the U.S. Small Business Administration. To apply for these loans, contractors will need to provide accurate financial information and track their spending of the funds, something that would prove difficult (if not impossible) without a good accounting system in place.

Changes in the environment affect all contractors, regardless of size, so during an economic crisis, it’s important to be a few steps ahead of the competition. A sound accounting system is the solution. When business leaders can rely on their accounting systems and financial reports, they have found the key to winning more contracts and turning a profit.