Construction Industry Woes

Ictiier 15-21,2017 • Ftri Warth BHIIIOSS fms

CONSTRUCTION & ENGINEERING
income (excluding depreciation) to cash flows from operations that are close to one-to-one over a five-year period. Companies that aren't faring well tend to have a high ratio of net income to cash flows from operations. To successfully manage cash flow, there are several steps company executives can initiate. They include: • Elstablishing systems that calculate actual cash flow on a regular, dependable basis: The best of these systems delineate cash flows month by month. • Investing excess cash: When companies find themselves with excess cash, they should begin a dialogue with their financial consultants or bankers about ways the cash can be invested. * Identifying areas of operation wbere cash flow can be increased: The process should begin with accounts receivable. At the most successful companies, receivables average fewer than 40 days old. Contractors should not become complacent about collecting money and should look carefully at how often they under-bill. * Talking with their banker about cash management services: Ca.sh management is critical to a company's success for many reasons, perhaps none more important than bank financing. In considering whether to extend credit or grant loans, bankers look closely at cash flow. Strong cash flow reflects strong viability, which is what all bankers require before determining how a loan may be collateralized. Bankers want to be repaid with cash, not the collateral. Failing to forecast - or accurately forecast - cash flow leaves construction companies in a position of operating blindly. Among its many benefits, forecasting can shed an entirely different light on a company's operations. Only through extended forecasting do many companies leam they need to maximize cash flow by negotiating better payment terms with project owners before contracts are signed. Cash-fiow forecasting produces only benefits. Moreover, the process is relatively simple... [continues]

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