7-10 minute read
In Queensland’s fast-moving property and construction sector, even profitable projects can stumble if cash flow isn’t managed properly. It’s a common pain point for established developers and builders: you’re busy, your pipeline looks strong, but your bank balance tells a different story.
Author:
In brief:
Aiyaz Gaffar
Associate Partner
HMW Group
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- Cash Flow Risks in Construction: Even profitable projects can face financial strain due to delayed payments, cost blowouts, and long billing cycles, making cash flow the top concern for industry leaders.
- Why It Happens: The mismatch between outgoing expenses (wages, materials) and incoming payments creates constant pressure, where one delay or unexpected cost can trigger major issues.
- Strategies to Stay Ahead: Use rolling cash flow forecasts, stress-test scenarios, align payment schedules, build contingency buffers, lock in material prices, and monitor job-level performance to maintain liquidity and project profitability.
In fact, cash flow stress is the top financial concern for construction leaders—40% say it keeps them up at night. And it’s not just sleepless nights: construction insolvencies in Australia surged by 28% in early 2024, with poor cash flow management often the root cause.
Why Cash Flow is so Challenging in Construction
If you’ve been in the game for more than five minutes, you don’t need us to tell you why cash flow management is so hard in construction. You’ve lived it. You’ve chased payments, juggled supplier invoices, and watched perfectly profitable projects turn into financial headaches because the timing didn’t line up.
This isn’t news—it’s reality. And it’s not because anyone’s doing anything wrong. It’s just how the industry works.
You’re dealing with long billing cycles where progress payments arrive weeks (or months) after the work is done. You’re absorbing cost blowouts—whether it’s steel jumping 30% overnight or a subcontractor pulling out mid-job. And you’re constantly managing the mismatch between when money goes out (wages, materials, equipment) and when it finally comes in.
It’s a balancing act. And even when you’re running a tight ship, the pressure doesn’t let up. One delayed payment, one unexpected expense, and suddenly you’re dipping into reserves or scrambling for short-term finance.
So no—we’re not here to explain cash flow to you. We’re here to acknowledge that it’s a constant challenge, even for the best operators. And to offer a few strategies that might make it just a little easier to stay ahead of it.
Strategies to Keep Cash Flow Healthy
The good news? These challenges can be managed with the right systems and support. Here are our practical strategies to help keep your projects and profits on track:
ᐳ Implement Rolling Cash Flow Forecasts
A static annual budget is not enough. A dynamic 13-week rolling cash flow forecast, directly linked to your project milestones and program, provides a real-time view of your liquidity. This allows you to anticipate shortfalls and make informed decisions well in advance.
ᐳ Conduct Scenario Analysis and Stress Testing
What happens if a major payment is delayed by 30 days or material costs jump by 25%? Stress testing your financial model against these potential scenarios helps you understand your vulnerabilities and quantify the contingency funding required to withstand them.
ᐳ Align Payment Schedules
Where possible, align your subcontractor payment terms with the milestones in your head contract. This ensures that payments flow in a more synchronised manner, reducing the burden on your working capital. Staged payment schedules and clear documentation are essential.
ᐳ Establish Contingency Buffers
Build contingency funding into every project budget. This is not just for cost overruns but also to serve as a cash flow buffer during lean periods. Having a dedicated reserve can be the difference between navigating a delay and defaulting on obligations.
ᐳ Utilise Proactive Procurement
Lock in prices for key materials with suppliers wherever feasible. Early procurement and strategic supplier relationships can mitigate the risk of price volatility and secure your project margins.
ᐳ Monitor Job-Level Performance
Implement job-level cash flow dashboards that track leading indicators, not just lagging results. Monitor metrics like cash burn rate, debtor days, and progress claim status. Regular, rapid reviews of variances from your forecast enable you to take corrective action before a small issue becomes a crisis.
Cash flow isn’t just a finance issue – it’s a strategic one
Managing project cash flow requires more than just a spreadsheet. It demands a robust financial model, disciplined governance, and the right systems to provide timely insights. This is where an integrated accounting and advisory firm becomes a strategic partner.
As accountants and advisors, we work with you to build these robust cash flow models and implement the governance cadence needed to maintain control. We can help you establish effective job-level dashboards and reporting systems for clear visibility.
Furthermore, when timing gaps are unavoidable, our in-house debt advisory specialists can help you secure the right working capital solutions. Whether it’s a flexible overdraft, trade finance, or invoice financing, we can structure a solution to bridge short-term gaps, keeping your projects moving forward without disruption. This integrated approach ensures you have the expertise to both forecast your needs and fund them effectively.
Your projects deserve to be as profitable in reality as they are on paper. A proactive approach to cash flow is the key to ensuring they are.
ReferenReferences
Queensland Building and Construction Commission (QBCC), Minimum Financial Requirements Policy, 2023
Association of Consulting Architects (ACA) Survey, 2024 – “Cash Flow and Financial Stress in Construction”
Australian Securities and Investments Commission (ASIC), Insolvency Statistics – Q1 2024
