{"id":30422,"date":"2025-05-14T16:38:06","date_gmt":"2025-05-14T23:38:06","guid":{"rendered":"https:\/\/essential.construction\/news\/cash-isnt-king-cash-flow-is\/"},"modified":"2025-05-14T16:38:06","modified_gmt":"2025-05-14T23:38:06","slug":"cash-isnt-king-cash-flow-is","status":"publish","type":"post","link":"https:\/\/essential.construction\/news\/cash-isnt-king-cash-flow-is\/","title":{"rendered":"Cash isn\u2019t king. Cash flow is."},"content":{"rendered":"<p> [ad_1]<br \/>\n<\/p>\n<div>\n<div class=\"text-to-speech\">\n    <button class=\"text-to-speech__button button\"><\/p>\n<p>            <img decoding=\"async\" class=\"text-to-speech__button__icon\" src=\"https:\/\/www.constructiondive.com\/static\/images\/audio_icon.svg?482016190122\" alt=\"-\"><\/p>\n<p>        Listen to the article<br \/>\n        <span class=\"text-to-speech__button__audio-length\">5 min<\/span><br \/>\n    <\/button><\/p>\n<div class=\"text-to-speech__controls\">\n        <audio controls=\"\" class=\"js-text-to-speech\" preload=\"none\"><source src=\"https:\/\/res.cloudinary.com\/dmgi9movl\/video\/upload\/q_1\/v1747247942\/news\/text_to_speech\/cash-vs-cash-flow-construction_hb3ywr.wav\" type=\"audio\/mp3\"><\/source><\/audio><\/p>\n<div class=\"text-to-speech__controls__text\">\n            This audio is auto-generated. Please let us know if you have <a rel=\"nofollow noopener\" href=\"https:\/\/www.constructiondive.com\/contact\/\" target=\"_blank\">feedback<\/a>.\n        <\/div>\n<\/p><\/div>\n<\/div>\n<div class=\"editor-note\">\n<p>Bruce Orr is founder and chief data scientist at ProNovos, a provider of financial forecasting tools for contractors. Opinions are the author\u2019s own.<\/p>\n<\/div>\n<p><span><span><span><span><span><span>&#8220;Cash is king&#8221; might be the most overused phrase in construction finance \u2014 and one of the most misleading.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<figure class=\"image-right inside_story\">\n<div class=\"figure_content\">\n<div><img decoding=\"async\" alt=\"A headshot shows Bruce Orr, founder and chief data scientist at ProNovos.\" data-imagemodel=\"179186\" src=\"https:\/\/imgproxy.divecdn.com\/KdALjdhrUMBDBwoFoAH0XePIiwj3H_yd9Tb595Fw-C4\/g:ce\/rs:fit:1600:0\/Z3M6Ly9kaXZlc2l0ZS1zdG9yYWdlL2RpdmVpbWFnZS9TY3JlZW5zaG90XzIwMjUtMDUtMTRfYXRfMTEuMzEuMDJBTS5wbmc=.webp\"\/><\/div>\n<\/div><figcaption class=\"inside_story_caption\">\n<p>Bruce Orr<\/p>\n<p>Courtesy of ProNovos<\/p>\n<p>\u00a0<\/p>\n<\/figcaption><\/figure>\n<p><span><span><span><span><span><span>The reason why is because in the rough-and-tumble world of construction finance, where you\u2019re always just one job away from success or failure, you can have plenty in the bank and still be on the brink.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>In other words, it&#8217;s not how much cash you have; it\u2019s how well you control the movement of cash through your projects, partners and pipeline.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>Why? Because without visibility into how money is moving \u2014 when it\u2019s coming in, going out, and where it\u2019s getting stuck \u2014 you\u2019re not running your business. You\u2019re reacting to it.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>That\u2019s why I think it\u2019s time for contractors to shift the focus from cash to cash flow.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<h3 class=\"standard-heading\"><span><span><span><strong><span><span>A strong pipeline won\u2019t save you<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\n<p><span><span><span><span><span><span>Money in a construction project moves in three stages: cost, billing and cash received. The cycle determines whether you scale or stall.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>I once worked with a contractor with over $100 million in backlog. On paper, they looked unstoppable. However, they had poor billing discipline and 70+ day receivables. They weren\u2019t broke, but they were bleeding slowly. The timing mismatches in their cost-to-cash cycle nearly crushed them.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>You might be surprised to hear this isn\u2019t a rare story. According to the <\/span><\/span><\/span><\/span><\/span><\/span><a rel=\"nofollow noopener\" href=\"https:\/\/cfma.org\/articles\/cfma-s-2-24-construction-financial-benchmarker-executive-summary#:~:text=CFMA%20and%20Industry%20Insights%20are,%2C%20revenues%2C%20and%20financial%20performance.\" target=\"_blank\"><span><span><span><span><span><span><span><span>Construction Financial Management Association\u2019s 2024 Benchmarker survey<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a><span><span><span><span><span><span>, construction companies had an average of 23.5 days of cash on hand, slightly down from pandemic highs. While this might feel like a cushion, it\u2019s thin when billings lag or receivables stretch.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<h3 class=\"standard-heading\"><span><span><span><strong><span><span>Idle cash isn\u2019t a safety net<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\n<p><span><span><span><span><span><span>Seeing a large bank balance can create a false sense of security. But cash that just sits there is losing value due to inflation, missed discounts and opportunity costs.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>In contrast, top-performing contractors understand the concept of return on assets, a metric that reflects how well you use your resources. According to the Benchmarker survey, the average ROA for construction companies rose to 11.8% in 2023, but best-in-class firms hit 28.4%.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>That kind of gap doesn\u2019t happen by accident. It happens by design \u2014 through strategic reinvestment and smart financial management.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<h3 class=\"standard-heading\"><span><span><span><strong><span><span>Metrics that matter<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\n<p><span><span><span><span><span><span>Want to know if you\u2019re positioned for growth or just coasting? Track these three indicators:<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<ul>\n<li><span><span><span><span><span><span>Cash-to-revenue ratio: Reveals how much cash you have relative to income. A low CTR is risky. High means you\u2019ve got some great opportunities ahead (if managed well).<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li><span><span><span><span><span><span>Days of cash: Indicates how long you can operate without new income. The industry average is just over 23 days. Higher is better.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li><span><span><span><span><span><span>Return on assets : This measures how effectively you use your capital. The industry average is almost 12%. If you\u2019re under that, there\u2019s room for improvement.<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<\/ul>\n<h3 class=\"standard-heading\"><span><span><span><strong><span><span>Visibility equals confidence<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\n<p><span><span><span><span><span><span>You can\u2019t manage what you can\u2019t see. It\u2019s hard to keep up with the complexity of modern construction with spreadsheets alone, but at a minimum, you should be tracking:<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<ul>\n<li><span><span><span><span><span><span>What will our cash position be in 30, 60 and 90 days?<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li><span><span><span><span><span><span>Which jobs are cash-positive or negative?<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li><span><span><span><span><span><span>What\u2019s your days sales outstanding trend \u2014 i.e., how fast do your customers pay \u2014 and is it improving?<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li><span><span><span><span><span><span>How exposed are you to a few large receivables?<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span><span><span><span><span><span>If the answer to any of these is \u201cnot sure,\u201d you\u2019ve got a problem. And the tools exist today to solve it \u2014 if you\u2019re willing to commit.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<h3 class=\"standard-heading\"><span><span><span><strong><span><span>Effective leaders track cash flow<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\n<p><span><span><span><span><span><span>This isn\u2019t accounting\u2019s job. It\u2019s yours.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>Cash flow drives your ability to take on new work, pay your team, invest in tech and weather downturns. I\u2019ve seen companies showing solid profit margins but unable to make payroll, not because they weren\u2019t earning money, but because they weren\u2019t managing the movement of their cash.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>Discipline beats drama every time. To reduce the drama:<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<ul>\n<li><span><span><span><span><span><span>Bill early and often.<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li><span><span><span><span><span><span>Track DSO and push it down.<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li><span><span><span><span><span><span>Forecast based on behavior, not hope.<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li><span><span><span><span><span><span>For money going out, take advantage of early payment discounts \u2014 they\u2019re free margin.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<\/ul>\n<h3 class=\"standard-heading\"><span><span><span><strong><span><span>The bottom line<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\n<p><span><span><span><span><span><span>Cash might be comforting. But cash flow is king.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>In an industry where timing is everything, the winners aren\u2019t the ones with the most money in the bank \u2014 they\u2019re the ones who move it fastest, smartest and most deliberately.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>So stop asking <\/span><\/span><\/span><\/span><\/span><\/span><span><span><span><span><em><span>\u201c<\/span><\/em><\/span><\/span><\/span><\/span><span><span><span><span><span><span>How much cash do we have?<\/span><\/span><\/span><\/span><\/span><\/span><span><span><span><span><em><span>\u201d <\/span><\/em><\/span><\/span><\/span><\/span><span><span><span><span><span><span>Start asking <\/span><\/span><\/span><\/span><\/span><\/span><span><span><span><span><em><span>\u201c<\/span><\/em><\/span><\/span><\/span><\/span><span><span><span><span><span><span>How fast are we moving it \u2014 and where is it stuck?<\/span><\/span><\/span><\/span><\/span><\/span><span><span><span><span><em><span>\u201d<\/span><\/em><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>Because when you lead with your cash flow, you put your business in a position to lead the competition.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<\/p><\/div>\n<p>[ad_2]<br \/>\n<br \/><a href=\"https:\/\/www.constructiondive.com\/news\/cash-vs-cash-flow-construction\/748144\/\" rel=\"nofollow noopener\" target=\"_blank\">This article was originally posted at Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>[ad_1] Listen to the article 5 min This audio is auto-generated. Please let us know if you have feedback. Bruce &#8230; <a title=\"Cash isn\u2019t king. Cash flow is.\" class=\"read-more\" href=\"https:\/\/essential.construction\/news\/cash-isnt-king-cash-flow-is\/\" aria-label=\"Read more about Cash isn\u2019t king. Cash flow is.\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[457],"tags":[],"class_list":["post-30422","post","type-post","status-publish","format-standard","hentry","category-construction-dive","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33"],"_links":{"self":[{"href":"https:\/\/essential.construction\/news\/wp-json\/wp\/v2\/posts\/30422","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/essential.construction\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/essential.construction\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/essential.construction\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/essential.construction\/news\/wp-json\/wp\/v2\/comments?post=30422"}],"version-history":[{"count":0,"href":"https:\/\/essential.construction\/news\/wp-json\/wp\/v2\/posts\/30422\/revisions"}],"wp:attachment":[{"href":"https:\/\/essential.construction\/news\/wp-json\/wp\/v2\/media?parent=30422"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/essential.construction\/news\/wp-json\/wp\/v2\/categories?post=30422"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/essential.construction\/news\/wp-json\/wp\/v2\/tags?post=30422"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}