Construction projects face significant financial challenges, with fewer than one in three projects falling within 10% of their original budget. This alarming statistic highlights a critical issue affecting builders, contractors, architects, and property developers across the UK. However, this financial uncertainty can be resolved through proactive financial planning, with cash flow forecasting serving as one of the most powerful tools available. In this article, we’ll delve into everything you need to know about cash flow forecasting and how it can safeguard your next building project.
Construction FAQs: What Is A Cash Flow Forecast?
At Bhangals Construction Consultants, we have over 15 years of experience helping clients save time, money, and stress on their projects. We collaborate with numerous builders, contractors, and developers to create comprehensive cash flow forecasts that provide clarity and confidence throughout the project lifecycle. Whether you’re managing a small home extension or overseeing a multi-million-pound commercial development, understanding cash flow forecasting is essential for anyone involved in construction. The principles remain the same, but the complexity and detail will vary depending on the scale and requirements of your project.
- Cash Flow Forecast Meaning
- Advantages Of A Cash Flow Forecast
- Limitations Of A Cash Flow Forecast
- How To Do A Cash Flow Forecast
Cash Flow Forecast Meaning
A cash flow forecast is a financial planning tool that predicts the amount and timing of money coming into (inflows) and going out of (outflows) your construction project over a specific period. The document may also be referred to as a ‘cash flow budget’ or ‘cash flow projection’, but regardless of its name, its purpose remains the same: to provide a clear picture of your project’s financial health at any given time.
The forecast includes all anticipated income sources, such as client payments, loan draws, grants, and other funding streams, plotted against future expenses for labour, materials, equipment, subcontractor payments, and overhead costs. This comprehensive view enables you to see not only how much money you’ll need but also exactly when you’ll need it throughout the project timeline.
Construction projects typically use cash flow forecasts continuously throughout the project lifecycle, from the initial planning phase right through to final completion and handover. This ongoing approach helps project managers monitor income and expenditure patterns, manage finances effectively, secure funding when needed, and prevent potential cash shortfalls before they become critical problems.
Our quantity surveyors in London offer cash flow forecasting as part of our comprehensive end-to-end support services. We integrate this vital planning tool alongside other important project documents, including JCT contracts, programmes of works, and method statements. This approach ensures your project’s financial planning aligns with delivery requirements, creating a strong foundation for successful project completion.
Advantages Of A Cash Flow Forecast
The ultimate goal of a cash flow forecast in construction is to improve project success and profitability. Beyond this, it provides a range of benefits that support the full project lifecycle, including:
Improved Financial Control & Planning
A comprehensive cash flow forecast provides a clear picture of your project’s inflows and outflows at each stage, allowing for informed decision-making about resource allocation and spending priorities. You’ll be able to identify potential gaps in your cash flow or areas where you might exceed budget well in advance, allowing time to implement corrective actions.
When cash flow analysis reveals potential financial pressures, you can explore cost-saving strategies, such as value engineering, to optimise your project’s financial performance. Designed to improve a project by finding ways to reduce costs without impacting quality or performance, value engineering is about getting the best possible value for money. Learn more in our previous article.
More Stable, Efficient Operations
Knowing when money will be spent makes it easier to plan payments for wages, materials, and subcontractors, keeping everything on schedule. It also allows you to time deliveries and equipment maintenance properly, avoiding the expense and stress of last-minute arrangements.
With this foresight, you reduce the need for emergency financing or rushed purchasing, helping to control costs while keeping projects on track. A well-managed approach like this not only streamlines operations but also builds confidence among suppliers and subcontractors, who value working with organised and reliable partners.
Stronger Relationships & Enhanced Trust
Paying suppliers, subcontractors, and workers on time helps strengthen relationships across the supply chain. It shows financial discipline and good management, which can also give you an edge when dealing with lenders, investors, or new suppliers.
The Chartered Institute of Building (CIOB) highlights that reliable payment practices often lead to better project outcomes, as suppliers are more likely to prioritise your orders and offer preferential service when they trust your financial management.
Proactive Risk Management
Cash flow forecasting allows you to anticipate the best and worst-case scenarios at every stage of a project, making it easier to put strong contingency plans in place. Spotting potential cash shortfalls early means you can deal with them through careful planning, rather than scrambling in a crisis. Taking this proactive approach not only safeguards your current project but also helps protect your reputation and future business opportunities.
For more examples of the most common risks in construction and how to manage them, refer to this helpful article by CHAS.
Limitations Of A Cash Flow Forecast
A common challenge with cash flow forecasts is that they often rely on data from inaccurate estimates. The key to avoiding this is thorough and accurate cost planning from the start. At Bhangals Construction Consultants, we offer various tiers of estimates tailored to your specific needs, including a full estimate that provides a detailed breakdown of everything a builder or contractor will require to complete a project, including all potential costs and required quantities.
Forecasts can also be affected by unforeseen events such as delays, cost overruns, long or variable payment cycles, complex project dependencies, and poor-quality data. To manage these risks, it’s essential to have robust project management in place, including regular site visits and ongoing valuations. This helps to keep your cash flow forecast accurate and reliable as your project progresses.
How To Do A Cash Flow Forecast
Creating a reliable cash flow forecast starts with gathering the right information and understanding all the financial aspects of your project. Before you begin, make sure you have a clear picture of both your incoming and outgoing money streams, as these will shape the accuracy of your forecast.
1. Essential Data Collection
Inflows include all money coming into the project, such as customer payments based on agreed schedules, grants or government funding, loans or other borrowed capital, and any funds you’re personally investing.
Outflows cover all project expenses. This includes materials and supplies, labour costs for employees and subcontractors, equipment hire or purchase, and overheads like site facilities, insurance, and professional fees.
From here, you’ll be able to determine your net cash flow at each stage. This is calculated by subtracting total outflows from total inflows for each period. Smaller projects often use weekly periods, while larger developments, like housing estates or commercial buildings, may use monthly periods to keep the forecast manageable.
2. Professional Support & Implementation
Gathering and analysing all the data for a cash flow forecast can take a lot of time and effort. That’s why many contractors turn to specialists to make sure their forecasts are reliable and practical.
Our quantity surveying services in London provide detailed analysis and calculations, allowing you to focus on delivering the project. We create forecasts that reflect real conditions on site, drawing on experience across projects of all sizes and complexities. This hands-on approach helps ensure your finances stay on track.
3. Ongoing Management & Updates
A cash flow forecast isn’t a one-time task; it needs regular monitoring and updates. Keep track of your actual cash against the forecast so you can spot shortfalls early. By addressing any negative cash flow promptly, you can prevent small issues from escalating into major setbacks.
When referring back, always ensure that you update your forecast with actual project data, including actual costs, revised schedules, and any scope changes that have occurred. By staying proactive rather than reactive, your forecast remains a useful, up-to-date tool throughout the project.
Take Control Of Your Project Finances
Cash flow forecasting is essential for keeping your construction project on track and profitable. The difference between a project that succeeds and one that struggles often comes down to the quality of financial planning and ongoing management.
A reliable forecast shows when money will be needed and when payments will arrive, helping you make informed decisions that protect both your project and your reputation. This level of financial control is what sets professional contractors apart.
At Bhangals Construction Consultants, our team of experienced quantity surveyors, estimators, and project managers creates bespoke forecasts tailored to each project. Our approach helps ensure projects are delivered on time and on, or under, budget.
Don’t leave your project’s finances to chance. Contact us today for a free quote and discover how expert cash flow forecasting can give you the confidence to complete your project successfully.