How Communication Impacts Cash Flow
Posted March 1st, 2022
Your company’s approach to communication impacts your cash flow, for better or for worse. How you and your company communicate will determine whether you are successful reaching your goals. That might seem crazy—how can emails and phone calls affect our bottom line?—but it’s true. There are lots of opportunities throughout a construction project, from start to finish, where how you communicate can mean the difference between having the cash you need to do the job . . . or not.
Your bid: Start communicating with confidence
If your first thought when you start a new project bid is, “What price do I need to have in order to win this project?” then you are thinking, and likely communicating, from a mindset of lack. When price is the pillar of your bid, you aren’t communicating confidence in your team’s performance.
Ask yourself instead, “What will it take to do this job the RIGHT way? How much cash will we need to ensure we have the labor, materials, and equipment for us to do our best work?” Plan out the project’s weekly cash flow—the money coming in and off the job—so you know exactly how to build your schedule of values. Make sure to use real, accurate numbers. What are your costs and terms right now with your current suppliers? What is your current labor cost and capabilities? Start there and see how many adjustments you would need to make to do the job effectively and profitably.
Remember, your team’s ability to perform is the key and what matters most. Just because another company might be able to do the job for less money does not mean your company can right now. Every company has different expenses, supplier terms, supplier pricing, labor capabilities, etc. Know what your team’s capabilities are and then be honest with yourself about them when you are bidding a project.
Then, show your work in the bid. Put your price down and explain how you got there and what that number will mean to the GC in terms of schedule and performance. Share your cash flow projection with them, so that they can see any potential cash flow gaps you point out. How are you funding the project? Add that to your Capability Statement. Trust us—the vast majority of GCs won’t judge you even if you use outside funding. Instead, they will be relieved to know you have a plan for funding. The general contractor’s worst nightmare is the subcontractor who suddenly runs out of cash and has to stop work or rely on them to finance the subcontractor.
Explain why a certain part of the design plan needs to be done a certain way and therefore will cost more time or money. Point out any red flags or errors you see in the schedule—make sure the GC knows this is calculated in your bid and they should make sure other subs are thinking the same thing. Save the GC—and you—the trouble of change orders that could have been avoided. Bid the job the way it needs to be bid to actually do the work, and explain how you got there. This will help you stand out from your competition and be much more valuable to the GC and the project.
Remember, numbers don’t tell the whole story; your thoughtful analysis of the project and its costs will show the GC that you’ve put the work in ahead of time to make sure the project is done right.
When you approach each new bid with this mindset, you ensure that every new project has the cash flow schedule needed to fund itself, that your team can perform to the best of their ability, and that your company will make the profit you need to flourish and grow.
During the build: Clear communication is key
A formal process of communication between the general contractor and your company is critical to your ability to manage costs on the project. Don’t be afraid to push if a GC wants to verbally submit a change order. Remember, and remind the GC, that clarity is in the best interest of everyone on the project. Change orders can have dramatic consequences for your cash flow, and you need to be able to ensure that you can bill for the new scope of work and get paid for it.
The same theory applies to preliminary notices. Sending a preliminary notice isn’t a threat, unless you make it sound like one. Preliminary notices are good business practice — they let everyone on the project know that you are a member of the team and what your expectations are, according to the contract, regarding payment, and that you are only preserving your contractual rights to get paid. Subcontractors who submit preliminary notices are actually more likely to be paid on time than those who do not.
Questions, problems, challenges, issues . . . call them whatever you like, but the fact is that they happen A LOT in construction. It’s just the nature of the industry — the design looks great until you get out there on the site and start working. Sometimes, these issues are inevitable, faults that were missed in design. Other times, someone on the team causes the problem.
Either way, the best way to protect your cash flow on the project is to keep the project moving. That means skipping the blame game and OWNING the problem and more importantly the solutions to the problem. Contact whoever is a stakeholder in this problem—whoever will be needed to fix it and to approve the plan—and spell it out quickly and clearly.
- What the issue is (not who caused it)
- How it will impact the rest of the project and schedule
- How you propose to fix it
- What you’ll need in order to execute that job
Owning problems on-site doesn’t only protect the cash flow on this job, it establishes your reputation as a solid, trustworthy partner for the future. That’s an easy win-win.
Before, during, and after: Keep lines of communication open
Construction is a people business. If you look at each project as nothing more than a job to do, you aren’t building the relationships that will help you reach your larger goals. You need an industry network that supports you, and which you can support in turn. Think more about how you and your team are making your customer’s job easier and bringing value to them.
Before, during, and after the project, be a good communicator by actively listening, responding with empathy first, and communicating clearly. If you pour value into people, listen attentively and with empathy, and focus on bringing cohesion and collaboration rather than conflict and stress, you will find that general contractors want to work with you again. Other subcontractors will refer you, because they want to work with you again. They know what they get when they partner with your company—integrity, transparency, and excellence, and a job well done.
Join your local chapter of Associated Builders and Contractors, or your local trade association. Attend their events and support their causes. If you aren’t on LinkedIn yet, get on there and start connecting with general contractors, subcontractors, suppliers, and other partners in your area. Fifteen minutes a day spent communicating with your network can pay off huge when someone turns to you first when they need a contractor.
None of this works unless you are invested in the people you’re networking with. But, if you are willing to pour value into people, to give your knowledge, experience, and perspective away freely, to be a good listener and a clear communicator, then the good you give will come back to you.
How does that help cash flow? Referrals, for one thing. New opportunities.
Communication is a hidden cash flow superpower
From the bidding process to the project’s end, how you communicate with your GC, your suppliers and vendors, and even other subcontractors on the project, can impact your cash flow. Communicating clearly what you need to perform on a job, owning every problem AND its solution, and pouring value into your relationships will all make it much easier for you to earn what your worth, get paid on time, and build a pipeline of new business that gets your company where you want it to be.
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