Without careful cash flow forecasting, even profitable projects can lead to cash flow headaches, delaying payments, and damaging business relationships.
If you’re running a multi-million pound construction business, managing your cash flow can quickly become your number one challenge. With significant monthly costs, multiple subcontractors, suppliers, and lengthy payment terms, cash flow issues can arise overnight.
In this guide, we’ll explore how larger construction companies can effectively forecast and manage their cash flow to support sustained growth and profitability.
🏗️ Why is Cash Flow Forecasting Crucial in Construction?
Cash flow forecasting is critical for larger construction businesses because:
-
Projects often span many months or years, tying up significant cash
-
Payment terms typically lag behind your costs
-
Multiple subcontractors and suppliers require timely payments
-
Retentions and delayed payments can severely impact liquidity
-
It helps prevent sudden cash shortages that can threaten your business
Accurate forecasting means fewer surprises and better decision-making.
✅ How to Create a Reliable Cash Flow Forecast
Here’s a step-by-step approach tailored for construction firms with multi-million pound turnovers:
Step 1: Identify Your Forecasting Period
-
Typically 12-24 months (rolling forecast)
-
Updated monthly (at a minimum)
Step 2: Start With Your Opening Bank Balance
-
The current cash position forms your forecast’s baseline
Step 3: Forecast Your Income Accurately
Clearly outline when money will hit your bank account—not just invoice dates:
-
Contractual payment terms
-
Stage payments and retentions
-
Realistic timing for client payments (allowing for delays)
Step 4: Break Down Your Project Costs
Accurately forecast:
-
Labour (direct and subcontractors)
-
Materials and plant hire
-
VAT payments (particularly with reverse charge)
-
Overheads and administrative expenses
Step 5: Account for Retentions and Delays
Don’t underestimate:
-
Late payments and retentions held by clients
-
Seasonal cash flow impacts (Christmas slowdowns, etc.)
-
Contingency for unexpected delays or price increases
Step 6: Model Different Scenarios
Run “what-if” scenarios:
-
Delayed payments from major clients
-
Subcontractor or supplier price hikes
-
Project overruns and extended timelines
⚙️ Tools for Cash Flow Forecasting in Construction
Consider using specialist software for accuracy and ease:
-
Cashflow Management Software: Float, Futrli, Fluidly
-
Integrated Construction Management: Procore, Buildertrend, CoConstruct
-
Accounting Software: Xero, QuickBooks, Sage (with forecasting add-ons)
-
Excel Models: Still widely used, if regularly updated and carefully managed
📈 What Should Your Cash Flow Forecast Include?
Your forecast should clearly show:
-
Monthly opening and closing bank balances
-
Projected income streams (broken down by client and job)
-
Detailed outgoing costs (labour, subcontractors, VAT, overheads)
-
Retentions and stage payments clearly identified
-
VAT payments due (monthly or quarterly)
📊 Common Mistakes to Avoid in Construction Cash Flow Forecasting
-
Underestimating payment delays from clients
-
Ignoring VAT timing (especially reverse charge in construction)
-
Failing to build in contingencies (project delays, material price rises)
-
Not regularly updating the forecast with actual data
-
Lack of detailed project-level forecasts (trying to forecast just company-wide can hide issues)
💡 Practical Tips for Better Cash Flow Management
-
Regularly reconcile forecast vs actual every month
-
Invoice clients promptly and clearly
-
Negotiate shorter payment terms with new clients
-
Review credit control weekly—chase late payments proactively
-
Schedule monthly cash flow reviews with your management team
🏦 How Often Should You Update Your Forecast?
For larger construction businesses, a robust cash flow forecast should be:
-
Updated monthly as standard
-
Reviewed weekly for significant projects or sensitive periods
👷♂️ Need Expert Help Improving Your Cash Flow Forecasting?
At Thomas Emlyn Ltd, we specialise in helping multi-million pound construction firms:
-
Set up accurate, detailed cash flow forecasts
-
Improve liquidity and working capital management
-
Proactively manage VAT and HMRC compliance
-
Provide financial clarity for smarter decision-making
📞 Book a discovery call today—get your cash flow under control and keep your business thriving.
📌 Final Thoughts
Effective cash flow forecasting is a powerful management tool for any growing construction company—especially if you’re turning over millions annually. It reduces stress, helps you sleep better at night, and allows your business to take advantage of growth opportunities confidently.
Stay ahead of your cash flow, not behind it.
