Cash flow forecasting is essential for any business, but for construction firms, it’s absolutely critical. With large upfront costs, long payment terms, retentions, and unpredictable delays—managing cash flow effectively can mean the difference between success and insolvency.
This blog will clearly explain how to forecast cash flow accurately, why it’s crucial for construction companies, and provide step-by-step guidance to ensure your business stays healthy and profitable.
🏗️ Why is Cash Flow Forecasting Essential for Construction?
In construction, cash flow is particularly challenging because of:
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High initial outlays on materials, labour, and equipment
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Retentions and staged payments that delay cash inflows
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Unpredictable delays and variations
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Seasonal or cyclical impacts on workload and payment schedules
Effective cash flow forecasting helps you:
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Identify cash shortfalls early
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Plan ahead for taxes, payroll, and supplier payments
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Improve decision-making around project acceptance
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Prevent costly overdrafts or short-term lending
✅ How to Create an Accurate Cash Flow Forecast (Step-by-Step)
Step 1: Choose Your Forecasting Period
Start with at least a 3-6 month rolling forecast, updating monthly. Ideally, extend to 12 months for better strategic visibility.
Step 2: Identify Your Opening Bank Balance
Your forecast starts with your current cash position. Be precise—reconcile bank accounts and include any immediate obligations.
Step 3: Clearly Forecast Your Cash Inflows
In construction, timing of inflows is critical. Clearly show when cash hits your bank account, not just invoice dates:
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Confirmed Project Payments:
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Stage payments
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Retentions (identify separately)
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Expected Receipts:
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Invoices due from completed or partially completed work
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Variations or extras likely to be agreed soon
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Other income sources: loans, VAT refunds, insurance claims
Tip: Allow realistic buffers for delayed payments (30-60 days, rather than exact terms).
Step 4: Accurately Forecast Your Cash Outflows
Clearly break down all anticipated payments, including:
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Materials and Suppliers:
Identify due dates and payment terms. -
Labour and Subcontractors:
Regular payroll plus subcontractor payments. -
Overheads and Operating Expenses:
Rent, insurance, utilities, vehicle costs. -
Taxes and HMRC:
VAT, PAYE, Corporation Tax—exact due dates. -
Loan repayments:
Include scheduled payments clearly.
Step 5: Calculate Your Closing Cash Position Monthly
Each month’s closing balance becomes the next month’s opening balance. Highlight any months showing negative cash flow, clearly indicating when shortfalls may occur.
Step 6: Plan for Multiple Scenarios
Run “what-if” scenarios:
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Delayed payments from major clients
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Cost overruns on key projects
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Increased material or labour costs
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Lost or delayed projects
This helps you prepare and make decisions proactively rather than reactively.
🛠️ Tools to Simplify Cash Flow Forecasting
Using the right software makes forecasting easier, more accurate, and quicker to update:
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Xero or QuickBooks (integrated with Futrli or Float)
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Float, Fluidly, or Futrli (specialist cash flow tools)
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Buildertrend, Procore, or Eque2 (for detailed project-level forecasting)
🚫 Common Cash Flow Forecasting Mistakes in Construction
Avoid these frequent pitfalls:
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Overly optimistic payment schedules: Always build delays into your assumptions.
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Ignoring retentions: Clearly show retentions separately in your forecast.
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Not updating forecasts regularly: A cash flow forecast isn’t set-and-forget; it needs monthly updates.
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Failing to account for VAT properly: Particularly reverse charge VAT in construction.
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Excluding seasonal effects: Holidays, weather, and industry shutdown periods significantly impact cash flow.
📅 How Often Should You Update Your Forecast?
Review and update monthly at minimum. Weekly reviews are better during critical cash flow periods, major projects, or seasonal dips.
👷♂️ Real-Life Example: Forecasting in Action**
We recently supported a £5M construction firm struggling with cash flow unpredictability. By introducing monthly rolling cash flow forecasts, clearly separating retentions, and accounting for delayed client payments, we:
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Identified a £150k shortfall three months in advance
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Negotiated staged payments and reduced material costs
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Avoided costly emergency borrowing
Result: Their cash flow stabilised, confidence increased, and growth accelerated.
📞 Need Expert Help with Your Cash Flow Forecasting?
At Thomas Emlyn Ltd, we specialise in cash flow forecasting and financial management specifically for construction businesses.
We’ll help you:
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Set up accurate, easy-to-maintain forecasts
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Spot and solve cash flow problems early
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Make smarter, proactive business decisions
📞 Book a discovery call here—and keep your construction business thriving.
📌 Final Thoughts
Accurate cash flow forecasting isn’t just good practice—it’s essential for every successful construction business. It reduces stress, protects profits, and helps you grow confidently.
Start forecasting your cash flow clearly today. Your business depends on it.
