What is construction finance?
Construction finance refers to the various ways that contractors, suppliers, and other businesses can access capital (money) when necessary. The purpose of this page is to provide an overview of the financing options available to construction businesses seeking additional funding.
A shortage of construction workers coupled with rising interest charges on contractual loans, additional construction cost overruns, and health and safety expenditures are causing labour costs to skyrocket.
A pandemic also increases the possibility of projects missing deadlines, exacerbating the fear that banks and private investors will lose their capital investments.
What are the financial risks associated with a project? PMI defines financial risks as all the potential financial losses that can occur during the lifecycle of a project, including:
- project design expenses
- low revenue
- operation and maintenance charges
- demolition and waste management costs.
https://aipm.com.au/blog/managing-financial-risks-in-construction-projects/
The importance of doing construction financial management right, with no workarounds
In order to manage unpredicted changes or risks, workarounds can be a suitable solution. However, basing your construction project’s financial management on them is not a good strategy.
Waste of your time and energy
Building workaround spreadsheets every time costs you time and energy. In the end, you must take financial data from a primary source, create a workaround, and manage the data.
In the 21st century, construction companies must be fast and efficient to stay on the market.
If you spend your time creating contemporary worksheets, you have no time left for actions that matter- like winning more businesses.
Top 3 construction financial management challenges
No real-time view of project costs and their impact on project financial health
There are many project managers who don’t know if their project is profitable until the very end. They can’t see where and why they are losing money. It’s a costly mistake for the company’s financial health.
The reason for that isn’t a lack of financial data. Instead, it’s due to a lack of techniques and tools to analyse them. As a result, construction managers are unable to react when a risk occurs.
Difficult cash flow management – payment terms in the construction industry
Cash flow management is a nightmare for many construction companies.
The average time to get paid is 60 days, while even one in five subcontractors must wait up to 90 days. With such conditions, it’s incredibly challenging to plan future investments and not stress about financial stability.
Payment terms are not the only challenging aspect of financial management. Companies also have to deal with low-profit margins and a lack of regular income (usually at the project’s beginning or end).
The complex reality of financial data
Project management success in the construction industry depends heavily on external factors. Even if a company invests time and effort to prepare the most accurate estimation, the situation of the project can change at any time.
Inflation and material supply chain problems pose the most significant external financial challenges for construction in 2023. Companies’ financial stability was severely affected, leaving them unable to maintain the cash flow levels required to survive.
Want to learn more about Finance In The Construction Industry we have a whole course for you to catch you up on everything you need to know that can help you improve as a builder today.
https://builderscpdpointsonline.com.au/product/understanding-construction-financials/