Cash Flow in Construction Projects

Cash flow in project management is defined as the movement of the cash related to a specific construction project.  It involves the movement of income into and expenditure out of the business over time. Cash flow in a project is analyzed by a project accountant. A project accountant is the one responsible for predicting the cash needs and creating a payment schedule to ensure that there is enough cash for each phase of a project.

If the money coming in, is more than what is going out, then it is called positive cash flows. Positive cash flows allow the construction company to pay the expenses on time. For this, the money going out must come in. Hence, it is necessary to bill consistently and accurately to avoid over and underbilling.

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Calculation of Cash Flows in Construction

In simple form, cash flow is calculated by subtracting expenses from the income for a specific time period. Cash flows = Outflows - Inflows;

Cash flows to the company incrementally, when finishing different stages of work. Hence, it is necessary to stay on top of cash flow is especially important.

Types of Cash Flows

Cash flows can come from:

1. Operating activities: Cash flow from operating activities comes from a company’s normal business operations, i.e., the provision of a good or service.
2. Investing activities: Cash flow from investing activities is based on the purchase or sale of fixed assets, such as equipment, and marketable securities, like stocks and bonds.
3. Financing activities: Cash flow from financing activities involves capital raised, invested, used to service debt, cover the operating expense, or pay dividends.

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