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Is This Your Situation: Concerned Your Construction Company Is Undercapitalized

 

No business ever wants to be undercapitalized. Undercapitalization occurs when businesses have insufficient funding to support operations, which can quickly stop a project in its tracks. It is a serious concern, and many experts consider it to be a leading cause of business failures for contractors. To avoid this serious situation, consider the following:

  • Cash for employee wages, equipment and materials. The most important need for positive cash flow is to pay your employees, whether direct or contract, and to buy the necessary equipment and materials required for the project itself. Without these components, the construction project will quickly be dead in the water. Your client may be ultimately responsible for costs, but it is your responsibility to ensure that cash flow is maintained to keep the project on schedule.
  • Payments behind schedule. When things start to fall behind, the most likely culprit is behind-schedule payments from the company funding the project. If these payments begin to fall behind, things quickly can get out of hand financially. You need to maintain positive collections within the industry so that your company can get your clients what they need in a timely and efficient manner.
  • Monthly budgets. It is imperative that you establish a monthly budget that is as realistic as possible. Snafus will happen, and when they do, you can't be trapped under the weight of the project. A monthly budget will help you maintain the right standards and face obstacles along the way.
  • Comprehensive and accurate project plans. Your monthly budget should be paired with appropriate project plans. It is helpful for your clients to better understand what needs to be done and the time frame you're expecting to accomplish each task. This will help keep you on track and allow them to understand how the budget is working in real time.

Do you have questions about the capital you need to start your construction business? Every company is different, and we'd be happy to help you with the capitalization issues in your business. Contact our financial experts to help you today.

 

 
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Steven Miller
Steven Miller
Partner
1 (843) 706-8440
smiller@websterrogers.com
1 Westbury Park Way, Suite 200
Bluffton, SC 29910
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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