Accounting &

Financial Reporting
DR / Hany Nasr Eldin

HOW CASH FLOW MANAGEMENT AFFECTS

CONSTRUCTION FIRMS
Group Number 10
1-Osama Kamal 2- Ayman Saber
3- Hatem Emam 4- Mohamed Madyan
Content:
 What Is Cash Flow?
 Importance of cash Flow?
 Project Management
& Cash Flow.
 Cash Flow Management .
 Cash Flow vs net Profit .
 Cash Flow Statement
 Construction Project Costs.
 Cash Flow Analysis.
 Cash Flow Management
techniques.
 Common Cash Flow.
 Improve Cash Flow.
 Conclusion.
 What Is Cash Flow?
 Cash flow is the amount of cash and cash equivalents that
move into and out of a business during a specific time
period.
 It is a key measure of a company’s financial health, liquidity
and ability to pay its bills.
 Positive Cash flow indicates that more money is coming into
a business than is going out.
 Negative cash flow means more money is going out than
coming in.
 A cash flow statement captures this information and helps
a business analyze its future cash needs.
Importance of cash Flow?
 Cash flow is critical in the construction industry, where
businesses need cash to fund project.
 Cash flow is to keep current projects moving forward, pay
for materials and labor and cover other costs.
 A few late or missed payments from clients, overstock of
inventory or a sudden increase in the cost of materials are
all it takes to put them at risk of a cash shortfall — or
worse.
 By monitoring cash flow, a company can better predict its
needs, flag potential problems and ultimately help grow the
business.
 Project Management & Cash Flow.
 Cash flow in project management is the movement
of cash related to a specific construction project.
 A project accountant is typically responsible for
analyzing a project’s cash flow to predict cash needs
and creating a payment schedule to ensure there’s
enough cash for each phase of a project.
Cash Flow Management
1 Cash Cash
Equity 2
Advanced Flow Flow Purchase Fixed Asset
Payment Debt. In Out Purchase Raw
Cash For Materials Labor
a project Salaries Subcontractors
3
Payments Suppliers
Progress Payments
Payment Direct overhead

Finished
Project
 Cash Flow vs net Profit
 Cash flow and net profit are two critical measurements of a
business’s financial health.
 Net profit, also known as net income or the “bottom line”
(because it appears at the end of an income statement), shows
how much profit is left after deducting all expenses from overall
revenue during a specific period.
 Depending on a company’s accounting method, it’s possible for
it to be profitable yet have negative cash flow, and vice versa.
 A company that’s profitable on paper but has negative cash flow
can run into problems because it can’t pay its bills on time.
 Cash Flow Statement
 A cash flow statement looks a lot like a profit and loss
statement and the balance sheet. It should aim to look
at how cash moves in and out of the business. This in
turn, allows you to:
 Consider how funds move through the business
 What impact cash flow has on the running of the
business.
 How payments reconcile with cash balances and values

Cash flow = Cash from operating activities +/- Cash from investing activities
+/- Cash from financing activities
1) Operating cash flow :
 Reflects payments received from customers less
the amount paid to cover expenses.
Operating cash flow = Net income + Non-cash expenses +
Change in working capital
2) Investing cash flow :
 Reflects money spent on long-term or capital investments, such
as the purchase (or sale) of equipment and property (capital
expenditures), stocks and bonds or another company via
acquisition.
Investing cash flow = Purchase/sale of capital expenditures + Purchase/sale of
marketable securities + Purchase/sale of a business or division
3) Financing cash flow :
 includes any funding from a company’s owners,
investors and creditors relating to debt, equity and
dividends.

Financing cash flow = Issue/repurchase of debt + Issue/repurchase of equity +

Payment of dividends
Construction Project Costs :
Total Project Cost

Fixed Capital Working Capital

Direct Cost Indirect Cost

1- Ground Works
2- Equipment's Procurement .
3- Equipment's installation .
4- Pipes and Instruments .
5- Electricity .
6- Office Building control
room , etc…
7- Utility and off – Site.
8- Land acquisition.
1- Engineering Design.
2- Supervisor & Management.
3- Construction Equipment's.
4- Temporary Facilities
Consumable and Tools.
5- Overhead and Tax
6- Contingency.
1- First Operation Wage of
Labor.
2- Spare Parts (1 Year).
3- Raw Materials and Product
Supply.
4- Another Expenses.
 Cash Flow Analysis :
 Cash flow analysis is an important financial activity for a
project and entails listing money flows into and out of a
project. Cash flow analysis enables a contractor to project
future flows of cash to determine the necessary budget
for a project. Cash flow analysis is not only concerned
with the amount of the cash flow, but also the timing of
these cash flows. Most cash flow in the construction
industry is analyzed with monthly time periods. Cash flow
analysis projects the cash balance at the end of each
month.
Cash Flow Management techniques :
Cash flow management processes within construction should
support various decision-making processes, this will ensure
the contractors protection against the harmful effects of
uncertainty. management techniques identified to help
contractors improve cash flow management in construction
are operational cost estimating, target costing, and S-curves.
 $30,000,000 $110,000,000

$23,143,686.00
Monthly & Cumulative Cash out Vs Cash in $96,679,101.00 $100,000,000
$96,679,101.00

$19,143,686.00

$19,044,799.00
$90,000,000

$17,036,065.00

$16,044,799.00
$80,000,000
$20,000,000

$13,518,023.00
$70,000,000

$12,418,023.00
Cash out > Cash Cash out < Cash

$11,036,065.00
in in $60,000,000
Cost ($)

$8,736,961.00
$50,000,000

$7,736,961.00

$7,571,368.00
$7,036,065.00

$6,025,403.00
Cash out > Cash
in $40,000,000
$10,000,000
$4,036,065.00

$4,036,065.00

$3,921,515.00
$3,536,065.00

$2,921,515.00
$30,000,000

$2,095,278.00
$1,736,065.00

$1,403,211.00
$1,036,065.00

$20,000,000

$144,454.00
$10,000,000

$- $-
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Common Cash Flow :
 There is many Common Cash Flow Issues in Construction :
 Paying bills too early.
 Slow-paying customers.
 Overstock of inventory.
 Timing of accounts payable and receivable.
 Lack of change order management.
 Improve Cash Flow :
There is many Strategies to Improve Cash Flow
 Use cash flow forecasts.
 Include payment terms in contracts.
 Incent early payment.
 Provide multiple payment methods.
 Negotiate with vendors.
 Obtain a credit line with bank.
 Long-term financing.
 Charge for delayed/late payments.
 Speed up closeout.
 Conclusion
Construction businesses need to continually fill their cash coffers in
order to fund new projects, pay their expenses, including materials,
labor and operating costs, and ultimately grow. But in an industry
that typically operates on thin profit margins, sometimes a single
slow-paying customer is all it takes to flip a company’s cash flow
from positive to negative. Understanding the issues that can hamper
cash flow, employing strategies that can boost cash flow, and using
software to manage and monitor cash flow and billing can keep a
construction business in operation for a long time.