Running a construction business relies heavily on costly manual labor. Construction just happens to be a very cash intense business as well. So when you combine payroll and cash flow together, you have a recipe for either success or disaster. Construction companies that manage both well tend to thrive. Those that do not are constantly in jeopardy of folding.

More than anything else, payroll and cash flow can kill a construction company. From the biggest contractors all the way down to individual subs, payroll and cash flow are the two biggest factors in determining a construction company’s long-term future. It’s important for any new subcontractor to get a handle on these two things before growth kicks in, otherwise there could be big problems down the road.

Construction Industry Payroll

If there is any industry in which payroll is as complicated as the restaurant industry, it is construction. Your typical construction company has at least a few employees on the payroll. However, the majority of the actual construction work tends to be done by contractors and subcontractors who are all paid differently.

Making matters worse is a plethora of paperwork construction companies have to submit to various government agencies to prove legal compliance. They have to document worker eligibility, who gets paid what amounts, and even different pay rates that can change from one job to the next across multiple locations.

The biggest challenge with payroll is having the cash in the bank account on payday. According to Dallas-based BenefitMall, making payroll on time is one of the biggest issues that construction companies face from a cash flow perspective. Simply put, contractors and subcontractors are generally unwilling to wait to get paid. It’s not their problem if a construction company’s receivables aren’t keeping up.

Fortunately, there are specialized construction payroll solutions that increase efficiency and relieve some of the payroll burdens construction companies face. BenefitMall offers one of them. In the digital age we now find ourselves in, it doesn’t make a lot of sense to run a construction company without utilizing a specialized payroll solution.

Cash Flow in the Construction Industry

Even the most sophisticated payroll software will be of limited use if a construction company cannot seem to manage cash flow. How important is cash flow? According to a March 2019 article from Construction Dive, a lack of cash is a big reason construction companies fail.

Construction Dive’s Kim Slowey talked to a number of industry experts to glean information for her piece. One of those experts, an accountant who specializes in the construction industry, told her that “contractors don’t go out of business because they have a lack of work or poor performance on their projects.” He went on to say that “they go out of business because they have no cash.”

Cash flow is always a concern for construction companies for the simple reason that there is so much cash changing hands. Construction companies and general contractors almost always have to foot the bill for the entire cost of a project. Only after they reach certain milestones do they get paid.

Between financing projects and pursuing their own receivables, it’s not difficult for a construction company to suddenly find itself without enough cash. Things are made worse when unexpected increases in payroll, taxes, etc. put further strain on cash accounts.

Payroll and cash flow are among the two biggest concerns for construction companies. Unfortunately, unfettered growth tends to be bad for both. That’s something to think about for any small construction firm looking to take on a ton of work this summer.