A job can be profitable on paper and still put you under. You're paying subbies and suppliers on their terms while you're waiting on a valuation to clear on yours, and if nobody's mapped out when each of those payments actually lands, you find out you're short at the worst possible moment, usually with a wage bill due that week. That's the gap cash flow forecasting in construction is meant to close.
Profitable and solvent aren't the same thing. A tender price only tells you one of them.
Why the gap opens up mid-contract
The trouble is timing, not total. Materials often need paying for before the valuation that covers them has even been submitted, let alone paid. Labour goes out weekly whether or not the client's payment cycle keeps pace. Plant hire runs from the day it lands on site.
Meanwhile the money coming in is lumpy. Interim valuations come round on whatever cycle the contract sets. On many contracts a slice is held back as retention until completion or beyond. And a valuation you submit isn't cash in the bank until the payment's actually made. Most construction contracts in the UK fall under the Housing Grants, Construction and Regeneration Act 1996, which gives a right to interim payments and sets out rules on payment notices, but a right to be paid on a date is still not the same as having the money in your account when the merchant wants settling.
If your original estimate was one lump sum with no element breakdown behind it, you've got no way of seeing which stage of the job is going to be the tight one until you're already in it.
Cash flow forecasting in construction starts with the estimate
An estimate built element by element, to NRM2, isn't just useful for pricing the job. It's useful for staging it. Once you know what each element costs and roughly when it falls in the programme, you can see where the outgoings bunch up against a payment cycle that isn't moving as fast.
Substructure and groundworks early, frame and envelope in the middle, finishes and services later, each with its own cost sitting against the point in the job where you'll actually be paying for it. The front end of most jobs is heavy: excavation, concrete, drainage, muck away, plant. You're spending hard before there's much above ground to value.
A simple hypothetical to show the shape
Say you've won a job where the measured estimate puts the first two months' work (groundworks, drainage, substructure) at £60,000 of cost. Suppliers want paying within thirty days, labour weekly. The first valuation goes in at the end of month one and gets paid some weeks later, depending on the contract terms. Retention comes off it too.
By the end of month two you could easily have paid out most of that £60,000 while receiving only part of the first valuation. The job's still profitable. You're just funding it from your own pocket for a while, and if you've got two jobs doing that at once, the overdraft notices before you do.
The numbers there are made up. The shape isn't. And you can only see it in advance if the estimate splits the job into stages with real costs against each.
The tender tells you whether the job's worth doing. The cash flow forecast tells you whether you can afford to do it.
Building a basic forecast from your breakdown
- Take the measured breakdown. Start from the elemental costs in your estimate, not the headline total.
- Lay it against the programme. Put each element in the weeks or months it'll actually be built.
- Split by payment terms. Labour weekly, materials on your supplier terms, subcontractors on theirs. Each goes out at a different point.
- Add the income side. Map valuations to the contract's payment cycle, allow for the gap before payment and take retention off each one.
- Find the low point. Run the cumulative figure month by month. The deepest dip is how much of your own money the job needs.
- Revisit it monthly. Update with actuals once the job's running. Keep it alive rather than filing it away after the start meeting.
Retention deserves its own line in the forecast. It comes back at completion and at the end of the defects period (under whatever terms the contract sets), so it's money you've earned but can't spend for a long time. On a job with thin margins, the retention held can be close to the whole profit.
It doesn't need special software. Good cash flow forecasting in construction is mostly discipline, not technology. A spreadsheet with the breakdown down the side and months across the top does the job, provided the breakdown underneath is real. For keeping the forecast honest once you're on site, see tracking whether a live job is still making money.
Seeing the tight month before it arrives
That's the difference between finding out you're short and knowing it's coming three months out. Knowing early gives you options: agreeing a different valuation cycle, ordering in phases, talking to the bank before you need to rather than after, or even deciding not to start two heavy groundworks jobs in the same month. It also tells you something about which tenders to chase. A job with a long, expensive front end and a slow payer might be worth less to you than a smaller one that pays monthly and quickly, even at a lower margin.
A properly measured estimate gives you the figures to build that picture, stage against outgoing, rather than a single number that tells you the job's worth doing without telling you when the money actually moves. We measure every element off your drawings to NRM2 and price it on current UK rates, so the breakdown is there to forecast from.
The one question to ask before you sign
Before you commit to a start date, ask: in which month does this job need the most of my own money, and how much? If you can't answer that from your estimate, the estimate isn't broken down far enough to run a job from.