property development cash flow

Top tips for effective property development cash flow management

18th March 2022   |   Jamie Barrett   |   Reading Time: 3 minutes

At a time when world markets are volatile, prudent cash flow management for any project is all the more essential, and this is particularly true for the cash flow complexities of construction.

Macroeconomic factors – including Brexit, Covid, and the recent crisis in Ukraine – have all caused recent supply-chain challenges, which in turn have caused project delays and increases in material costs. Such external factors mean that placing an enhanced emphasis on contingency planning as part of construction cash flow management is fundamental.

All businesses and projects require an element of cash flow management – ensuring that the money coming in is balanced against money going out – and with the level of investment needed in property development there are long periods of cash outgoings with sales income likely to be delayed until the latter end of the project.

Inadequate cash flow is a major reason that building projects can fail, making a robust cash flow management plan an essential element for any construction project.

Cash Flow Forecasting

The first step in good cash flow management is cost projection or cash flow forecasting. Accurate financial forecasting is key to ensuring there is adequate liquidity and enough money available at key stages throughout the project to keep it on time and to budget. Such cash flow projections may also be required by your lenders or investors.

Key areas in cash flow forecasting to consider include monthly bills (like any mortgage used to purchase the land, and payroll costs for employees), site costs and materials (including the hire of equipment and buying materials and tools), and contractor invoices.

A Bill of Quantities, quantifying all the materials and labour required to build a project, can support the cash flow forecasting process.  

Cost Plan

Once you have made the cost projections, a cost and budgeting plan can be created. A reliable cost plan should minimise financial risk, maximise value engineering opportunities, and benchmark against reliable cost data. Cost modelling techniques can also help to inform the cost plan.

Particularly now, a good cost plan should also include a contingency for external factors.

Use Reliable Suppliers

Although sometimes more expensive on paper, using a reputable supplier with quick turnaround times and a quality product, could be more cost-efficient than using one that appears to be cheaper on the outset.

A trusted network of suppliers is particularly important in today’s volatile market of supply chain shortages, material delays and where prices are rising sharply and can often not be guaranteed for long.

Establish Clear Processes

Once the cost plan is in place, it’s important to establish reporting lines and make clear who in the project team has responsibility for implementing and keeping to the cost plan and budget.  Regular monitoring and reviews will ensure that any problems are addressed quickly and adjustments can be made if necessary along the way.

Engage a Specialist 

Working out and planning costs can be a complex and time-consuming task but you don’t need to do it alone – using a specialist in construction cost management service can be a cost-effective alternative to taking on the task in-house.

A cost management specialist will consider all the factors above leaving you reassured and free to focus on the build.

A professional Cost Manager or Quantity Surveyor will use expert knowledge to oversee the entire cost management of the project from producing accurate cash flow forecasting to accounting for the quality and processes of materials and suppliers.

How Evolution5 can help you?

With more than 15 years of experience working in construction projects, Evolution5 understands that robust cost planning and management underpins every successful construction project.

Our highly experienced and award-winning team specialises in cost management for construction projects which can enhance your project planning process by focusing on understanding your objectives and tailoring a service that fits your requirements.

Our commercial team members are either RICS Chartered Surveyors or are undergoing additional career development to achieve Chartered status. They have a fantastic mix of contracting and consulting experience which affords them the ability to take a holistic approach to each client’s needs.

Evolution5 is a professional consultancy offering project management, quantity surveying, principal designer, employer’s agent, and contract administration services for projects across London and the South East.

If you have a construction project and would like to explore how the team can help you, click the button below or call 023 8040 5073.