For a good reason, construction is often considered one of the hardest industries to manage cash flow. You’re dealing with large project costs, delayed payments, change orders, retainage, and seasonal slowdowns—all of which can make or break your cash position.
In this article, we’ll break down how to prepare a construction cash flow forecast step by step. Let’s get started.
What Is Construction Cash Flow Forecasting?
Construction cash flow forecasting predicts when and how money will flow into and out of a project or company over time. It is a working capital roadmap for a contractor’s operations.
In construction, this means estimating all future cash inflows (e.g., client payments, loan draws) and outflows (e.g., labor, materials, equipment costs) for each project period because profit on paper doesn’t equal cash in hand.
Annual forecasts are common across businesses, but many construction companies (especially those with multi-year projects) create multi-year cash flow forecasts to plan.
Alt Text: Table comparing cash flow forecast and cash flow projection. The forecast uses historical and current financial data to predict the most probable cash flow status and guide action on cash flow issues.
Anterra is a construction financial management software that allows contractors to forecast cash flow. We also help track gross margins, compare budgets, and manage project costs in real-time.
Here’s a look at Anterra’s timed cash flow forecasting:
Importance of Construction Cash Flow Forecasting
Here are some reasons why forecasting cash flow is so important for the construction industry:
Business Survival and Stability
Cash flow is the lifeblood of a construction business. Research shows that 61% of small companies struggle with cash flow management, and a study found that 82% of business failures are due to cash flow problems.
The construction sector faces especially high failure rates. Forecasting future cash flows is a proactive step to guard against insolvency.
Preventing Project Delays
Insufficient cash can halt a construction project. Recent data indicates that construction firms wait an average of 94 days to receive payment after invoicing, a metric known as Days Sales Outstanding (DSO). A well-prepared cash flow forecast helps identify periods when additional funds may be needed to bridge these gaps.
Profitability and Growth
Steady cash flow helps contractors grow. It makes it possible to take on new jobs, buy equipment, and hire more workers without hurting the business.
A good cash flow forecast shows if you have enough cash to buy a machine outright or if that purchase would leave you short on funds. For example, the forecast might show a surplus in certain months. You can then use that extra cash to start another job or invest in crew training.
Business owners with strong financial planning skills can also take on new projects faster because they know they’ll have the money to pay for labor and materials while waiting for customer payments.
Stronger Stakeholder Relationships
Construction is already dealing with labor shortages and a tight subcontractor market. If you’re known as “the contractor who always pays on time,” it gives you a big edge.
A financial statement with a clear cash flow forecast makes that possible. When you know when money’s coming in and going out, you can pay your crews, subs, and suppliers on time, every time. That builds trust, keeps people loyal, and makes getting reliable help on future jobs easier.
Access to Financing and Bonding
Lenders and bonding companies look closely at your cash flow. If you’re applying for a construction loan or line of credit, the bank will likely ask for a cash flow forecast and your financials. A clear, well-prepared forecast shows that you’re running the business responsibly.
Key Components of a Construction Cash Flow Forecast
A construction cash flow forecast typically includes a few core components:
Cash Inflows
Cash inflows represent all the money expected to come into the project or company over time. You must identify and map every possible cash source across your project timeline.
Below are the main types of inflows contractors should account for in their forecasts:
- Client Payments (Progress Billings): Most revenue comes from invoicing the client based on work completed monthly or by milestone. Forecast when invoices will be sent and when you expect actual payment, factoring in contract terms (e.g., Net 30).
- Upfront Deposits or Mobilization Payments: Some contracts include an advance or mobilization payment at the start. These help fund early expenses like labor, insurance, or materials. If applicable, include this as a cash inflow in the first project month.
- Retention Release (Retainage): If 5–10% is withheld from each invoice, that cash won’t be available until near or after project completion. Treat retention as a delayed inflow and schedule it in the final project stages.
- Loan or Credit Line Draws: If you’re using financing, forecast the timing and amount of any loan or line-of-credit draws used to cover project expenses. This includes construction loans, equipment loans, or working capital facilities.
- Owner Capital or Equity Contributions: If the project is owner-funded (especially common in smaller firms or real estate development), map out when capital injections will be made to support the cash flow.
- Grants or Subsidies (if applicable): In some public or energy-related projects, grants or incentives may be available. Add these inflows to the forecast at the expected disbursement dates if approved.
- Change Order Payments: If you anticipate approved changes in scope (with corresponding price increases), estimate when these will be billed and collected. Include only once likely or approved.
- Starting Cash Balance: Begin your forecast with your current cash-on-hand or bank balance for the project or company. This is your opening balance and your baseline for determining funding gaps.
Cash Outflows
Cash outflows represent all the money going out of your business or project — and they typically come faster and more frequently than inflows.
To stay ahead, list every category of expense, when it will occur, and how it’s paid. Here’s what to include:
- Labor Costs: Forecast wages for crews, supervisors, and project managers. Break it down by week or month based on schedules. Include payroll taxes, benefits, and overtime when applicable.
- Materials & Supplies: Account for every major material delivery — concrete, lumber, steel, HVAC units, etc. Be clear on payment terms (e.g., 30-day invoices, COD, or deposits). Costs often spike early in the project.
- Subcontractor Payments: Subcontractors typically bill monthly based on progress. Include those invoices in the months you expect to pay. Don’t forget any deposit requirements or milestone payouts.
- Equipment Costs: This includes rentals (monthly/weekly), lease payments, and outright purchases. If financed, add recurring loan payments. Heavy equipment is a major outflow bucket on infrastructure and large-scale jobs.
- Permits, Bonds, and Insurance: Many are due before work starts. Add permit fees, bonding premiums, builder’s risk insurance, and general liability policies into early cash flow periods.
- General & Administrative Overhead: Includes the project’s share of office rent, salaries (e.g., accounting, executive), legal fees, software licenses, and other indirect costs. These often hit on a fixed monthly schedule.
- Utilities and Site Maintenance: Power, water, temporary toilets, dumpsters, fencing — ongoing job site operating expenses should be included, even if they seem minor.
- Debt Service or Interest Payments: Using loans or credit lines, factor in monthly interest or principal payments. Missing these could impact your credit or bonding capacity.
- Contingency Reserves: Set aside a buffer (usually 5–10% of project cost) for unplanned expenses like weather delays, price increases, or change orders. Think of it as “insurance” in your forecast.
Timing Matters as Much as the Amount
In construction, when the money comes in, it is just as important as how much comes in.
You’re paying workers every week. Suppliers want their checks within 30 days. But your clients? They might pay once a month after inspections and paperwork, sometimes with 5–10% held back as retainage.
That’s why it’s critical to map out every expected payment and expense on a calendar—week by week or month by month.
How to Prepare a Construction Cash Flow Forecast
Forecasting construction cash flow requires a methodical approach. You can do this process manually in spreadsheets—or use a tool like Anterra, which automates cash flow projections based on your schedule, progress billings, and cost tracking.
Either way, the steps below are the foundation of the cash flow forecasting process.
Define the Project Scope and Schedule
Start by clearly identifying the full scope of work and the project timeline. List all phases and major tasks, and develop a detailed project schedule (e.g., a Gantt chart with activities and durations). Essentially, no schedule = no timing for your cash flow.
The project schedule is the backbone for your cash flow timing – it tells you when crews will be on-site, when materials are needed, and when milestones will be reached for billing. For example, if the foundation work is in March and the framing is from April to May, those timings will determine when costs are incurred and when you can invoice for those stages.
Estimate Project Revenues (Cash Inflows):
Next, analyze the contract and determine how and when you will get paid throughout the project. Use the payment terms in the contract to forecast your revenue stream.
Key questions:
- Is there an initial deposit or mobilization payment?
- Are billings monthly (based on a percentage of completion) or milestone-based?
- What is the payment due date (e.g., paid within 30 days of invoice)?
- Is any portion held as retention?
Map out each expected invoice and its amount. For example, you could invoice $200,000 at the end of Month 1 (for work completed), $150,000 at the end of Month 2, etc., with a final invoice at completion. If retention is 10%, only 90% of each invoice will be received promptly, with the remaining 10% coming at project close.
Also include any other project-specific income: bonuses for early completion, incentives, or payment for stored materials, if applicable.
Project All Costs (Cash Outflows)
Now, itemize all costs associated with the project and assign them to the timeline.
Use your project estimate or budget breakdown to convert it into a cash schedule. For example, if you need $50,000 of concrete in Month 1, and the supplier gives 30-day payment terms, the cash outflow might occur in Month 2. Do this for each cost item:
- Labor: Forecast each period’s labor cost based on your crew schedules (e.g., $20k/week for 10 workers, so $80k in Month 1, $100k in Month 2, etc., paid weekly or biweekly).
- Materials: Plan when materials will be delivered and paid for. (Large orders might require deposits or have lead times – include any advance payments).
- Subcontractors: Incorporate the payment schedules of each subcontractor. Often, subs bill monthly for work completed, and you pay them in the following period. So if an electrical sub bills $30k for April work, you might pay that in May – include that in May’s cash outflow.
- Equipment: If renting, include the rental fees each month. If buying, include the purchase price (and loan repayments if financed). If leasing or financing equipment, include those periodic payments.
- Overhead allocation: Estimate the project’s share of indirect costs (project manager salary, job site trailer rent, insurance, etc.) that need cash. These might be spread evenly each month.
- Other: Permit fees (likely up front), bond premiums, contingency funds (as a reserve).
Map Cash Flow Timing
With estimated inflows and outflows, map them on a timeline to see each period’s net cash flow.
List the cash coming in and going out each week or month, then calculate the net cash position (inflows minus outflows) for that period. This can be done on a spreadsheet where each column is a month, and each row is an item (revenues and various costs). Then, calculate a running cash balance over time, starting from your initial cash.
It will show you when you’ll be spending more than receiving (negative cash flow periods) and when you’ll be cash-positive.
For example, you might discover that in Month 2, you have a $100k inflow but a $180k outflow, for a -$80k net that month, but in Month 3, the inflow is $150k vs. outflows of $120k, for +$30k net. Cumulatively, you’d be -$50k by the end of Month 2, and then -$20k by the end of Month 3, and so on.
This is where many contractors rely on Anterra’s construction financial solutions. Our platform connects schedule, billing, and cost data to generate net cash flow projections by week or month automatically—so you always know where you stand.
Identify Gaps and Adjust (Iterate)
Once the initial cash flow projection is laid out, scrutinize it for problems. Look for any period where the cash balance goes negative, indicating a funding gap. If the forecast shows you will be -$200,000 in Week 8, you must plan how to cover that. There are a few options to adjust:
- Schedule Adjustments: Perhaps invoice sooner (if the contract allows) or negotiate front-loaded payment schedules. Alternatively, delay certain purchases to spread out outflows if feasible without impacting the schedule.
- Financing: Decide if you will draw on a line of credit or inject company cash reserves during that gap. Add those measures into the forecast (as additional inflow in the needed period and outflow when repaying).
- Cost Management: See if any costs can be reduced or delayed. For example, postpone non-critical hires or rentals until after a big payment.
Monitor and Update the Forecast Regularly
A cash flow forecast should not be a one-and-done document but a living tool. During project execution, actual cash flows will inevitably differ from the forecast (due to change orders, delays, faster or slower payments, etc.).
Many experts suggest reviewing and updating the cash flow forecast monthly (at minimum) or weekly for active projects. In fact, a rolling weekly forecast might be used in fast-paced jobs.
With Anterra, you don’t have to rebuild your forecast every time a change order hits or a payment is delayed. The system updates projections automatically based on actuals. And you get to make informed decisions based on an accurate cash flow forecast.
Common Issues & How to Avoid Them
Here are some common issues in construction cash flow management and tips to avoid them:
Late Payments from Clients
Slow owner payments are perhaps the #1 cash flow headache in construction. It’s common for contractors to wait 30, 60, or even 90+ days to get paid after invoicing. A delayed owner payment can force the contractor to dip into reserves or credit.
How to avoid: Be proactive in contract negotiations – negotiate favorable payment terms whenever possible. For example, try to include front-loaded payments (like a mobilization fee or materials prepayment) and enforce prompt payment clauses.
Always send invoices immediately upon reaching a milestone or period end (don’t delay billing) – remember, clients won’t pay until you ask.
Inaccurate or Outdated Forecasts
A common mistake is treating the cash flow statement as a static document. If the forecast is not kept current with project realities, it can give a false sense of security. For instance, if your forecast assumes that a client will pay in 30 days but, in reality, it takes 60 days, your cash position will be very different from your projection.
How to avoid: Regularly update your cash flow forecast and base it on the latest information. Treat it as a living document that requires maintenance. If something changes – a schedule slip, a change order, a delay in payment – immediately reflect that in the forecast.
Overextension (Taking On Too Much Work at Once)
Success can breed its own cash flow problems – when contractors win lots of new projects, each project might be individually profitable, but the concurrent cash demands can exceed the company’s capacity.
How to avoid: First, carefully plan the start dates of projects. If possible, stagger project start-ups so that cash-intensive phases do not all coincide. Second, evaluate your working capital before taking on new jobs: do you have enough cash or credit to float the expenses until those jobs become cash-flow positive?
To gauge this, contractors often calculate a working capital ratio or required cash per $1 million backlog. One rule of thumb is maintaining a current ratio (current assets to current liabilities) of 1.2 or higher; some recommend even more construction, given the upfront costs.
Forecast Every Dollar with Anterra’s Cash Flow Tools
Want to simplify forecasting and get a clear cash position across all your projects?
Anterra’s construction accounting software helps contractors like you stay on top of cash flow—without spreadsheets or guesswork. You’ll see real-time inflows and outflows by project, track retainage and loan draws, and know exactly when to expect a cash shortage or surplus.
Top construction contractors use Anterra to:
- Build accurate, project-level cash flow forecasts in minutes
- Spot funding gaps before they cause delays
- Stay confident when taking on new jobs
- Improve relationships with subs, suppliers, and lenders
Get a Demo of Anterra to see how top contractors use real-time data to plan better, avoid delays, and grow confidently.
FAQs
What’s the difference between cash flow and profit in construction?
Profit is what you make on paper after all expenses. Cash flow is the actual money moving in and out of your business. If payments are delayed, you can show a profit but still run out of cash.
Should contractors forecast cash flow for each project separately?
Yes. Each job has its own payment schedule, costs, and timing. Forecasting by project helps you spot which ones might cause cash gaps or need extra attention.
What can I do if my cash flow forecast shows a negative cash balance?
Act early. You might delay expenses, request faster payments, use a line of credit, or adjust project schedules. The key is catching the problem before it hits.