An evaluation of construction cash flow management approaches in contracting organisations

Abstract

Financial planning is central to the survival of any construction company. This is essential as lack of funds had been identified as the most common cause of business failure, and can lead to the failure of profitable and growing firms as well as those declining. On the other hand, a permanent surplus of funds, while less damaging is in itself an uneconomic state of affairs. As such, there is a need for adequate timing of fund availability in construction and deployment of excess fund to more productive use. This paper examines the construction cash flow management approaches in the UK contracting organisations through a questionnaire survey. Essentially, the survey examines the strategies adopted by construction firms in resolving deficit cash flow. It also investigates the extent of usage of some identified cash flow forecasting methods. Data analysis was carried out by ranking the mean response. This enabled the major strategies employed for resolving deficit cash flow to be determined. It also aided the determination of major cash flow forecasting methods utilised by the industry. Further analysis was carried out using one-way analysis of variance (ANOVA). This enabled preferences of cash flow management approaches between different sizes of firms to be determined. Results showed the major approaches employed in resolving deficit cash flow and approaches preferred by different sizes of construction firms. Results further showed extent of usage of various cash flow forecasting methods. The findings are significant, as firm size seems to have direct implications on the approaches contracting firms adopt in cash flow management. The findings also have implications for further research in this area particularly for SME’s