Owner builder cash flow is the same for small business owners. Project management is not just about getting materials and trades to the site; it’s also about controlling cash flow.
Your bank account’s cash flow is the amount of money coming in and going out.
A negative cash flow means spending more money than you bring in. It can become a central juggling act. If you rely on money from the bank, they will likely get you to spend it first. Then they will start paying in instalments once the stages have been completed, such as the slab, the frame, the roof, the lock-up, the fit-out, and the handover.
To forecast your cash flow, you need to look at all incoming and outgoing monies in the short term (to the next claim stage) and the long term (to the end of the project).
Please keep in mind comparing your quotes. The cheapest quote may not be the cheapest in the long run. Questions like are GST included? Am I getting the same quality of materials? Are they quoting the entire project? Our Owner Builder Coach service can help.
We have seen several instances where the owner builder believes they are getting the whole job done when only two-thirds of it has been quoted. This can add up to thousands of dollars.
For example, the carpenter typically has two stages, the frame and the fit-out. If you plan your payments around each stage, you will spread them over the entire project. Pay for the frame when it is complete and the fit-out when it is complete. If you pay for both at the frame stage, you risk sending your cash flow into negative territory.
It is best to work with suppliers and trades to get payment terms of 30 days. Hopefully, with good organisation, you will get the payment stage from the bank before the trades and suppliers need to be paid. When a stage is completed, request the payment as soon as possible. If you delay, you will get the money later.
At Owner Builder Specialists, we often hear people wanting to owner build because they can change their minds. We suggest you plan carefully and, where possible, avoid changing your mind during construction. Mind changes can affect your cash flow.
Changing your mind on elements of the build can add extra costs. For example, if you decide to change from a steel frame to a timber frame after plans have been drawn up, it can incur additional costs.
If possible, avoid changing the plans once the building begins, as this could impact time and money throughout the construction process. Changing plans later in the process can be costly because materials must be purchased twice, or different tradespeople must be called in at short notice.
As a rule, we suggest that all decisions are made before the commencement of work and documented accordingly, so there is no room for misunderstanding later. Doing this will help ensure your project runs smoothly and within budget.
An appropriate cash flow management system will help you evaluate and forecast your cash flow.
It is important to plan each stage of your build to avoid delays. One missed step can cause disastrous effects down the line. A great checklist will keep you focused on all steps.
You need to get the balance right by getting materials delivered just before the trades get to the site. Having materials there too long ahead of time will tie up your money in materials sitting there. The trades will sit around and do nothing if your materials arrive after the trades arrive.
Our Owner Builder Coach is an excellent way to manage cash flow by planning and being efficient. By doing so, you can forecast, which will help keep your bank account healthy, reducing your stress as an owner builder.
Owner building can be a great way to save money and create value for your home, but it has unique challenges. The key to success is planning and staying organised. Make sure you have an accurate budget that accounts for all the materials, tools, and labour costs associated with the project. Additionally, use our Owner Builder Coach service to ensure your project is successful. Finally, keep track of your cash flow to ensure you stay within your budget and do not enter debt or financial hardship. Owner building can be an enriching experience with proper preparation and organisation. Master Builders South Australia have a podcast on cashflow that is aimed for business, with some useful tips.
We can help you with your cash flow and any other problems by using the contact form or emailing [email protected].
