Cashflow forecast Flashcards
What are cash flows in a project?
A positive cash flow: ideal for a project.
A negative cash flow: can lead to an organisation going out of business.
What are the reasons for a negative cash flow?
Delay of payments.
How can organisations in UK construction go out of business?
1) Poor payment practice.
2) Negative cash flow.
Late payment to contractors particularly subcontractors has been the source of many such contractors going out of business.
Why is cash flow important to the client?
Can borrow money for financing projects.
Asks a contractor to prepare a monthly project cash flow.
Insufficient funds may influence a breach of contract (i.e. payment delay to contractors).
Estimated and actual cash flow / cost
Why is cash flow important to the Main Contractors?
Project cash flow forecast is to be prepared.
Forecast the monthly payments the contractor would expect to receive from the employer.
Clients expect financial stability from contractors.
Insufficient funds or funds paid late can lead contractors to difficult experiences financially.
Why is cash flow important to the Subcontractors / Supply chain?
Large projects: good cash flow to a contractor and downward to subcontractors for having smooth construction activities.
Small projects: pay once.
Main contractors can have an unhealthy tendency of holding subcontractors on 60 day payment plans when they’re on a 30 day basis.
Cash flow is critical to all supply chain members.
They should be paid on time to meet finical obligations.
Insolvency of a key subcontractor can be caused by poor cashflow.
What happens in post contract cost reporting?
1) Employer understands likely final account sum total on monthly or quarterly basis.
2) Contractual monthly valuation issued.
3) Awareness to potential costs or savings that may impact total final account sum.
How do you prepare post contract financial statements?
1) Any changes to contract sum, the employer needs updating.
2) Reporting at regular intervals.
3) Potential final account sum.
What can lead to adjustments of the contract sum?
1) Architects instructions
2) Provisional sums
3) Approximate quantities
4) Anticipated variations
5) An inclusion of any claims
What is a CVR?
Cost/Value Reconciliation, used for internal reporting by the contractors QS. Used to demonstrate the financial position and reflecting its profitability to senior management.
