Cash flow is a very meaningful term to most contractors, who must be sensitive to the issue of cash flow if they are to survive. Many construction firms that were undertaking profitable projects have failed in business simply because of severe cash flow problems. Essentially, these problems exist when funds are not available to meet current financial obligations. Thus, it is possible for a project that is profitable “on paper” to generate insufficient funds to meet current financial obligations. This is well known among contractors, who tend to pay close attention to this topic. The primary objective of most firms is to make a profit, but the maintenance of a positive cash flow is also of crucial importance.

A cash flow analysis is an investigation of a project in which the focus is on the flow of money. This includes a separate analysis of the expenditures of money during the construction phase of a project and the revenues or income that will be generated as the project is being completed. A positive cash flow is when the cumulative revenues exceed the cumulative expenditures, meaning that surplus cash is available. On large projects, this excess cash can be invested in various short-term opportunities. A negative cash flow can also occur, and this means that more money is being spent than received. This will mean that the firm will need to take the appropriate steps to borrow from within the firm or financial institutions to cover the shortfall in funds.

In fact, the capability to timely obtain sufficient cash is considered one of the most common and critical challenges that contractors usually face during the execution of any construction project. As a result, cash must be thought of as a limited resource because its procurement has always been the first concern of contractors. During any project period, contractors never carry out any work that has no cash availability despite the commitment to stick to schedules.

Based on the above, any contractor or developer during the project bidding stage, should develop and forecast a realistic and reliable cash flow for the project under consideration in order to plan ahead for funding securing. This is what the course is all about, in which you’ll understand in detailed steps how to forecast your periodical “expenses” (i.e. cost baseline) and “income” throughout the project duration. The course will start by explaining basics of what is required from certain project management knowledge areas to forecast the cash flow as well as what are components of the project bid price. Consequently, the different components that makes up the project cash flow profile will be discussed. Then, important contract provisions that impacts the cash flow will be explained followed by identifying the difference between “cash flow profile” and “net cash flow profile”. Thereafter, we will understand the consequences of having a negative cash flow in our project and how to minimize such negative cash flow. Followed by that, we will apply detailed examples with different scenarios to understand how to determine and develop the cash flow and net cash flow profiles. This includes identifying the maximum required credit to secure funding, determining the financing charges, and considering downpayments. Finally, we will discuss (with examples) important practical considerations that should be taken into account while developing the cash flow to reflect the actual movement of money in and out of the project. This includes:

- How to consider the financing charges in your cash flow and come up with a final mark-up for your project

- How to consider subcontracted work items in your cash flow

- How to consider the actual timing of your expenses in real-life

- How to consider varying contract conditions that can affect your periodical income

- How to consider the time value of money to practically identify the project’s profitability