Financial management lessons for contractors

Contractors are in constant need of finances to fulfil construction works awarded to them, but face the challenge of financial management.

KCB Group’s head of projects, quantity surveyor and civil engineer Isaac Inanga says contractors’ poor book keeping and have daily cash payouts as modus operandi.

“Contractors mostly have no active bank accounts indicating cash movement. This makes it impossible to gauge their ability to repay loans given to them,” he said during a contractors’ symposium.

Once a line of credit is secured or finances are available, Inanga offers the following tips:

“If it is a multi-year contract, it is good to factor in the expected inflation that will see construction material price change. Some contractors quote a fixed price only to realise their profit margins have been wiped out and result to shortcuts to reverse the situation,” he said.

According to Inanga, contractors should desist from using contract cash for their personal use saying this has become a major cause of delays.

“Contractors consume deposits given to them then struggle to finance implementation of the project. This is where quality is compromised as contractors (cut costs),” he said.

Adding that contractors must establish special purpose vehicles for each project to help them account for every penny used in a project.

It will also see them monitor timelines for project implementation thereby facilitating just-in-time deliveries of essential building materials.

“Always ensure that project cost is equal to loan money given to avoid top-ups or project stalling that could see contractors fail to get paid on time, leading to a default in repayments,” he said.

He adds that contractors should also re-invest their profits into their business while ensuring the initial plan as set out in the contract is maintained to the end to avert price alterations that could increase costs leading to a fresh negotiation of a loan.

“Keep the relationship professional by ensuring ethical standards are observed to a project’s end. This will boost your future relationship with our bank,” he said.

Expert construction professional workers employed by banks ensure projects, especially public and large private projects are professionally implemented to avert situations where work done is condemned as shoddy with the client withholding payment.