Construction Accounting and Financial Management

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Presentation transcript:

Construction Accounting and Financial Management Chapter 14 Cash Flows for Construction Companies

Step 1 Estimated cash receipts and disbursements from construction operations Determine cash flow from individual projects and sum -- or -- Estimate cash flow based upon historical data

Step 2 Estimate general overhead Set overhead budget Estimate overhead wages

Step 3 Estimate income tax, interest, loan payments, and cash balance Interest = Average balance for the month × Monthly Interest Rate Approximated by: Interest = (Beginning Balance – Monthly Labor/2) × Monthly Interest Rate

Step 3 Loan payment from loans Calculate taxes Include underbillings and overbillings Calculate monthly cash flow Calculate cumulative annual cash flow: Ending Balance = Beginning Balance – Cash Flow

Step 4 Determine minimum monthly balance (MMB) Approximated by: MMB = Beginning Balance – Monthly Labor

Step 5 Fine tuning, what if, and sensitivity analysis Fine tuning—make adjustments to better fit reality (debug) What if—run alternate scenarios Sensitivity analysis—determine the sensitivity of each variable