Guide
Cash flow management for project-based companies
Cash flow is the lifeblood of any business, but for project-based companies, keeping track can be a challenge. Irregular payments, fluctuating costs, and long timelines can make it difficult to ensure your finances are on the right track.In this post, you'll get a practical guide to analysing and managing cash flow effectively, helping you maintain liquidity, reduce risks, and make better financial decisions—for both individual projects and your company as a whole.
Understanding cash flow analysis for project-based companies
A cash flow analysis is a review of incoming and outgoing payments over a specific period. We’ve included cash flow as one of the five key operational metrics you need to monitor.
For project-based companies, it’s essential to consider specific factors like:
- Delayed payments from clients: Invoices may be issued at project milestones, making revenue streams dependent on project progress.
- Upfront costs: Projects often require upfront investments, such as labour hours or materials, before revenue is generated.
- Long-term projects: Projects that span for months or years can lead to significant cash flow fluctuations from month to month.
Cash flow analysis as a strategic indicator
For this type of business, cash flow is more than just numbers—it’s a strategic indicator that helps you:
- Anticipate bottlenecks: When expenses peak before revenues come in.
- Plan project budgets: Ensure each project has sufficient funding without impacting overall liquidity.
- Manage risk: Identify periods with a high risk of liquidity issues and plan buffers to address these challenges.
- Understand project profitability: Measure which projects contribute the most to your bottom line.
How to perform a cash flow analysis for project-based companies
- Gather data at both project and company levels
For project-driven businesses, you need to collect data for both total company cash flow and individual projects. This includes invoices, advance payments, wages, and project costs.
- Categorise income and expenses by project
Create separate categories for each project so you can easily identify which projects generate the most revenue and which incur high costs. Examples:- Revenue: Milestone-based payments, advance payments, final invoices.
- Expenses: Hours worked, material costs.
- Establish reporting routines
Set up regular reporting of cash flow at both project and company levels. Make this part of your monthly financial meetings to give management and project leaders an updated overview.
- Calculate net cash flow per project
Use the formula:
Net cash flow = Total revenue – Total expenses
This provides insight into which projects generate positive cash flow and which could negatively impact the company’s finances.
- Analyse trends across project lifecycles
Monitor how cash flow evolves during a project, from initiation to completion. Identify periods when expenses peak and when revenues are received.
- Create forecasts that include risks and buffers
Account for variables such as delayed payments, unforeseen costs, and periods of low activity.- Plan buffers: Allocate a financial reserve to manage periods of low revenue or unexpected expenses. A buffer of 10–15% of total annual costs can be a good starting point for many businesses.
- Analyse risk: Identify which projects, clients, or periods carry the highest risk of liquidity issues and adjust plans accordingly.
A simple example of a cash flow forecast
Let’s say you run an architecture firm with a project lasting six months. The forecast could look like this:
Month |
Revenue |
Expenses |
Net cash flow |
1 |
10,000 |
15,000 |
-5,000 |
2 |
0 |
10,000 |
-10,000 |
3 |
20,000 |
5,000 |
+15,000 |
4 |
15,000 |
8,000 |
+7,000 |
5 |
0 |
7,000 |
-7,000 |
6 |
25,000 |
5,000 |
+20,000 |
This example shows the importance of having enough reserves during the first months before revenues increase.
Common mistakes to avoid in project-based cash flow management
- Overlooking advance payments and milestone revenues: Failing to account for when revenue actually comes in can make your cash flow seem overly optimistic.
- Confusing company cash flow with project cash flow: A single project with high costs can obscure the fact that your overall cash flow is healthy.
- Not setting buffers for delays: Delays in invoicing or payments can significantly impact cash flow.
Simplify your analysis with tailored tools
Performing cash flow analyses manually can be time-consuming, especially for project-based companies. By using digital tools like Milient's project management software, you can gain better insights, automate reports, and plan more efficiently.
Want to learn more?
Explore our free guide to improving project profitability for more tips and strategies to strengthen your business.