What are the main reason for negative cash flow in a construction company?

I am working in the company of my dad - a small construction company for bathrooms. I noticed a problem with the financials. The company posts a positive profit but has negative (almost zero) cash flow.





From the view of a construction company, what could be the main reason for the negative cash flow? Where should I start looking to see where the money flows?





Any ideas?|||First, look at salaries of executives in the company. The owner may be paying the whole profit to him/herself as s salary, which lowers the tax liability of the company overall. This is smart as far as taxes go, but the should build up about 6-months worth of operating expenses in retained earnings. (emergency fund)|||One of the biggest factors that effects cash flow in a business is credit terms the business gives to it's clients. How many days do you allow your customers to pay after they are invoiced? Construction companies often purchase materials up front and therefore need a large pot of working capital to play with, as they will not recoup those costs sometimes up to 120 days later.





It could be that you need reduce the amount of days you give clients to pay or alternatively negotiate credit terms with your suppliers which will allow you time to pay for materials, and therefore freeing up cash for working capital.