Cashflow is the lifeblood of any property development business. The timing of costs and income can make or break a project – no matter how profitable it looks. Yet cashflow management challenges are one of the most common reasons for development delays, stalled sites, and financial losses.
We’ve even seen experienced developers come unstuck because they underestimated the importance of cashflow forecasting and control. Sound cashflow management is essential whether you’re working on a single high-end home or a multi-unit commercial scheme.
The pressure points in development cashflow
Property development has a unique cashflow profile. Most projects demand large outflows early in the cycle, well before any income. Land acquisition, planning, legal fees, surveys, consultants, site set-up, and materials can quickly add up.
Then there’s the delay before you realise income – either from sales or long-term financing. The result is a highly pressurised cashflow curve, with significant exposure in the early stages.
A recent report from the Federation of Master Builders (FMB) highlights how late payments and delays in planning approvals are increasing financial stress across the construction sector. 41% of small builders reported projects being stalled due to finance issues.
For developers, a single delay or cost overrun can throw off their entire forecast. Without contingency and close monitoring, even a strong project can be difficult to manage.
Why cashflow planning should start early
We always advise our clients to build a detailed cashflow model as soon as a project becomes viable. It should include a month-by-month forecast covering:
- Acquisition costs
- Professional and legal fees
- Build and labour costs
- Funding drawdowns and repayments
- Sales or rental income projections
- Contingencies and VAT impact
The model should align with your overall development budget, but focus on when the cash actually moves. It’s easy to overlook timing differences that cause short-term squeezes.
Stress testing the forecast is just as important. Ask yourself: what happens if your build is delayed by three months? Or if sales take longer to complete? Small timing shifts can lead to big funding gaps, especially if you’re working at tight margins or juggling multiple schemes.
Common cashflow risks – and how to manage them
No project is risk-free, but strong financial discipline can reduce your exposure. Based on our experience, here are five common cashflow pitfalls and how to address them:
1. Over-optimistic assumptions
It’s tempting to assume the best-case scenario – quick sales, no build issues, on-time funding. But we prefer to build in some reality. Allow for slippage in timelines, conservative income expectations, and realistic contractor payment terms.
2. Underfunding and thin buffers
Running a project with minimal reserves leaves no room for error. We recommend holding a working capital buffer of at least 10%-15% of total costs and clearly identifying a contingency line in your forecast.
3. Inadequate tracking and reporting
A static budget won’t help if circumstances change. Set up regular cashflow reviews – weekly or fortnightly – and compare actuals to forecast. Make adjustments promptly if the picture shifts.
4. Slow sales or refinancing delays
If your exit strategy depends on sales or refinancing, timing is critical. Build in conservative timeframes and factor in potential hold costs. Bridge finance can sometimes help, but it should be planned rather than reactive.
5. VAT and tax miscalculations
VAT on construction can be recoverable, zero-rated or exempt, depending on the build type. If you get this wrong, it could cause a major cash shortfall. The same goes for SDLT, CIS payments, and corporation tax on profits.
How to improve your cashflow position
Sound planning is one part of the equation – but there are also practical steps to improve your cashflow daily.
- Negotiate phased payments with contractors or suppliers
- Use project-based finance, such as development loans or drawdown facilities
- Invoice early and often, especially if you have staged sales or part-completed units
- Consider joint ventures to share risk and reduce upfront costs
- Automate your bookkeeping so you have real-time insight into cash movements
Technology can also play a part. Cloud accounting software, cashflow forecasting tools, and integration with project management systems make it easier to stay on top of your numbers.
Regulatory and market headwinds
The development sector feels pressure from inflation, rising interest rates, and a stricter planning environment. According to the Office for National Statistics, construction output fell by 0.9% in January 2024, marking athird consecutive month of decline during that period. This makes cashflow management more important than ever. Lenders are more cautious, materials are costlier, and buyer confidence can shift quickly. A strong cashflow position helps you overcome these pressures and keep your projects moving.
Getting the right advice
Even experienced developers benefit from specialist advice on cashflow and financial planning. We work with clients to build robust project forecasts, review finance structures, and identify tax-saving opportunities.
Getting the numbers right – early and often – puts you in a stronger position with lenders, investors, and partners. And it gives you more confidence in every decision you make. At Venthams, we work closely with property professionals to strengthen financial control and support long-term growth.
If you’d like to improve cashflow management across your development projects, we’re here to help.