Cash flow is the oxygen of a property development. You can have a profitable feasibility and a strong end product, but if you run out of cash mid-project, none of that matters. Managing the flow of money through a development — from drawdowns and progress claims to contingency deployment — is one of the most critical skills a developer can master.
Why Cash Flow Kills More Projects Than Bad Feasibilities
A development can show a healthy profit on paper yet still fail because of poor cash flow management. The fundamental challenge is timing: costs are incurred progressively over many months, revenue arrives in lumps at settlement, and the gap between spending and receiving must be funded. If the funding runs short before the revenue arrives, the project stalls.
Understanding Progress Claims
In construction, the builder submits progress claims — typically monthly — for work completed during the period. Each claim is assessed against the contract and approved for payment. A typical progress claim cycle begins with the builder submitting a claim by a specified date each month. The developer or superintendent reviews and certifies the claim within a set number of days. The developer submits the certified claim to the construction lender for drawdown. The lender conducts an independent assessment and releases funds. The developer pays the builder within the contract payment terms. This cycle typically takes ten to twenty business days from claim submission to payment. Delays at any point in this chain can strain the builder relationship and, in some cases, entitle the builder to suspend work.
Coordinating Lender Drawdowns
Construction finance is drawn down progressively as work is completed. The lender will not release funds until their quantity surveyor or valuer has certified the work. Key points to understand include the lender requiring their own independent assessment before releasing funds, a retention amount typically being withheld from each drawdown, the drawdown process adding time to the payment cycle, and interest accruing on drawn funds from the date of each drawdown not from the total facility amount. Coordinate with your lender early to understand their drawdown process, documentation requirements, and turnaround times. Surprises in the drawdown process are among the most common causes of payment delays.
Building a Cash Flow Forecast
A monthly cash flow forecast is essential for any development. It should map all expected expenditure by month, all expected income by month including drawdowns and sales revenue, the net position at the end of each month, and the peak funding requirement which is the point at which the gap between cumulative spending and cumulative income is greatest. The peak funding requirement tells you how much total capital the project needs. This figure — not the total project cost — determines your equity requirement.
Managing Contingency
Contingency is a budget allocation for unexpected costs. How you manage it during construction makes a significant difference. Treat contingency as a genuine reserve not as available budget. Track contingency drawdowns separately from the main construction budget. Require formal approval before any contingency is released. Update the forecast each month to show remaining contingency against remaining project risk. A common pitfall is spending contingency early on non-critical items, leaving nothing for genuine surprises in the later stages of construction when risks are often highest.
The Gap Between Completion and Settlement
One of the most dangerous cash flow periods is between practical completion and buyer settlement. During this period, the project has incurred its full construction cost, interest continues to accrue on the fully drawn facility, marketing and agent costs may still be running, and settlement income has not yet arrived. Allow for this gap in your cash flow forecast. If settlements are delayed or sales are slower than anticipated, this period can extend and place significant pressure on available funds.
Checklist: Cash Flow Management
- Monthly cash flow forecast prepared and updated regularly
- Peak funding requirement identified and adequately funded
- Progress claim process documented and agreed with builder
- Lender drawdown process, timing, and requirements understood
- Retention amounts factored into cash flow timing
- Contingency tracked as a separate line with formal release process
- Gap between completion and settlement funded
- Interest cost modelled on progressive drawdown basis
- Variation costs assessed for cash flow impact before approval
- Regular reconciliation of actual spend against forecast
Common Mistakes
The most frequent cash flow management errors include not preparing a monthly cash flow forecast before construction starts, underestimating the time lag in the progress claim and drawdown cycle, spending contingency on scope additions rather than preserving it for genuine unknowns, not accounting for the gap between completion and settlement, failing to update the forecast as actual costs come in, approving variations without assessing their cash flow impact, and modelling interest on the full facility from day one rather than on progressive drawdowns.
Frequently Asked Questions
How often should I update the cash flow forecast?
Monthly at minimum. Update after every progress claim, variation approval, or change in the project timeline.
What is a typical retention amount?
Retention of five per cent of each progress claim is common, with half released at practical completion and the balance at the end of the defect liability period.
What happens if the lender delays a drawdown?
Payment delays can strain your builder relationship and may trigger contractual consequences. Maintain a cash buffer to cover short-term timing differences.
How much equity do I typically need for a development?
Equity requirements vary but typically range from twenty to forty per cent of total development cost, depending on the lender, project type, and presale position.
Should I pay the builder early to maintain the relationship?
Timely payment is essential. Early payment is a commercial decision. Never compromise your cash position to pay ahead of schedule unless the project can comfortably support it.
What is the best way to track variations against contingency?
Maintain a variation register that records every approved variation, its cost, and whether it is funded from contingency or represents additional budget. Review this register at every site meeting.
Kaizen Projects manages cash flow rigorously across every development. Book a 15-minute call to discuss cash flow planning for your next project.
General information only, not financial, tax, or legal advice. Seek independent advice for your circumstances.