Florida Building Contractor Business/Finance Practice Exam

What is a crucial step for contractors to prevent cash flow problems at the end of a project?

1. Reduce project scope

2. Obtain a line of credit from a bank

3. Increase labor costs

4. Limit subcontractor agreements

The correct answer is: Obtain a line of credit from a bank

Obtaining a line of credit from a bank is a crucial step for contractors to prevent cash flow problems at the end of a project because it provides a financial cushion that can help manage unexpected costs and expenses that arise throughout the project's duration. Cash flow issues often occur due to delays in payment from clients or unforeseen expenses that may not have been accounted for in the project budget. With a line of credit, contractors can have immediate access to funds that can be used to pay for materials, labor, or other expenses without having to wait for client payments. This can help maintain the project's momentum, ensuring that work is completed on time and that contractors are able to meet their financial obligations. Additionally, a secured line of credit can facilitate smoother transitions between different phases of a project, allowing contractors to cover costs as they arise rather than risking project delays or compromising quality due to financial constraints. The other options may have implications for project performance but do not directly address the necessity of managing cash flow effectively throughout the entire project lifecycle. Reducing project scope, increasing labor costs, or limiting subcontractor agreements could lead to negative impacts in terms of project deliverables, quality, or relationships with subcontractors, ultimately affecting the overall success of the project.