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Cash flow

A 13-week cash forecast for contractors

A contractor can have a profitable year on paper and still come up short on a Friday payroll. The work got done and the invoices went out, but the money hasn't come in yet. Meanwhile, the crew gets paid every week whether customers have paid or not.

A 13-week cash forecast is the simplest tool I know for seeing that gap before it hits. Thirteen weeks is one quarter: far enough out to act, close enough to be accurate. It doesn't need special software. A spreadsheet works fine.

Start with the cash you actually have

Open your bank accounts and write down today's balance. Not the balance in your accounting software, which may include deposits that haven't cleared or checks that haven't been cashed. The forecast is only as good as its starting point.

List money coming in, by the week it will arrive

This is where most forecasts go wrong. Put each payment in the week you expect the money in the bank, not the week you send the invoice. If a general contractor usually pays you 45 days after you bill, put it 45 days out. If a homeowner always pays late, plan for late.

Contractors have a few patterns to watch for:

Progress billing. If you bill as a job reaches milestones, schedule each payment by when the milestone will really be finished and approved.

Retainage. Money held back until the job is complete can sit for months after you've finished. Put it in the forecast only when you have a firm date.

Deposits. Deposits on new jobs help, but they usually come with a material purchase right behind them. Forecast both.

List money going out, by the week it leaves

Payroll first, with the taxes that go with it. Then materials, subcontractors, equipment and truck payments, insurance, rent, fuel, and what you pay yourself. Look back through the last few months of bank statements for the bills that only come quarterly or once a year. Those are the ones that catch people.

Where winters are hard, add the season. Winter slows a lot of outdoor work, but the equipment loans, insurance, and core crew don't stop. Spring often means buying materials before the first big payments come in.

Find the low point

For each week, take the starting cash, add what comes in, subtract what goes out. That ending balance becomes next week's starting cash. Run it across all 13 weeks and look for the lowest balance. That's the number that matters.

If the low point is below what you need to feel safe, you now have weeks to fix it instead of days. The options are usually straightforward: bill faster and follow up sooner, ask for larger deposits on new work, time big material purchases more carefully, or talk to your bank about a line of credit before you need it. Bankers are much more helpful when you show up with a forecast than when you show up with a problem.

Update it every week

Once a week, replace last week's forecast with what really happened, then add a new week at the end. Compare the two. If a customer paid two weeks late, adjust that customer's timing going forward. After a month or two, your forecast will reflect how your business really collects and spends, and you'll trust it.

Connect it to job costing

A cash forecast tells you when money moves. Job costing tells you whether each job made money. You need both. If you track actual labor and materials against your estimate on every job, you'll see which kinds of work pay well and which ones quietly lose money. That shapes what you bid next, and how you price it, so the cash forecast gets easier over time.

One rule to never break

Never cover a cash gap with the payroll taxes you've withheld from employees' checks. That money belongs to the government, and the IRS can hold owners and others responsible personally for unpaid withholding. If the forecast shows you can't make payroll and the taxes on it, that's the week to call your CPA and your banker, and it's a good time to call us.