A cash flow forecast you will actually keep up

Profitable businesses run out of money. It happens to contractors more than most, and it is the single most avoidable way a busy company fails.

The reason is timing. You pay for material and payroll weeks before the customer pays you. Profit says the work was worth doing; cash decides whether you are still trading when the money arrives.

Why contractors are exposed

Three things stack up:

You fund the job. Material up front, crew paid weekly, customer paying in thirty days that turns into seventy. See getting paid faster.

Growth eats cash. More work means more material and more payroll, all of it out before any of it comes back. Fast growth is one of the most reliable ways to run out of money, which feels deeply unfair the first time it happens.

The season turns. Trades are seasonal, and overhead is not. Rent and truck payments do not care that February is quiet.

The thirteen-week forecast

Thirteen weeks is the right window. Long enough to see a problem while you can still act, short enough that you can forecast it honestly.

It is a simple grid. Weeks across the top, and four rows:

Opening cash — what is in the bank at the start of the week.

Money in — from your receivables ageing, placed in the week you realistically expect it. Not the week the terms say. If that customer always takes sixty days, use sixty.

Money out — payroll on its dates, rent, loans, insurance, tax payments, known material purchases, card bills.

Closing cash — opening plus in, minus out. It carries to next week's opening.

That is the whole thing. A spreadsheet does it.

Being honest is the entire skill

The failure mode is optimism. If your forecast shows money arriving on terms and your customers do not pay on terms, you have built a document that tells you what you want to hear right up until the week it does not.

Use your actual collection history. If invoices average fifty-two days, forecast fifty-two.

Same on the way out. Include the quarterly insurance, the tax payment, the annual licence renewal. The ones that break forecasts are the ones that only appear occasionally and get forgotten.

Reading it

The forecast is only useful for what it shows you early.

A week that goes negative. You now have weeks of notice on something that would otherwise have been a Friday morning discovery. Options at eight weeks out are plentiful. At two days they are not.

A tightening trend. Closing cash drifting down each week, even while positive, means the business is consuming cash. Worth understanding before it arrives at zero.

The seasonal dip, in advance. Combined with knowing what your slow months cost, you can move surplus deliberately rather than discovering the gap. See HVAC seasonal cash flow.

What to do when it shows trouble

In rough order of how quickly they work:

1. Chase receivables. Fastest money available, and it is already yours. Anything past sixty days, today.
2. Time your outgoings. Move a discretionary purchase past the tight week.
3. Invoice faster. Invoicing on completion rather than at month end can pull weeks off the cycle permanently.
4. Ask for a deposit on larger jobs. Standard in most trades and rarely refused.
5. Draw on a facility — if you arranged one while things were comfortable. See getting a line of credit.

Note that four of those five are only available with notice. That is the argument for the forecast.

Keeping it current

Ten minutes on a Monday. Update opening cash from the bank, adjust the weeks for anything that arrived or did not, roll a new week onto the end.

The value is entirely in it being current. A forecast built once and abandoned is worse than none, because you will believe it.

Related

• The eight numbers a contractor should look at every month
• Getting paid faster on commercial work
• Working out your break-even number