You don't know your cash flow until it's tight
The stress comes from not knowing which weeks are short until that week is here.
The CFO builds a 13 week cash flow forecast with leadership or the owner, week by week, with the bank account starting Monday and ending Sunday. It's done every month in the last week of the month, before the money should be coming in, and every week if money is tight. The questions are what are we expecting, how much do we need, can we survive if we don't receive it, which invoices do we have to collect, and which are coming in and when. The controller may help go through the AP and AR.
Three moves, in order
Step 07: Monthly cadence
Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month.
Learn this part of the job
SPM The Construction CFO publishes this course. It's a separate company from this one, and the course is on its own school site.
Other problems step 07 solves
Other things that go wrong
What owners ask
How do small construction contractors track cash flow?
The stress comes from not knowing which weeks are short until that week is here. The CFO builds a 13 week cash flow forecast with leadership or the owner, week by week, with the bank account starting Monday and ending Sunday. It's done every month in the last week of the month, before the money should be coming in, and every week if money is tight. The questions are what are we expecting, how much do we need, can we survive if we don't receive it, which invoices do we have to collect, and which are coming in and when. The controller may help go through the AP and AR.
Which part of the system fixes this?
The step is number 07, monthly cadence. Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month. It's drawn from chapter 7 of CONTROL: C.F.O.S. Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M to $5M averages 7% after taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.
Where do I start?
Build a week by week forecast of the next 13 weeks, starting the bank account on Monday.
Can I fix this without touching anything else?
You can try, and it doesn't hold. Step 07 depends on step 03, overhead calculation and step 04, estimating system and step 05, software and bookkeeping alignment and step 06, project management. Install it ahead of those and it produces numbers the field won't trust, which is worse than the problem you started with.
Wrote CONTROL, the 8 step system behind these figures. More about the author.