Last June a fence contractor near Richwood called me from a lumberyard parking lot. QuickBooks said his company made $11,000 in May. His checking account had $1,600 in it, and payroll was due Friday. He asked what was wrong with his books.
Nothing. He was reading profit as if it were cash. That's the most common first call I get, and the fix is a spreadsheet and half an hour a month.
Profit and cash are different numbers
His May, both ways:
| May | Profit and loss | Bank account |
|---|---|---|
| Fences finished and invoiced | $48,000 | |
| Payments received | $29,000 | |
| Materials | -$17,000 | -$17,000 |
| Crew payroll | -$13,500 | -$13,500 |
| Insurance, fuel, phones, software | -$6,500 | -$6,500 |
| Truck loan principal | -$1,400 | |
| Owner's draw | -$3,000 | |
| Bottom line | $11,000 profit | $12,400 less in the bank |
The profit was real, but his customers were holding it. They owed him $19,000 more on May 31 than on May 1, and he'd paid for posts and pickets at the counter weeks before anyone paid him. The loan principal and his draw left the bank without touching the P&L, because neither is an expense. A busy spring can leave a contractor with less cash than a slow winter.
Build a 13-week forecast
A P&L tells you what happened last month. A 13-week cash forecast tells you which Friday you'll come up short, while you can still fix it. Thirteen weeks is a quarter, enough to catch estimated taxes and insurance premiums.
Give each week a spreadsheet column. Start with the operating balance, not the tax account. Add each open invoice in the week that customer will actually pay, plus deposits. Subtract payroll on its real dates, rent, loan and card payments, materials, taxes and your own pay. Every Monday, swap last week's guesses for actuals and add a new week 13. It takes fifteen minutes.
Here's the start of one I built last August for a five-person design firm in Hilliard:
| Wk 1 | Wk 2 | Wk 3 | Wk 4 | Wk 5 | Wk 6 | |
|---|---|---|---|---|---|---|
| Starting cash | 24,000 | 13,500 | 30,500 | 8,700 | 17,200 | -6,800 |
| Cash in | 14,000 | 19,000 | 6,000 | 11,000 | 7,000 | 38,000 |
| Payroll | -21,000 | -21,000 | -21,000 | |||
| Other bills | -3,500 | -2,000 | -6,800 | -2,500 | -2,000 | -3,000 |
| Estimated tax | -8,000 | |||||
| Ending cash | 13,500 | 30,500 | 8,700 | 17,200 | -6,800 | 28,200 |
Week 5 is the problem. Payroll and the September 15 estimated tax land together, and the biggest client was already three weeks late on a $38,000 invoice, so I'd penciled it in for week 6. The owner saw the gap a month early instead of the morning payroll bounced.
I spent nine years in accounts payable at an automotive supplier, paying about 3,000 invoices a month. When a big check is late, I ask to see the invoice. This one had no purchase order number, and at a lot of companies that sends it back to the pile. The owner sent a corrected copy, and the check came in week 4.
Get paid sooner
- Invoice the day the work is done, from the truck if that's where you are.
- Put payment terms on the estimate: due on completion for homeowners, net 15 or net 30 for businesses.
- Take deposits on custom work and anything you buy materials for. Thirty to 50 percent is normal. Becca Stroud at Wildroot Floral sells her summer flower subscription in the spring, so the money arrives before she cuts the first zinnia.
- Bill long jobs in stages.
- Put a payment link on every invoice. Offer ACH; it costs far less than cards.
Read your receivables aging
The A/R aging report sorts unpaid invoices by how late they are. My rules: at 1 to 30 days past due, email the invoice again. At 31 to 60, call. Past 60, no new work until it's paid or there's a written payment plan. Past 90, choose between small claims, a collection agency and a write-off.
From the AP side of the desk, most late invoices aren't disputes. They went to someone who left, they're missing a PO number or a W-9, or they're in spam. Your first call should find out which:
"Hi, it's [name] from [company]. I'm calling about invoice [number] for [amount] from [date]. Can you check that you have it? Is anything missing on your end, like a PO number or a W-9? When is your next payment run?"
Move tax money out of reach
Open a savings account called Taxes and move money into it whenever a deposit lands. Sales tax you collect goes over in full; it was never yours. For federal, self-employment and city income tax, 25 to 30 percent of profit is a common starting point. Last year's total tax divided by last year's deposits is a better one. Have your tax preparer check it.
Pay the quarterly estimates (April 15, June 15, September 15 and January 15) from that account only. If there's an unopened IRS envelope on your counter, open it, then call Tim Schirtzinger, the enrolled agent who just joined Surge Plain City and handles IRS notices.
Pay yourself on a schedule
Owners who take money when the account looks full usually take it right before a big bill. Pick an amount the business can pay in its slowest quarter, pay it every other Friday, and forecast it like payroll. If you're an S corporation, part of it has to be a reasonable salary run through payroll. That's a CPA question, and Daniel Cho in Surge Polaris answers it for a living.
Keep a buffer
Keep one to two months of fixed costs in the operating account, separate from the tax money. Count the bills that come whether or not you work: base payroll, rent, insurance, loans, software, your base pay. For the fence contractor, that's $24,000 to $48,000. Seasonal businesses want the high end by November.
A line of credit is a backup, not a buffer. Carlos Mendoza, the business banker in Surge Marysville, says to open one while your statements look good, because that's when the loan committee says yes.
The leaks I find in cleanups
Cleanups are my favorite work, and the same leaks show up in most:
- Duplicate bills. A concrete contractor paid $187 a month for a job-site portable toilet twice, once on autopay and once by check, for fourteen months. That's $2,618 for a second toilet that never existed. I still call it the best week of my career.
- Forgotten subscriptions. GPS tracking on a truck sold two years ago. A second QuickBooks subscription. Software seats for people who quit. I read card statements line by line with a mechanical pencil, and my last cleanup found $412 a month of these.
- Quiet price increases. Check your ten biggest vendors against last year.
- Unbilled change orders. A basement finisher and I found $9,700 of extras from one year that never reached an invoice. A text saying "Add a second hose bib, $240, OK?" and a reply saying "OK" is a change order. Get one before the work.
The monthly 30-minute cash check
This is what my monthly video for clients covers. Run it yourself on the first Monday:
MONTHLY CASH CHECK (30 minutes)
[ ] Accounts reconciled; explain profit vs. bank balance 5 min
[ ] A/R aging: call everything over 30 days today 5 min
[ ] A/P aging: nothing overdue, nothing entered twice 3 min
[ ] Card statement: circle every subscription, cancel one 5 min
[ ] Finished work and change orders not yet invoiced 3 min
[ ] Tax account topped up; buffer vs. fixed costs 4 min
[ ] 13-week forecast rolled forward; owner's pay set 5 min
The fence contractor does his in the truck before the crew shows up. He hasn't called me from a lumberyard parking lot since.
