Projecting Cash Flow

Every day new remodelers enter the remodeling industry and almost as many exit. They run out of cash before they ever get off the ground. Ten years ago, as Gary Nash struggled to grow his full-service remodeling business, the pitfalls of loose cash management became clear. To this end, Nash developed a spreadsheet that he uses weekly to help manage his growing business.

"It is like a shovel," says Nash. "It is a tool that sits in the corner and is only helpful to me if I use it. With it, I know how much cash I have on hand and more importantly, I know the portion of my cash that I can use to write checks that week."

Nash's spreadsheet combines all of the company's sources of revenue and all of its suppliers, overhead and payroll costs. Each are listed as line items on a single Microsoft Excel spreadsheet. The top of the sheet is devoted to revenue sources. The bottom of the sheet consists of expense breakouts for Operating Expenses, Recurring Expenses and Expenses related to Materials and Subcontractors.

Each active remodeling project is listed under the revenue part of the cash flow tool. For each job the following information is listed. The first column is Total Contract Amount, followed by Projected Payments, Actual Payments, and Uncollected Balance. With the exception of the Total Contract Amount column, the dollar values in these columns change with each passing week as draw schedules play out and payments are made by clients. The right side of the spreadsheet is devoted to columns that represent weeks of the year. In those columns, draw schedule payments are dropped into their proper weeks and tallied to provide a running total projection of cash in the bank at the end of each week going forward. This cash figure, which is presented in red numbers at the top of the spreadsheet, is also linked to actual and projected expenses that are tallied on the lower half of the spreadsheet.

Keeping it simple, Nash breaks out his three major cost areas in the following way. Recurring Expenses include: a Projected Payroll figure broken down to a weekly amount, a Payroll-Bonus line, Payroll Misc. Expense line, a Federal Payroll Tax line, a State Payroll tax line, and a line for Subcontracted Labor. All are tallied and projected forward into weekly slots going forward more than one year.

Operating Expenses include, among other things, a static Projected Operating Expenses line that is repeated for each week of the year going forward. Below that are listed line items for leases, general liability and workman's comp insurance, trucks and vans, health insurance, etc. Projected and actual payment amounts are entered in the weekly columns for the weeks that those payments are due. Again these are entered into the spreadsheet several months in advance.

Lastly, Nash lists weekly expenditures on Subcontractors and Materials. From his company's history, Nash knows that these costs typically amount to 56 percent of his gross revenue. Taking the previous year's gross revenue or gross sales figure of $6.7 million, his weekly costs going forward are set at approximately $155,000 for subcontractors and materials. With this information, he knows how much must be left in the bank to ride out the peaks and valleys of cash flow.

"The real power of this," says Nash. "Is that I not only can tell how much cash I have on hand, but I know how much I will need to have each week several months from now. This really allows you to plan your business." |

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