Cash flow for trade businesses: a practical guide

Profit is not cash

Profit tells you whether the work made money. Cash flow tells you whether you can make payroll on Friday. They come apart because of timing. You pay your techs every week or two, your supplier on account, your truck payments monthly and your taxes quarterly. Customers pay when they pay. If the money going out leaves before the money coming in arrives, a busy month can feel like a broke month.

Three things usually cause the squeeze:

• Slow collections. Work is done, but the money sits in accounts receivable.
• Big jobs paid at the end. You carry weeks of labor and materials before the final payment.
• Seasons. HVAC peaks in summer and winter, roofing slows in wet months, and remodel demand moves with the calendar. Bills do not take the season off.

Know your weekly burn

Start with one number: what it costs to keep the doors open for a week if no new money comes in. Add payroll and payroll taxes, rent, truck payments and fuel, insurance, software, phones, loan payments and the owner's pay, then divide the monthly total by about 4.3.

Example only: Harbor Line Plumbing spends $38,000 a month on fixed and near-fixed costs, so its weekly burn is about $8,800. Every week of reserve in the bank is $8,800. Knowing that number turns a vague worry into a target.

Build a 13-week cash forecast

A 13-week forecast is a simple spreadsheet, one column per week, that shows the cash you expect to have each Friday. It is the most useful money tool a small shop can keep, and it takes about 20 minutes a week once it is set up.

1. Starting cash: what is in the bank today.
2. Money in: open invoices you expect to collect, by week; scheduled jobs and their likely value; deposits and progress payments due; membership renewals.
3. Money out: payroll on its real dates, supplier bills, rent, truck and loan payments, insurance, tax set-asides.
4. Ending cash: starting cash plus money in, minus money out. That becomes next week's starting cash.

Any week where ending cash drops below your reserve target is a warning, weeks ahead, while there is still time to act: push collections, move a purchase, or draw on a line of credit you arranged in a good month.

Speed up money in

• Collect at the job. Card, tap to pay, a link, or check with a photo. See how to get paid faster.
• Take deposits and stage big jobs with progress billing, within your state's rules. See how much deposit to take.
• Run reminders on a schedule and work the late list every week. See collecting late payments.
• Sell maintenance plans. A membership plan paid up front or monthly brings steady money and books visits in the slow months.

Slow down money out, carefully

• Buy for jobs, not shelves. Order special parts when the job is sold. Keep truck stock lean and counted.
• Use supplier terms. If your supplier gives you 30 days, pay on day 25, not day 2. Never pay late; it costs you the terms.
• Time big purchases. Buy the new truck or the equipment after the busy season has filled the account, not before.
• Watch job margins. A job that loses money loses cash too. Job costing shows which job types to reprice.

Set aside tax money every week

Sales tax collected is not yours. Payroll taxes withheld are not yours. Income tax on profit will come due. Move a set share of each week's deposits to a separate tax account so quarterly payments do not drain the operating account. Your accountant can tell you the right percentage for your business and state. Without one, a set-aside you might later find you over-saved is far better than a bill you cannot pay.

Plan for the slow season

Look at last year's monthly deposits. Find the slowest stretch and how much short it ran compared with your weekly burn. That gap, plus a cushion, is your seasonal reserve target. Build it in the busy months, then use it on purpose:

• Book maintenance visits and tune-ups into the slow weeks.
• Run seasonal offers before the dip, not during it.
• Schedule training, truck service and price book updates when the board is light.

A weekly 20-minute routine

1. Check the bank balance against the forecast.
2. Update money in: what was collected, what is still open, what moved.
3. Work the late list: who gets a reminder, who gets a call.
4. Move this week's tax set-aside.
5. Look at weeks 4 to 13. Anything below the reserve line? Decide now.

How SWITCHBOARD handles this

SWITCHBOARD's money reports show cash, what is expected in the next 30 days, what is late, and a tax set-aside, with overhead pulled from receipts. Invoices and payments sync to QuickBooks Online, and memberships renew and book their visits. You can see the reports in the sandbox without signing up.