Planning for Cash in the Midst of Chaos

Nothing is ever linear, especially when you have multiple jobs layered on top of each other.

David McNutt

Business life would be fine if everything were linear. You write the proposal, you get the job, you complete the job, you bill the job and you get paid.

Problem is, nothing is ever linear, especially when you have multiple jobs layered on top of each other.

Engineering is pulled in different directions, organizing labor becomes a beehive, procurement is a financial and logistical nightmare, and the performance of the whole company suffers because no one has a handle on the tiller.

In a chaotic company, it’s usually every man for himself. Departments protect themselves and point fingers at other departments when things go south and so they don’t talk to each other. This is called creating silos.

Site surveys, scopes of work, handoffs to engineering, site logistics, change orders, product procurement, closeouts, punch lists, substantially complete requests, retainage; you name it and there’s a process that can breakdown.

If this weren’t enough, management has to worry about cash in the midst of all of this, because all of this affects cash flow. How can you possibly stay on top of the cash when you are trying to herd cats? It’s called cash flow projection.

Raise your hand if you have a rolling six month or twelve month cash flow projection tool you update and monitor. I thought so, not many hands.

If there is any tool in the management toolbox that has more effect on the stability and sustainability of the company it is cash flow projection. Simply stated, the projection of cash flow is budgeting, measuring and monitoring of all the cash coming in to the company against all of the cash going out of the company.

It is usually updated monthly and looks six to twelve months into the future. Inflows can come from cash sales, payments from accounts receivable and a few other transactions. Outflows are usually categorized to fixed costs such as rents and mortgages and overhead, and variable costs that change with the business such as expenses, field labor, product procurement, etc.

The trick to the cash flow projection tool is two-fold. It must be accurate or nearly accurate (some items may have been estimated on an average), and it must be closely monitored against actual cash flows and then adjusted. It’s a great tool for anticipating the needs of the business. Putting a firm hand on the tiller of the company is job No. 1 of good management practice.

The reason our firm likes the cash flow projection tool so much is that it involves the whole company. When you get a holistic picture of a company and can trend where it is going, it is much easier to make sound, wise management decisions

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