Every remodeling business needs to know if there is enough cash on hand to meet expenses. Tracking cash should be simple, but because we collect and spend cash for each project over time, it gets complicated.

Keeping an eye on weekly inflows and outflows of cash is a good start, but it’s reactive. To make this process more proactive, calculate how much cash you spend each month — your “breakeven” cash flow — then develop a plan (how much you need to sell and produce, at what gross profit, etc.) that will generate that amount. If you’re not careful, you might have a business plan before you’re done.

True Cash Position

Just knowing your bank balance doesn’t help because cash you have collected is not yours until you have “earned it” by completing the work. Until a job is finished, you need to reduce total cash by the amount needed for unpaid bills (for subs, suppliers, payroll, etc.) and by any money collected from clients that you have not yet earned. This is called “over-billings,” and I use a percentage of completion (POC) or work in progress (WIP) worksheet to determine the amount for each job (see sample, below).

The “Over-Billed” column shows cash collected but not yet earned. You should hold this money aside in your bank account because it truly is not yours. The “Under-Billed” column is just the opposite — it shows when you are behind on payments. Assuming that your draw schedules are timed to cover project expenses, this should only happen if you have missed a draw payment or if job profitability is falling.

This worksheet is an invaluable tool for determining your true cash position as well as for monitoring progress of ongoing jobs. I also use it to track start/finish dates, estimated gross profit for ongoing jobs, backlog, and other critical elements.

Click here for a downloadable worksheet.

—Bruce Case is president of Case Design/Remodeling. [email protected].

This sample worksheet shows how percent complete calculations help when evaluating job progress. Regular updates to the “Expected Actual Cost” result in a “Percent Complete” value that recalculates “Expected GP %” (gross profit percentage). “Over-Billings” are payments received for work not yet completed; “Under-Billings,” which are payments yet to be received, should be zero unless invoices are behind schedule, a payment is overdue, or the job is losing money. (Download the complete spreadsheet from the online version of this article. )