“What numbers should I be watching?” Five, once a week, on one sheet. Not the tax return, which comes too late to change anything, and not every report your accounting software can print, which nobody reads. Five numbers you can work out in fifteen minutes on a Monday morning, each of which tells you to do something different when it turns.
The Small Business Administration’s guide to managing your finances lists the jobs somebody in every business has to cover: accounts receivable, accounts payable, available cash, bank reconciliation and payroll. The weekly five come out of those same books, plus your estimate list.
1. Cash: what is in the bank, and what is already spoken for
Where it comes from: the business account’s balance, after you have matched last week’s deposits and payments against your books. Then take off what is already promised: this week’s payroll, the supplier bills due, the money set aside for taxes. What is left is the number that matters.
A yardstick: the JPMorgan Chase Institute measured “cash buffer days,” the number of days of normal spending a business could cover from its balance if no money came in. In its 2016 study of about 597,000 small businesses, the median was 27 days. For construction the median was 20 days; a quarter of construction businesses had 11 days or fewer, and a quarter had 44 or more. To compare yours, divide your average balance by what you spend in an average day (a month’s spending divided by 30 is close enough); the Institute worked from the average daily balance, before anything was set aside, so the free-and-clear figure above will always look a little thinner.
When it turns: if the buffer is shrinking week over week, build the forecast in Cash Flow for Contractors: A 13-Week Forecast to see which week it runs out, then work on number two before you borrow. If you think you will need a line of credit, apply while the numbers still look good.
2. Receivables: money you earned and do not have
Where it comes from: every invoice sent and not yet paid, sorted by age: under 30 days, 31 to 60, over 60. Add the finished jobs you have not invoiced yet, because those are the easiest to forget and the quickest to fix.
Why it matters: in the Federal Reserve Banks’ Small Business Credit Survey, half of employer firms (50%) reported uneven cash flow as a financial challenge in the prior 12 months, and the survey counts collecting on receivables as part of uneven cash flow. A business can be profitable on paper and still miss payroll because the profit is sitting in other people’s checking accounts.
When it turns: invoice the day the job is done (Closing Out a Job covers the walk-through that goes with it), move larger jobs to deposits and progress payments (Getting Paid Faster), and work the over-60 column with the steps in Collecting an Unpaid Invoice. If a big one is stuck, Mechanics’ Liens explains the deadlines that make waiting expensive.
3. Booked work, in weeks
Where it comes from: the signed jobs not yet finished, in crew hours, divided by the productive crew hours you get in a week. Say a two-crew remodeler has 680 hours of signed work left and gets about 85 productive hours a week out of both crews: that is eight weeks of booked work. Use real productive hours, after drive time and material runs, or the number will flatter you.
Why it matters: it is the earliest warning you get. Cash and receivables tell you about work already done; booked weeks tell you about the payrolls a month or two out, while there is still time to fill them.
When it turns: if it is falling, the fix is in the pipeline, not the crew: follow up every open estimate, contact past customers about the work that comes due again (Calling and Texting Past Customers covers the rules), and spend on the lead sources that have paid off before. If it is climbing past what customers will wait for, tell new leads the real start date and look hard at your price; Busy Season: Honest Lead Times and a Waitlist covers both.
4. Close rate
Where it comes from: estimates signed divided by estimates given, over the last four to eight weeks rather than one week, which is too few to read. Count by dollars as well as by jobs: winning all the small ones and losing every big one is a different problem from losing a few of each.
Why it matters: it tells you whether the work you are doing to get in front of homeowners is paying off at the last step. A falling close rate with steady leads points at the estimate, the price or the follow-up, not the marketing.
When it turns: check your follow-up first, because it is the cheapest fix (Following Up an Estimate). Then ask the people who said no why they said no (Asking Why You Lost the Bid), and look at which lead sources the lost jobs came from (Tracking Where Leads Come From). Compare your rate with your own past weeks, not with a figure you heard somewhere; trades, prices and lead sources differ too much for someone else’s number to mean much.
5. Gross margin on the jobs finished this week
Where it comes from: for each job finished, the price minus what the job itself cost: crew hours at their full cost, materials, subcontractors, dump fees and rentals. Divide what is left by the price. Add the week’s jobs together for one figure, and keep the per-job figures beside it.
Why it matters: it is the money that pays for the truck, the insurance, the office and you. A busy week at a thin margin can leave you worse off than a slow week at a good one. If you are not sure of the difference between margin and markup, read Markup vs. Margin first: a 30% markup is only about a 23% margin, and mixing the two up prices every job too low.
When it turns: find out which jobs pulled it down. Usually it is one kind of work, one crew or the jobs that ran over their hours. Job Costing shows how to track it and has a Census yardstick for comparison, and Your Real Hourly Cost makes sure the labor line includes more than the wage.
The sheet
One line a week, in a notebook or a spreadsheet, with the five columns side by side so you can see the trend:
| Number | Where it comes from | The warning sign |
|---|---|---|
| Cash, free and clear | Bank balance minus payroll, bills due and tax set-aside | Fewer buffer days than last month |
| Receivables | Unpaid invoices by age, plus finished jobs not invoiced | The over-60 column growing |
| Booked weeks | Signed hours left divided by productive crew hours a week | Falling three weeks running |
| Close rate | Estimates signed divided by estimates given, last 4 to 8 weeks | Down while leads hold steady |
| Gross margin | Price minus job costs, divided by price, jobs finished this week | Below the margin your prices were built on |
The SBA’s guide sums up the two ways of keeping books in a few words. The cash method “shows cash flow clearly” but “limits predictive value”; the accrual method “creates immediate snapshot” but is “more complex to manage.” This sheet gives you a little of both whichever method your books use: cash and receivables for today, booked weeks and close rate for the next two months.
You do not have to act on every wobble. Act when a number moves the wrong way for three or four weeks in a row, or when two of them turn together: falling booked weeks and a falling close rate in the same month are worth a whole afternoon.
If you keep your estimates and invoices in our office tools, the estimates list shows which ones were sent and which were accepted, and the invoices list shows which are sent and which are paid (one paid online is marked paid on its own; a check or cash payment you mark yourself), so the close rate and the receivables come straight off those two lists.