Cash Flow Planning That Multiplies Profits During The Slow Season

Cash Flow Planning

Cash flow planning is what can show you in October what winter, or any slow season, will cost your business. When you have planned your cash flow, your bank account balance doesn’t surprise you in January. A home service business can show a strong profit and still run short on cash, because profit isn’t the same as cash in the bank.

In this episode, I walk through a $6 million example company to show how profit vs. cash flow can look so different. Then I share what you can do right now to protect both before the slow season hits.

Cash Flow Planning That Multiplies Profits During The Slow Season

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What You’ll Learn

Why a $6 million company can look profitable and still feel broke
How cash flow planning shows where you’ll fall short before it happens
The one monthly number every owner needs before winter hits
How to build a 13-week cash flow forecast on paper or in Excel
What to check in your accounts receivable before you think about borrowing
How to keep your team productive without paying for idle labor
Why a discount takes a bigger bite out of profit than you expect
What paying for spring capacity all winter long really costs you

Key Moments…

[0:51] Why A Busy Business Still Asks Where The Money Went

[3:47] A $6 Million Example Company Walkthrough

[8:27] Why Profit Vs Cash Flow Decides January Payroll

[11:39] Why Selling More Does Not Fix The Problem

[13:44] Cash Flow Planning Starts With Your Monthly Cost To Run

[17:06] Building A 13 Week Cash Flow Forecast

[19:43] Keeping Your Labor Dollars Productive In Slow Weeks

[24:04] How To Reduce Business Expenses With One Question

[25:34] Why Discounting Costs More Than You Think

[31:30] Are You Paying For Spring Capacity All Winter Long

Why A $6 Million Company Can Still Feel Broke

Profit isn’t the same as cash. A business can show a healthy profit on paper and still have very little in the bank.

Here is the example I use in the episode. The numbers are made up to show how fast cash moves. A $6 million home service business spends $1.5 million on equipment and materials, $1.2 million on field labor and related costs, and $300,000 on subcontractors. That leaves $3 million in gross profit, which is what remains after the direct costs of doing the jobs.

Then overhead takes its share. Office payroll, fuel, truck repairs, marketing, insurance, rent, and software all come out. The profit and loss statement (P&L) shows about $600,000 left. The bank account might show $50,000 to $150,000. Four things use up cash without ever showing as an expense on the P&L:

$250,000 sitting in accounts receivable, which is work you did but haven’t been paid for yet
$150,000 in loan principal payments, since only the interest counts as an expense
$125,000 spent on vehicles and equipment
$150,000 taken out as an owner distribution

Those add up to $675,000. That’s more than the profit. These business cash flow problems never show up on a P&L alone. And you can’t make January’s payroll with December’s net income number. You need cash coming in every week.

Hidden Leaks To Fix Before You Chase More Sales

Before you look at winter, check whether you are leaking money you could keep. A dollar you stop spending is a dollar you don’t have to sell again. It goes straight to your bottom line and often straight back into your bank account.

In the example, materials running 2% too high costs $120,000. Labor running 2% too high, from overtime, scheduling problems, or callbacks, costs another $120,000. Add $60,000 of marketing with little return, plus unused software, big vehicle repairs, unbilled change orders, discounts, and warranty work. Soon you have several hundred thousand dollars in leaks.

I hear the same thing from owners all the time. I just need to sell more. Most of the time, the problems just get bigger. If you lose money on certain jobs, selling more of them won’t get you ahead. And if you can’t make money at $5 million in sales, you won’t make it at $10 million in sales. More sales mean more trucks, crew, inventory, marketing, and working capital. One of the fastest ways to learn how to improve cash flow is to plug the leaks you already have.

What Winter Really Costs And How To Plan For It

Cash flow planning starts with one number, which is what it costs to run your business each month in the slow season. Not a guess. The exact number.

Add up payroll, debt payments, vehicle payments, insurance, rent, software, utilities, and taxes. Say it comes to $300,000 a month, and your slow season lasts three months. Now you aren’t just worried about winter. You have a number to plan around.

Next, estimate the revenue you expect each month and the gross profit that comes with it. The gap between that gross profit and your monthly cost is what you have to cover. Now, I understand that if that gap is $150,000 a month, it’s painful. However, I’d still much rather you get clear on it in October when you can still do something about it, rather than finding out in January or February that you’re broke.

If you use the Profit First system, your emergency fund can help here. It takes the edge off the slow months. But it isn’t a complete fail-safe.

You also need to build a 13-week cash flow forecast. A cash flow forecast is a simple plan that shows the cash you expect to come in and go out each week. Start with the cash you have today. Use last year’s history to estimate what comes in each week. Then list payroll, vendors, debt payments, taxes, rent, insurance, equipment payments, and owner distributions.

Once you have your forecast, you have a much better idea of what you’re up against. There’s a big difference between reacting to a cash crisis and planning for a cash crunch. A forecast gives you time to act.

Ways To Protect Your Cash Before You Borrow

Before you think about borrowing money to cover your slow season, look for cash you have already earned. Review your accounts receivable and check how old your invoices are. Cash flow management for business gets easier when you invoice as soon as the work is done. Many owners I talk to invoice very randomly. Figure out what payments are late coming to you and have someone follow up.

Second, protect your labor dollars. I want you to keep your good employees. I don’t want them standing around. Use slow weeks for maintenance you put off, team training, vehicle care, inventory cleanup, and selling service agreements.

Third, go line by line through your expenses. Unused software and subscriptions are an easy start, and I often see $300 to $500 a month saved, sometimes $1,000 or more. Look at advertising that isn’t producing, vehicles nobody uses, cell phones for people who no longer work for you, and equipment you retired. For every expense, ask this question: is this expense helping us make money, protect money, or operate the business effectively? If not, let it go. That’s how to reduce business expenses without cutting what keeps you running.

Last, reach out to past customers with a seasonal offer, a maintenance program, or a pre season package. I don’t recommend offering a discount. A 10% discount doesn’t cost you just 10% of your profit. The real hit is a lot bigger. Add value instead. In what ways can you serve your customer better, meet a need they haven’t anticipated, or help ensure their safety or comfort? For even better results, start doing this before your competitors are even thinking about it.

Winter doesn’t have to be something you just survive. It can show you which parts of your business need to get stronger, and it gives you time to work on them.

The Hidden Leak Of Paying For Spring Capacity All Winter

You built your team, trucks, equipment, and software for the busy season. When winter hits, revenue drops and most of those costs stay.

Say five employees each have 5 unbillable hours a week. That is 25 hours a week, or 300 hours over a 12 week slow season. The true cost to your business is more than just their take-home pay. It includes payroll taxes, workers’ comp, and benefits. Cash flow planning includes considering what those hours cost you, and if there is a better way to put those people to work.

I’m not saying to cut your team. The profit leak is in paying them for work that doesn’t bring enough reward back to the business. Find a more profitable way to use their time and talents.

Here is your challenge this week:

Work out the true cost of one hour of unused labor
Multiply it by the unused hours you expect this winter
Decide how to put those hours to work, such as following up on old estimates or calling maintenance agreement customers

A few quiet hours here and there can turn into thousands of dollars added to your bottom line profit.

Cash Flow Questions Answered

What is cash flow planning for a home service business?

It is a simple plan that shows the cash you expect to come in and go out each week, so you can see the tight weeks before they arrive.

How do I know what the slow season will cost my business?

Add up your exact monthly costs, including payroll, debt payments, vehicles, insurance, rent, software, utilities, and taxes. Then compare that number to the gross profit you expect each month. The gap is what you need to cover.

How far ahead should I forecast my cash?

Diane recommends a 13-week cash flow forecast, started in October before the slow season hits. Paper or an Excel spreadsheet is enough.

Should I offer discounts to fill the slow season?

Diane never suggests it. A 10% discount takes a much bigger bite out of your profit than 10%, so she recommends adding value instead.

Diane’s Resources:

🤑Add $200k in Profits Without Chasing Leads

Sales are rolling in, so why does your business still feel broke? Here are 15 ways to add profit back into your Home Service Business without more leads & sales. https://profitcoach4you.com/profitleaks

Profit Impact Call
☎️ Let me find $45k in hidden profit leaks in your home service business in 45 minutes during a Profit Impact Call. https://taxcoach4you.com/profitimpactcall/