Forecasting is a powerful tool we can use to predict, but most importantly, prepare for the future. Anna Turner talks about all the factors that contribute to cashflow forecasting in a landscape business, hopefully to make the business journey less bumpy.
The most important forecast to make in your business is cashflow – predicting money in and money out of your business.
If you use accounting software, like Xero or MYOB (and you 100% should be using accounting software), it will forecast money out (invoices to be paid) and money in (invoices raised). However, for those of us in construction it gets a little more complicated. You will most likely receive deposit, progress and final payments, which will help with money coming in, but you’ll also have to place large material orders with long lead times. A few large orders coupled with a few slow-paying clients and suddenly you have a massive cashflow problem.
Schedule
The best way to shield yourself from cashflow issues is to keep a close eye on the situation and track orders and payments closely. When you have a thorough understanding of your cashflow situation, you are able to plan and manage it. Of course, invoicing regularly and chasing payments is a big part of ensuring cashflow, but understanding your financial position is just as big.
Feeding into cashflow forecasting is job forecasting. Use online scheduling software (like monday.com), or go old-school with an excel spreadsheet, to keep track of your teams and job. You need to track which jobs are locked in (contract signed and deposit paid), along with predicted start dates, to then know which jobs in the pipeline you need to chase hardest to fill a gap in the Job Schedule. It’s tricky to line jobs up, keeping clients happy and the pipeline full.
A Job Schedule will help you forecast gaps, but it will also help you forecast cashflow. Deposits, progress claims and final payments can all be forecast in the Job Schedule. And, it will help you to pre-order materials with long lead times and forecast when large material payments are due. All helping you manage cashflow.
Costing and lead times
Detailed job costing will also help greatly with cashflow forecasting. When you have an item-by-item breakdown of the costs of a project, alongside a project schedule (I’ve been using TeamGantt lately) you are able to predict not only costs, but also progress claim payments. If you’re running one team this is a pretty simple task to keep on top of, but when you’ve got three or more projects on the go at one time, it’s almost a full-time job to keep on top of cashflow.
And, the project schedule helps with ordering, especially those materials that are in short supply or with long lead times. During and post COVID the construction industry was in short supply of many standard products, causing many projects to grind to a halt, which in turn caused massive cashflow issues across the industry. Thankfully we seem to have come through those crazy times, but the lessons are worth remembering. Compile a complete list of all materials, including quantities, you need to compete the job, along with lead times for those materials. Make sure you’ve scheduled the job into the Job Schedule to fit those lead times. There’s no point starting a job when the materials are six months away.
Keep at it
Lastly, tracking your sales pipeline will help you forecast work coming in over a longer period. Once you’ve tracked your pipeline (new leads, their source, their value, the conversion rate from turning them from a lead to a sale. There are dozens of CRM software options which will track and report all this for free) for a while it will show you how many leads you need to generate, and from where, to convert into enough work down the track to keep your Job Schedule full. The average conversion rate in the landscape industry is low, but knowing which leads are more likely to convert into a sale allows you to focus your efforts on those leads, helping win work and keep the cashflow forecast strong. Cashflow forecasting isn’t a one-off event, it’s a daily task. It’s important you set up systems (using a CRM, accounting software, schedules, etc) to help you predict and prepare for cashflow in your business. As times get tougher it will be more and more important to track your cashflow to manage your business into next year and beyond.