Stay on top of your variable costs to manage cash flow.
- Variable costs – Project and Overhead
- Fixed costs = rent / insurance / etc. – they are the same every month and cannot be avoided
- Variable costs = labor / misc. spending / etc. – things that change each month and are not always needed
- Our costs vary every month – we need to manage those costs to avoid cash flow crunches
- Use your key metrics to plan ahead
- Billings – Job Costs = Gross Margin which needs to be higher than Overhead Costs
- Plan and track each month to know when you need to adjust
- If you miss your targets in May – make adjustments before you run out of money
- If you pass your targets in June – use the extra cash wisely when it comes in
- Use your Average A/R Aging to know when the cash flow will be short or you have additional funds
- If you are short in May and your A/R aging is 50 days then your cash intake will be short in July – prepare for it
- You know the future so plan for it and make adjustments now
- Look for ways to adjust your variable cost
- Adjust labor and overtime
- Avoid non-essential purchases
- Use the power of broke to get creative
- Instead of driving to job sites do video chats – saves gas money