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In order to have a positive cash flow, it helps to know what your cash needs are today, in six months, and a year from now.

Few people take the time and effort necessary to know their cash flow needs. It takes some thinking and research.

To start, project your overhead expenses on a monthly basis. It’s not the same amount each month. Some months you will have taxes due, other months it’s an insurance payment. Set up a spreadsheet listing your monthly expenses and be as accurate as you can. It’s best if you have company history to compile the data because that is the most accurate record of your money needs for a given period.

Keep in mind the difference between fixed and variable overhead expenses. Fixed expenses are your rent/mortgage, your salary, your office staff salary, your vehicle payments, your insurance payments, etc. Your variable expenses will be fuel for your vehicles, sales commissions, job supervision, utility and phone bills, advertising, etc. Use the fixed items to set your base overhead rate for each month and then add on your variable overhead figures to arrive at your monthly expense. When you know your projected expenses on a monthly basis, add on the profit you want.

Now you know how much money needs to be on hand at the beginning of each month to keep your overhead bills paid. (This is assuming that you use a payment schedule that keeps payments ahead of, or even with, job costs. It also assumes your jobs are priced properly.)

Add up twelve months to determine your annual overhead and profit needs. Divide that into your annual projected sales. For example, if your annual overhead and profit need is $150,000 and your annual projected sales are $525,000, your overhead and profit is 28.6 percent of sales (150,000/525,000). Now, on a monthly basis, divide each month’s overhead and profit need by that percent to determine the sales you need to pay that overhead expense. For example, if April’s overhead and profit need is $13,500, you need $47,202 in sales. (13,500/.286)

Once you know your required sales, work backwards to determine how much advertising you need, and when you need it, to generate the leads necessary for the sales needed that will generate the cash flow to pay your bills.

Did I say it was easy? It takes time and research, but the results will give you the confidence of knowing what you need to do and when. Now go do it.

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