Every year around this time, subcontractors are having some of their best months. Crews are booked, bids are going out, and the bank account looks healthier than it has all year.
But then every January, most of those same subs are desperately moving money around on Thursday at 11pm trying to make payroll.
That is the feast-or-famine cash flow cycle, and it's the single most-searched problem in this industry. Almost every contractor experiences it, but almost none plan for it.
That can end for you today.
Cash Reserve
A cash reserve is the amount that stays in your account regardless of what is going on in your business. This is a floor you don't go below. When you have one, a slow month is an inconvenience. When you don't, every late GC and every rained-out week becomes a panic attack at 2:00am.
The mistake is trying to build it in December, when the pressure is already on. You build a reserve in August and September, out of the strongest months, by treating it like a bill the business owes itself. Decide the number, move it out of the operating account, and don't go below it.
Not sure what the number should be? Start with enough to cover payroll and fixed costs for the slowest 6 weeks you can remember, then grow it from there.
Backlog
Review your backlog, looking for the holes.
Your backlog isn't one number. It's a calendar. Look at it week by week from now through March, and you'll see where the gaps are. The holes almost always appear at the same time - right after the holidays.
Once you can see those weeks, you can do something about them. Pull a start date forward. Line up a smaller job to bridge a slow stretch. Time a big payable so it doesn't hit during the lightest week of the year. None of that is possible if you're finding out about the holes as you fall into them.
Collections
Get your collections process right before you need the cash, not after.
The money that carries you through winter is often money you already earned and haven't collected. There's cash in aged receivables, unbilled change orders, and pay apps that went out late.
Get it now, while your leverage is highest and the GC still has your job top of mind. Collections get harder the longer you wait and harder still once the job closes out. Every dollar you bring in before the slow season is a dollar you don't borrow during it.
What It Looks Like In Action
A civil sub I worked with barely survived every winter. One year, work slowed down in December, and two GCs pushed payments into February. He spent the first eight weeks of the year moving money around just to keep the crew paid.
The next year we planned winter in the summer. We set a reserve number and built toward it through his busy months, mapped his backlog to find the slow weeks after the holidays, and tightened up his collections process.
Winter came anyway.
Work did thin out, a GC paid late again, so nothing about the season changed. But he made payroll without a single emergency, never touched his line of credit, and started spring with cash in the bank instead of debt to dig out of.
He didn't get a better winter. He got a boring one, because he decided in September that there was a better way.
Go and Do
This week, pick your reserve number. Just the number, the amount that has to stay in the account through the slow season. Then move whatever you can toward it out of this month's revenue, and put a recurring transfer in place for the next 3 months. You'll have most of a winter cushion built before the first cold snap.
One more thing. I've spent two years putting everything I know about running a subcontractor's finances into a book. It's called Control, and it comes out October 1. If this newsletter is useful to you, the book goes a lot deeper.
You can take a look at runoncfos.com.
