13-Week Cash Flow Forecasting for Building Firms

Here's an uncomfortable truth about construction: most firms that go under aren't losing money. They're profitable on paper, but they run out of cash at the wrong moment, can't pay the wages or the VAT bill, and the whole thing unravels. Profit is an opinion; cash is a fact.

The tool that stops this happening is a 13-week cash flow forecast. It's not complicated, it's not just for big firms, and once it's running it tells you the one thing your bank balance never will: what's coming.

Why cash is brutal in construction

Few industries are as hard on cash flow as building. You pay for labour every week and materials on 30-day terms, but you get paid on applications and 30-to-60-day terms, sometimes longer. Add in retentions held back for months, materials you buy upfront, and the odd client who pays late, and it's easy to be busy, profitable and skint all at once.

What a 13-week cash flow forecast actually is

It's a simple week-by-week projection of the money coming in and going out of your business over the next quarter, with your running bank balance at the end of each week. Why 13 weeks? Because a quarter is the sweet spot: close enough that your numbers are realistic, but far enough ahead that you've got time to do something about a problem before it arrives.

The magic isn't the spreadsheet, it's that a dip in week seven shows up while it's still week two, when you've got options.

What goes in it

Two columns, really: money in and money out, placed in the week you actually expect it to happen.

Money in

• Client payments and applications, dated when you realistically expect them, not when you invoiced.
• Retentions due for release.
• Any VAT refunds, CIS rebates or grants.

Money out

• Wages and subcontractors (net of CIS).
• Suppliers and materials, plant hire, fuel.
• The lumpy ones people forget: VAT, PAYE, CIS and Corporation Tax payments to HMRC.
• Overheads, loan and HP repayments, and your own drawings or dividends.

How to build one

1. Start with today's bank balanceYour real, cleared balance is week zero's starting point.
2. Lay in the money you expect to receiveGo through your debtors and applications and put each one in the week you'll actually be paid, based on how that client really behaves, not their terms.
3. Lay in everything going outWages, subbies, suppliers, HMRC, overheads, finance and drawings, week by week. Don't skip the quarterly and annual lumps.
4. Calculate the running balanceOpening balance, plus in, minus out, gives each week's closing balance, which becomes next week's opening.
5. Find the low points and actAny week that goes tight or negative is your early warning. Now you've got room to do something about it.

Using it to actually make decisions

A forecast you don't act on is just admin. The value is in what it lets you do before the squeeze: chase specific debtors in the weeks it matters, time a big material order for a stronger week, hold off a non-urgent purchase, arrange an overdraft or invoice-finance facility while you're in a position of strength rather than panic, or decide whether you can genuinely afford to take on that next big job. It's also the single best answer to "can we afford another hire?", you can see it, not guess it.

Keep it honest and keep it rolling

Two habits make or break a forecast. First, be honest about dates, use how clients actually pay, not the terms on the invoice. Second, roll it forward every week: drop the week that's gone, add a new week 13 on the end, and update the numbers against what really happened. A forecast that's updated weekly becomes uncannily accurate; one you build once and forget is worthless within a month.

This article is general guidance for building contractors, not advice for your specific situation. Always review your own circumstances with your accountant before acting.