It is not easy running a construction business. Discounted cash flow analysis is a valuation method that isolates the company’s projected cash flow that is available to service debt and provide a return to equity; the net present value of this free cash flow to capital is computed over a projected period based on the perceived risk of achieving such cash flow.
When you work day after day, week after week and you never take a break, it’s going to show in your attitude and the way you do business. Instead, focus on cold, hard cash: cash receipts, payments for inventory or services, cash interest payments, cash rent, mandatory debt principal repayments, etc.
The ‘Essential Financial Management Templates’ workbook that I referred to previously that’s found on our website contains a fantastic cash flow analysis report that will save you and your team a lot of time. With regards to reporting, if you have a full time person looking after your reports, you should be having a weekly meeting with them to review reports.
In the example below, pushing the Professional Fee and Recruiting payments into weeks where the expected cash balance is a bit higher and not below the $100,000 comfort level is a potential solution to stay above $100,000 (or whatever level the business finds comfortable for operations).
Believe it or not, many people who run online businesses need online business managers. It wasn’t perfect, but it was much more accurate than assuming revenues came in ratably over a month, and it gave a better starting point to project cash flows. These would be in addition to your regular monthly financials but consider KPIs more of a daily or weekly measurement.