'Cash sales' means all income from your main business activity which is received at the time when you finish a job (or received at a particular stage of a job, depending on how you bill your customers - perhaps you will sometimes ask for a deposit up front to pay for materials, as well as stage payments during the project). Remember that, as well as actual cash received, 'Cash sales' can include cheques, direct bank transfers and debit and credit card payments if you're paid at once, without having to wait for payment. So, for example, if you fix a fallen slate and the customer gives you a cheque there and then, that counts as 'Cash sales'.
To prepare your cash flow, you need to estimate how much income, including VAT if appropriate, you will receive over the next twelve months. To do this you will need to decide on the services you will offer and what you will charge for the work you do. Then estimate how much work you are likely to get. Take into account your working hours, remembering to budget for holidays and illness. Also remember that not all of your time will be 'productive' (will earn you money) - you may have to set aside some time for administrative jobs, marketing activity, surveying new projects, chasing up late payments and so on. Remember that it may take several weeks or even months after you begin trading to build up to your full earning potential.
Sources of work
When you are making your estimate of how much income you will earn, think about where your work is going to come from. Decide what your approach to advertising and marketing will be. Will you, for example, do a mailshot and then wait for the telephone to ring? Perhaps you will be listed as a local 'approved contractor' in a directory of professional trades-people. Maybe you know of other construction businesses that will sub-contract your services on a regular basis and put work your way.
If you are going to be doing outdoor work there may be times when adverse weather prevents you from working at all. Moreover, demand for most types of construction services is usually highest during the spring and summer months. For this reason, business may be much quieter during the winter months than in spring and summer.
The local market
Three very important factors that will affect your business are:
- the number of potential customers
- the type of services that they are likely to require (for example renovation and repair services, general maintenance, alterations and improvements and so on)
- the amount of existing competition
Do some market research to find out more about your potential customers and your competitors - this will help you to identify your own place in the market.
Also bear in mind the following points when estimating your Cash sales:
- your reputation is very important. Building a reputation for quality, honesty and reliability among your customers will help to ensure that you get repeat business and recommendations. It can also affect the rates that you are able to charge
- projecting the right image for your business will help you to maximise sales. You could, for example, look into joining a reputable trade association. Effective advertising can also be important and will help your business to fulfil its potential
- trade customers such as other building contractors may check that you and your employees hold Construction Skills Certification Scheme (CSCS) cards before they use your services. They may also prefer to use Construction Industry Scheme (CIS) registered sub-contactors, and perhaps those who meet the requirements of any applicable British Standards Institution (BSI) certification
- there is a wide range of different work that you might decide to undertake, depending on your skills and experience and the amount of demand
- getting your prices right is crucial. Do you need to keep your prices as low as possible to attract customers, or can you charge premium prices for a premium service?
- offering finance may attract customers who would not otherwise be able to afford your products and services
- the amount of work potentially available will depend on how far you are prepared to travel to a job
To help with your decisions, click on the checkpoints for guidance. Once you have worked out a Cash sales figure add it to the relevant field in your cash flow forecast.