A contractor can show a profit on the income statement and still not be able to cover next week’s payroll. Revenue and expenses describe the work. Cash describes when money actually moves. A 13-week cash forecast makes the second visible, week by week, while there is still time to act on what it shows.
This article explains how the forecast is built, walks through a worked example with opening and closing cash for each week, and shows how it is kept current. All figures are hypothetical and the amounts are illustrative only.
This article is general information about financial planning and not advice about a specific business.
Revenue is not cash
Four differences account for most of the gap between profit and cash in a contracting business.
- Billing is not collecting. A pay application is submitted, reviewed, approved, and then paid. Each step takes time, and the time varies by customer.
- Retainage delays part of every payment. If a customer holds 10 percent, $10 of every $100 billed is not collected until a later release, often after the job is finished.
- Costs are paid on their own schedule. Payroll goes out on set dates. Suppliers and subcontractors are paid by terms, or when the contractor is paid, depending on the contract.
- Some cash leaves in amounts or periods that differ from the expense. Only the principal part of a loan payment reduces debt, and the interest part is an expense. Equipment depends on the accounting basis. In this article’s examples the books are kept on an accrual basis and a purchased piece of equipment is recorded as an asset and expensed over its useful life through depreciation, so the cash leaves when it is paid and the expense follows later. A company’s tax treatment of the same purchase can differ, and a financed purchase moves cash through a down payment and loan payments instead. Owner distributions are not expenses. Payroll mixes several things: gross wages and the employer’s share of payroll taxes are expenses, while amounts withheld from employees (income tax withholding and the employee’s share of Social Security and Medicare taxes) are held for the government and are a liability until they are remitted, not an expense of the business. An income tax payment depends on the tax and the entity and may relate to expense recorded in an earlier or later period, and an owner’s personal estimated payment made from company funds is generally treated as a distribution. A forecast of cash has to treat each component by when the cash moves, not by how it is reported.
A forecast built from revenue and expenses carries these timing differences without showing them. A forecast built from receipts and payments shows them directly.
What a 13-week forecast is
A 13-week forecast is a weekly schedule of cash coming in and going out, starting from the current bank balance and ending with a projected balance for each week. Thirteen weeks is a quarter, a horizon long enough to see payroll cycles, retainage releases, and tax dates, and short enough to estimate with some care. Some companies use a longer horizon. There is no rule.
It is rolling: each week, the week that just ended is replaced with actual results, and a new week is added at the end, so it always looks 13 weeks ahead. It is also different from the statement of cash flows, which reports what already happened. The forecast looks forward.
How it is built
- Opening cash. The reconciled balance: the bank balance adjusted for deposits in transit and outstanding checks. Those items are already inside opening cash, so they must not be counted again as receipts or payments in the forecast. Each dollar enters the forecast once, either in opening cash or in a week’s receipts or payments. Payments that are approved but not yet issued belong in the week they will go out.
- Receipts, by pay application. For each open job, the amount of each pay application, when it is or will be submitted, the expected approval lag, the payment terms, and the retainage held. Use the contractor’s actual history with each customer, not the contract terms alone. Retainage releases go in the week the release is expected, not when the job finishes.
- Payments. Payroll by the dates cash actually moves: net pay on the pay date, and the deposits of withheld amounts and employer payroll taxes on the company’s deposit schedule. Subcontractors and suppliers by due date or expected pay-when-paid date. Then the fixed and periodic items: insurance, loan payments, rent, equipment, tax payments, and owner distributions.
- Closing cash. Opening cash plus receipts less payments, for each week. The closing balance of one week is the opening balance of the next.
- A minimum cash reserve, kept separate from borrowing capacity. The reserve is a floor the business chooses to stay above, such as one payroll. Available borrowing capacity, such as the undrawn part of a credit line, is a different thing: it is a possible source of cash that has to be drawn, may carry conditions, and is not cash in the bank. The forecast first shows cash on its own. The reserve and any borrowing capacity are then compared against it separately, and capacity is never added into the balances.
A worked example
A hypothetical contractor starts the week of October 19, 2026 with $120,000 of opening cash. That figure is the reconciled balance, after outstanding checks and deposits in transit, so none of those items appear again in week 1. Payroll of $68,000 is paid every other week. To keep the example readable, that figure is all payroll cash on each pay date, including net pay and the related tax deposits; a real forecast would place the deposits on their own dates. Subcontractors and suppliers are paid weekly. Loan payments of $9,400 (principal and interest together) are due in weeks 4, 8, and 12, an insurance payment of $18,000 is due in week 7, and an estimated tax payment of $24,000 is due in week 13 (the week of January 15, 2027).
| Week | Week beginning | Opening cash | Receipts | Payroll | Subcontractors, suppliers, and other | Closing cash, before any financing or corrective action |
|---|---|---|---|---|---|---|
| 1 | Oct 19 | $120,000 | $60,000 | $0 | $30,000 | $150,000 |
| 2 | Oct 26 | $150,000 | $0 | $68,000 | $34,000 | $48,000 |
| 3 | Nov 2 | $48,000 | $142,000 | $0 | $40,000 | $150,000 |
| 4 | Nov 9 | $150,000 | $0 | $68,000 | $45,400 | $36,600 |
| 5 | Nov 16 | $36,600 | $96,000 | $0 | $38,000 | $94,600 |
| 6 | Nov 23 | $94,600 | $38,000 | $68,000 | $44,000 | $20,600 |
| 7 | Nov 30 | $20,600 | $90,000 | $0 | $54,000 | $56,600 |
| 8 | Dec 7 | $56,600 | $0 | $68,000 | $41,400 | −$52,800 |
| 9 | Dec 14 | −$52,800 | $0 | $0 | $46,000 | −$98,800 |
| 10 | Dec 21 | −$98,800 | $155,000 | $68,000 | $38,000 | −$49,800 |
| 11 | Dec 28 | −$49,800 | $160,000 | $0 | $34,000 | $76,200 |
| 12 | Jan 4 | $76,200 | $121,000 | $68,000 | $49,400 | $79,800 |
| 13 | Jan 11 | $79,800 | $194,000 | $0 | $57,000 | $216,800 |
| Total | $1,056,000 | $408,000 | $551,200 | $216,800 |
Check: $120,000 opening cash + $1,056,000 receipts − $408,000 payroll − $551,200 subcontractors, suppliers, and other = $216,800 closing cash. The “other” column holds $28,200 of loan payments (3 × $9,400), the $18,000 insurance payment, and the $24,000 tax payment. Subcontractors and suppliers account for the remaining $481,000.
What the table shows. Over the full 13 weeks, cash rises by $96,800. That is not the whole story. The closing balance is below zero in three consecutive weeks, weeks 8, 9, and 10, and the lowest weekly closing balance is −$98,800 in week 9: payroll in weeks 8 and 10, a loan payment, and supplier payments land before the large receipts in weeks 10 and 11. A forecast built on quarterly totals would have shown cash rising over the quarter and missed the weeks in which it ran short.
What the table does not show. It shows each week’s closing balance. It does not show the order of payments and receipts within a week, so the balance on a particular day inside a week could be lower or higher than the week’s closing figure. A forecast used to decide something about a specific week would be built at a finer level for that week.
A negative balance is an unfunded shortfall. The negative figures in weeks 8 through 10 are the cash the business would be short before any financing or corrective action. They are not an overdraft the forecast assumes someone will cover. No borrowing is assumed in any week of the table, and the forecast does not assume that financing is available or that a lender would approve it.
Reserve and borrowing capacity are separate. Suppose the business wants to keep at least $68,000 on hand (one payroll) and has a $100,000 line of credit with nothing drawn. The forecast shows cash alone: it is below $68,000 in weeks 2, 4, 6, 7, 8, 9, and 10, and below zero in weeks 8 through 10. The undrawn line is not added to those balances. Whether to draw on it, how much, and when, is a financing decision with its own cost and conditions, and the line may not be available when it is wanted.
What the forecast does, and what it does not. A gap like this is what the forecast exists to find. It identifies the timing and the size of the gap: here, three consecutive weekly closing balances below zero and a lowest weekly closing balance of −$98,800 in week 9. It does not decide what to do about it. That takes evaluating the options and their tradeoffs, and the forecast’s numbers make the tradeoffs concrete. The options include when pay applications are submitted, whether approved but unpaid applications can be followed up earlier, whether supplier and subcontractor timing is consistent with the contracts, what financing might be available and what it would cost and require, and what spending can move. Each has a cost: following up earlier on a payment may be routine or may strain a customer relationship, shifting payables affects supplier terms, financing carries cost and conditions, and deferring spending may delay work the business wants to do.
Weighing those options against the forecast, with the owner, is part of fractional CFO decision support. Management retains the decision. No forecast or advisor can promise that financing will be available, that a customer will pay sooner, or that any option will close the gap.
Why receipts are not billings
The forecast starts from collections. The example’s $1,056,000 of receipts is not the contractor’s billings for the period. Suppose the contractor billed $1,150,000 in the 13 weeks. A hypothetical bridge from billings to receipts:
| Amount | |
|---|---|
| Billings in the period | $1,150,000 |
| Less retainage withheld by customers (10%) | −$115,000 |
| Less billings still uncollected at the end of week 13 | −$395,000 |
| Add collections of receivables outstanding at the start | $380,000 |
| Add retainage released from earlier work | $36,000 |
| Receipts in the 13 weeks | $1,056,000 |
The same applies to payments. If the contractor incurred $521,000 of costs with subcontractors and suppliers, $230,000 was still unpaid at the end of the period, and $190,000 of payables from before the period was paid, then payments to subcontractors and suppliers were $521,000 − $230,000 + $190,000 = $481,000, which is the figure in the example. The income statement would show $521,000 of cost. The forecast shows $481,000 of cash.
Keeping it rolling
Each week, three things happen.
- Replace the week that ended with actuals and compare. In the example, suppose week 1’s actual receipts were $52,000, not $60,000, because an $8,000 payment arrived the following week, and payments were as forecast. Actual closing cash is $142,000 against a forecast of $150,000. The difference is timing, so the $8,000 is moved into week 2.
- Add week 14 at the end, with its payroll, expected receipts, and fixed payments.
- Update the assumptions that changed: a pay application approved faster or slower than expected, a new job’s first billing, an equipment purchase, a change in a customer’s payment pattern.
Explaining each difference between forecast and actual is where the forecast improves. A difference that repeats, such as one customer always paying a week late, becomes an assumption.
Common errors
- Starting from revenue or the income statement instead of pay application dates and collections.
- Ignoring retainage until the job is finished, or assuming it will be released on completion.
- Using contract payment terms for every customer instead of how each one actually pays.
- Leaving out cash that does not run through the income statement in the same amount or period: the principal part of loan payments, equipment purchases, tax payments, and owner distributions.
- Counting an item twice: an outstanding check or a deposit in transit is already in opening cash, and it is a mistake to list it again as a payment or a receipt.
- Adding borrowing capacity to cash, or treating a negative balance as if financing were already arranged.
- Forecasting payroll without the deposits of withheld amounts and employer payroll taxes, or on the wrong dates.
- Never comparing the forecast to actuals, so the same mistakes repeat.
- Too much detail. A forecast that takes a day to update will stop being updated. A short list of jobs and categories, kept current, is more useful than a long one.
What the forecast needs from each person
| Needed from | Input |
|---|---|
| Project managers | Billing schedules and expected approval timing; change-order status; expected completion dates |
| Office | Pay application status, open payables with due dates, payroll dates, loan and insurance schedules |
| Owner | Planned equipment, owner distributions, hiring, and other discretionary spending, and the decisions the forecast informs |
| Finance or CFO-level support | The structure, the reconciliation to the bank, the weekly roll-forward, the questions the numbers raise, and, with the owner, the evaluation of options and tradeoffs |
The forecast depends on the same job-level records described in Job Costing for Contractors and The WIP Schedule for Contractors, and on a monthly close that reaches a defined end, as described in Fractional Controller for Contractors. If those are not current, the forecast starts from numbers that are not reliable, and the first step is bringing the records current; see Cleaning Up Contractor Books.
Where this connects
Rolling forecasts tied to actual collection and payment timing are part of Fractional CFO work. For the situations that tend to point to CFO-level work in a contracting business, see Fractional CFO for Contractors. A lender or surety may ask for a forecast, and what a surety looks at is described in What Sureties Look At in Contractor Financial Statements. For the accounting records underneath, see Outsourced Accounting and Construction & Contractor Accounting.
If cash is tight in a way the income statement does not explain, a useful first step is a conversation about the decision in front of you. Start a conversation and tell us what the cash picture looks like, where it is tight, and which decisions are ahead. We can identify which records and access are needed when defining the scope; there is no need to gather or send them first.
Corey Roder, CPA is the founder of Corey Roder, CPA PLLC. He is a licensed CPA who founded a construction company and served as its COO and CFO, managing the financial and operational decisions of that business. Earlier in his career he worked as an auditor at Grant Thornton. More about the firm: Company & People.
Corey Roder, CPA PLLC does not itself perform audits, reviews, or other assurance engagements. Need an audit, review, or other assurance engagement? We can help coordinate it. Corey Roder, CPA PLLC maintains referral relationships with independent CPA firms that provide these services. The assurance engagement is separately contracted with and performed by the independent CPA firm.