HVAC Business Cash Flow: How to Forecast Every Month Before It Hits (Free Projection Sheet)

For why HVAC feels feast or famine in the first place, read why HVAC companies feel feast-or-famine. This post does the math.

Example disclaimer: The $1.8M shop in this post is an EXAMPLE shop for illustration. It is not an AutoBoss client and not a result anyone got. Every figure below is labeled EXAMPLE, and the month table shows the arithmetic from stated inputs. This is planning guidance, not tax, legal, or accounting advice, so check your numbers and tax dates with your CPA.

Key takeaways

• Hitting your revenue goal does not mean you end the year with more cash. Revenue, profit, and cash are three different numbers.
• A 12 month forecast is one row per month: cash you expect to collect, minus cash you will pay out, added to the cash you started with.
• Seasonal multipliers turn last year's months into next year's forecast. A multiplier of 1.00 is an average month.
• Your minimum cash line is the balance you decide the account will not drop below. Check every month's ending cash against it.
• The 12 month view shows the shape of the year. A 13 week view handles a tight month that is already close.

Table of contents

1. Why can an HVAC shop hit its revenue goal and still end the year with less cash?
2. How do you forecast HVAC business cash flow month to month?
3. What are seasonal multipliers, and how do they turn last year into next year?
4. How do you calculate a minimum cash balance for an HVAC company?
5. Should you use a 12 month projection or a 13 week forecast?
6. How much cash reserve should an HVAC company keep?
7. How would you find the $25,200 gap in the EXAMPLE shop's year?
8. FAQ
9. Get the free projection sheet

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Why can an HVAC shop hit its revenue goal and still end the year with less cash?

Because revenue is not cash. A profitable business can run out of cash, and an HVAC shop can hit its revenue goal and still end the year with less cash than it started with. Revenue is what you billed. Profit is what is left after the expenses on your P&L. Cash is what is in the bank after everything that actually left the account, and some of that never touches the P&L: loan principal, truck and equipment purchases, owner draws. Timing matters too. If a job is billed in July and paid in August, your July P&L can show the profit while the cash lands in August. Then add the costs that keep running when the phone slows down. Payroll, trucks, insurance, and rent do not take a month off. If summer cash gets spent as fast as it arrives, the slow months drain the account and nothing refills it.

EXAMPLE (for illustration): A shop with a $1,800,000 revenue goal can still finish the year $25,200 lower in cash than it started. The inputs below are stated in this post. The year-end change equals the sum of the twelve monthly nets.

P&L-style profit on these inputs is revenue minus job costs minus overhead: $1,800,000 minus $972,000 minus $684,000 equals $144,000. The bank still drops $25,200 because another $169,200 leaves as EXAMPLE cash outs that never hit that profit line. A gap that small is easy to miss on a year-end number. Only the monthly rows show which month to fix.

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How do you forecast HVAC business cash flow month to month?

You forecast HVAC cash flow month to month by building one row per month: the cash you expect to collect, minus the cash you will pay out, added to the cash you started the month with. The ending balance of each month becomes the starting balance of the next. Begin with last year's revenue by month, divide this year's revenue goal by 12 to get an average month, and scale that average by each month's seasonal multiplier. Then list every cash out for the month, including the ones that never show on your P&L. Compare each ending balance to your minimum cash line. A month that ends below the line is the month you plan for today. The 12 month projection sheet lays these rows out, with yellow cells for what you type and white cells for the math.

Work through it in this order:

1. Write down last year's revenue for each month. Twelve numbers from your books.
2. Divide this year's revenue goal by 12. That is your average month.
3. Multiply the average month by each month's seasonal multiplier. That is the revenue you expect that month. The next section shows how to get the multipliers.
4. Turn revenue into cash in. If customers pay at the time of service, cash in matches billing. If some pay later, commercial accounts for example, move those dollars to the month the money lands.
5. List every cash out. Job costs, payroll, fixed overhead, loan principal, truck and equipment purchases, owner draws, and tax payments. If you pay federal estimated taxes as an owner, they come due four times a year: April, June, September, and January for a calendar year taxpayer. Put them in the months they are due, not spread evenly, and ask your CPA for your exact dates and amounts.
6. Work out the cash change and the ending cash. Then check each ending cash against your minimum cash line.

Revenue is the easy row. The cash out step is where a forecast earns its keep. A projection is only as good as the numbers you type into it, so re-run it when something big changes, like a lost commercial account or a big equipment purchase.

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What are seasonal multipliers, and how do they turn last year into next year?

A seasonal multiplier, also called a seasonal index, tells you how a month compares with an average month. You get it by dividing that month's revenue by the average month's revenue. A multiplier of 1.00 is an average month. A 1.25 is a month 25 percent busier than average, and a 0.75 is 25 percent slower. Across a full year the twelve multipliers add up to 12. To forecast, divide next year's goal by 12 and multiply that average month by each month's multiplier. That method is seasonal index forecasting, and it drives any seasonal cash flow forecast.

Arithmetic only, for illustration, with a round average month of $100,000:

To get your own multipliers, divide each month of last year by last year's average month (annual revenue divided by 12). If you have two years of numbers, average each calendar month first. The method has two limits. It assumes the shop stayed about the same size all year, so if you grew fast, the later months look busier than the season made them. And a multiplier only tells you when revenue arrives. Your costs decide when it leaves, which is why the cash out step matters as much as the revenue step.

The sheet's "My Own" pattern does the division for you once you type in last year's twelve months. It also has three starter patterns for shops without clean numbers, and the sheet itself says those are rough guesses, not data. Your own last 12 months beat them.

If you sell maintenance agreements, that revenue arrives whether or not the weather cooperates. Keep it as its own line so the weather-driven months do not swallow it. The maintenance agreements guide for owners covers how that base grows, and service agreement pricing covers what to charge so the line adds real cash.

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How do you calculate a minimum cash balance for an HVAC company?

Your minimum cash line is the balance you decide, ahead of time, that the bank account will not drop below. To calculate it, add up the fixed costs that keep running even in your slowest month (payroll for the people you are keeping, rent, insurance, truck payments, software, loan payments) and multiply by the months of cushion you want. One month of those costs is a simple place to start, and you can raise it. Then test it on the sheet. A month that ends below the line is a month to plan for now. A month that ends below zero is a month the account cannot cover its bills, payroll included.

For illustration: if the fixed costs that keep running add up to $40,000 a month, one month of cushion puts your line at $40,000 and two months puts it at $80,000.

The line is an alarm that tells you when the account is too low. How much to build up over time is a separate question, and the reserve section below takes it up.

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Should you use a 12 month projection or a 13 week forecast?

Use both, for different jobs. A 12 month projection shows the shape of the year: which months run tight and how much cash to hold back before they start. A 13 week forecast looks one quarter ahead, 91 days, week by week, with real invoices and real payroll dates. It is the tool for a tight month that is already close. We start with the 12 month view because the first question is whether the year is shaped right, and weekly detail cannot answer that. Add the 13 week view when your projection shows a month near or below your minimum cash line inside the next three months.

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How much cash reserve should an HVAC company keep?

General small business guidance runs about 3 to 6 months of operating expenses held in reserve, and 9 to 12 months for a seasonal business, but there is no HVAC specific standard. Start with those ranges and test them against your own sheet. A federal small business guide cites 3 to 12 months of emergency cash or a line of credit. It was written for disaster recovery, not slow seasons, so use it as context and not as a target. Some guidance also says access to credit makes the low end of a range easier to accept. We would set that credit up before you need it.

For scale, one analysis of business bank accounts, using 2015 data, found the typical small business held enough cash for about 27 days of outflows. That sample left out seasonal businesses, so it shows how thin small business cash usually runs. It is not an HVAC benchmark.

Your sheet answers a tighter question: how much cash do you need on hand to get through the tightest stretch of your own year without dropping below your minimum cash line? Treat the published ranges as the long-term savings goal and the sheet as the near-term check. If your sheet asks for more cash than the range does, plan for the larger number.

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How would you find the $25,200 gap in the EXAMPLE shop's year?

You find it by putting the year on the sheet month by month. The gap is the sum of the twelve monthly nets, and the status column points at the months that build it. Below is the EXAMPLE shop built from the same Fix Kit $1.8M revenue months and P&L rates, plus clearly labeled EXAMPLE non-P&L cash outs.

EXAMPLE inputs (stated)

EXAMPLE non-P&L cash outs (these do not hit the $144,000 P&L-style profit line):

• Owner draws: $8,000 every month ($96,000 for the year)
• Loan principal: $1,100 every month ($13,200 for the year)
• Truck purchase: $40,000 in April
• Equipment purchase: $20,000 in October
• Total non-P&L outs: $169,200

P&L-style profit check: $1,800,000 minus $972,000 minus $684,000 equals $144,000.

Cash check: opening $120,000 plus the annual net of ($25,200) equals ending $94,800. Ending minus opening equals $25,200 lower.

EXAMPLE month-by-month cash table

Monthly cash in equals that month's revenue. Monthly cash out equals job costs plus overhead plus that month's other cash outs. Net equals cash in minus cash out. Ending cash carries forward. "BELOW" means ending cash is under the $57,000 minimum line.

Other cash out each month is owner draw $8,000 + loan principal $1,100, except April (adds the $40,000 truck) and October (adds the $20,000 equipment). April and May end below the minimum cash line. June is the first month that climbs back above it.

Reconciliation: $120,000 plus ($25,200) equals $94,800. Every cell above is arithmetic from the stated EXAMPLE inputs.

Once you see the tight months, change a row. Move or shrink a cash out, such as a truck purchase or an owner draw, to a month that can carry it. Add revenue that lands in the tight months: agreements, outreach to past customers, follow-up on unsold estimates. Or arrange credit and hold back part of summer cash. Each move is a changed row on the sheet. Change the row, look at the ending cash, and see whether the tight month clears your line before you spend a dollar. The revenue moves are the systems inside the six revenue pillars: response, estimates, memberships, reactivation, renewals, and reputation.

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FAQ

How do I get through HVAC slow months without running out of cash?

See them before they start. Run all 12 months on the sheet, find the months that end below your minimum cash line, and set aside the shortfall from the months before them. Then work on filling the slow months themselves with revenue that does not depend on the weather, such as maintenance agreement revenue.

How much cash reserve should an HVAC company keep?

There is no HVAC specific standard. Published small business guidance runs about 3 to 6 months of operating expenses, and 9 to 12 months for seasonal businesses. Use the range as a long-term goal and your minimum cash line, checked month by month on the sheet, as the near-term test.

Should I pile up cash in season or use a line of credit to get through the slow months?

Plan on cash first and keep credit as the backup, and decide before the tight month arrives. Saved cash has no interest bill. Borrowed money gets repaid out of the same cash flow, with interest. A line of credit works as a bridge for a dip you can see the end of on your sheet. It cannot fix a year that ends with less cash than it started with, because the gap comes back next year. Talk to your lender and your CPA about your terms.

Should I lay off techs in the slow months or carry them?

That is your call, and it depends on your market and your crew. The sheet lets you test it. Put payroll in as a row, run the slow months with and without those people, and compare the ending cash and your minimum cash line. Weigh what it will take to staff back up when the busy months start. We would rather see the slow months filled with recurring work first.

How much of my summer cash is safe to spend?

Whatever is left after the next tight months are funded and you still stay above your minimum cash line. Enter the spend as a row, such as a one-time purchase in July or a raise starting in August, and check whether any later month ends below the line. If one does, the spend is not safe yet, or it has to move to a later month. The blank bonus workbook that comes with the sheet calculates a maximum safe one-time spend and a maximum safe monthly cost.

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Get the free projection sheet

The free sheet is an Excel workbook built for a residential HVAC shop, and it also imports into Google Sheets or Numbers. It works as a 12 month cash flow projection template, a monthly cash flow projection template, or a contractor cash flow template, built for HVAC. You type your revenue goal, monthly overhead, job cost percentage, cash in the bank, your minimum cash line, and last year's revenue by month. It lays out the 12 months and shows ending cash for each. It flags any month that falls below your overhead or your cash line. It also runs a mild season test where peak months come in lighter (20 percent by default, and you can change it). It assumes you collect in the month you bill. A blank bonus workbook adds 30 and 60 day collection timing and a check on whether a hire or a purchase is safe.

The button below starts with a free five minute check and asks for your email, then you download the workbook. No sales call.

If you would rather not do the typing, we fill it out with your real numbers in the Revenue Floor Audit.

Download the sheet

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Related reading

• HVAC Maintenance Agreements for Owners: Attach, Renew, Sell-Through
• HVAC Service Agreement Pricing for Shop Owners
• The six revenue pillars
• All AutoBoss insights