Cash Flow
How to set a cash reserve target that holds up.
Built from monthly burn rate, not revenue, not gross profit. The number that goes out the door no matter what.
The math
Burn rate = fixed costs + average variable costs per month.
Not revenue. Not GP. The cash that leaves the bank whether you book a job or not. Payroll, rent, insurance, loan payments, software, average fuel and materials. Add them up. That’s your monthly burn.
Targets by stage
Three stages. Three multiples.
- 01
Survival mode · 1 month burn
Most trades in year 1 to 3. You’re building. One month of bills covered is the first real milestone.
- 02
Stable mode · 3 months burn
Year 3 to 7. Crew is steady, revenue is predictable. Three months gives you room to absorb a slow season without selling assets.
- 03
Mature mode · 6 months burn
Year 7 and beyond. Six months covers a real downturn, a major equipment failure, or a year you decide to step back.
The example
Tree service. $42k/month burn. Stable target = $126k on hand.
Most owners run with $8k to $15k and call themselves “cash positive”. They are one bad month from missing payroll.
Build the reserve from Profit account distributions and windfall storm months. Park it in a separate high-yield savings account. It earns roughly 4% and stays mentally unavailable for “just this one purchase”.
The bottom line
Reserve isn’t conservative. Reserve is what lets you say no to a bad job and yes to a good hire.
Cash on hand is the freedom to choose. Without it, every decision is forced.