Cash Flow Before You Take the Big Job

The job that kills a small contractor is usually the biggest one they ever won. Not because it was unprofitable, but because the money went out months before it came in, and nobody modelled the gap.

Profit and cash are different things. A job can be profitable on paper and still empty the account.

Map the gap before you sign

Take the job and write two timelines side by side. When money leaves: deposits on materials, the first equipment hire, the first payroll run, fuel, permits. When money arrives: deposit, progress payments, final payment, retainage release.

The distance between those two lines, at its widest point, is the cash you need to have before you start. Not the profit margin. The peak funding requirement.

For a lot of small firms that number is larger than anything they have ever held, and it is the real reason to say no to a job that looks attractive on margin.

Retainage is the line people forget

Where a contract holds back a percentage until completion or beyond, that money is not available to you even though you have earned it and paid the costs to produce it.

Treat retainage as a separate line in your forecast with its own expected date, and be sceptical of that date. It is commonly the last thing released and the hardest to chase.

If you subcontract, check whether your own payment terms mirror what you have accepted upstream. Agreeing to be paid on completion while paying your subs weekly is a structural cash gap that gets worse as you grow.

Invoice on the schedule you agreed, without exception

Late invoicing is the most common self-inflicted cash problem in small trades, and it is entirely within your control.

Three habits fix most of it:

• Invoice the day the milestone is met, not at the end of the month when you sit down to do paperwork.
• Put payment terms and a due date on the invoice itself, in plain words rather than a code.
• Chase on the day it becomes overdue. A polite email on day one is far more effective than an angry call on day thirty.

If a client is routinely slow, price that into the next quote or ask for a larger deposit. Slow payment is a cost of doing business with that customer, and it should be reflected somewhere.

Arrange credit before you need it

The time to open a line of credit is when you do not need one. Applying while short is when terms are worst and approval least likely.

A modest line used briefly to cross a known gap is a reasonable tool. Funding an ongoing shortfall with revolving credit is not — that is a business that is not covering its costs, and borrowing only delays the diagnosis.

Know what you are being offered. Merchant cash advances and daily-repayment products are widely marketed to contractors and can carry an effective cost far above what the headline suggests. The Consumer Financial Protection Bureau has material on comparing credit costs, and the Small Business Administration sets out conventional options on its loan programs page. Compare the total repaid, not the weekly figure.

Keep a reserve that is genuinely untouchable

A contracting business needs its own reserve, separate from your personal one and separate from the tax account.

Size it against your fixed monthly outgoings — the costs that continue whether or not you are working. Insurance, vehicle finance, any premises, any permanent staff. That is what a quiet month actually costs you.

Keeping it separate matters. A reserve inside the operating account is spent without a decision being made, which is the same as not having one. The same principle applies personally, and our guide to building an emergency fund covers where to hold money you must not touch.

What to do this week

Take your largest current job and write the two timelines. If the widest gap is bigger than your available cash, you have found the thing to fix before you bid the next one.

Then check every unpaid invoice you are carrying and note the oldest. If anything has passed its due date without a chase, send it today. Most late payment is not a dispute, it is an unopened email.

If your business money is still moving through a personal account, that is the prerequisite to all of this — see our guide to managing finances as an owner-operator and to separating business and personal money. If you are supplementing income between jobs, earning through the sharing economy covers the tax side of that.

Run a construction firm, a trade or a local service business? We publish contributions from people who have actually bid and delivered the work. See our small business write for us page.