Why Profitable Construction Jobs Still Run Out of Cash

A job can be profitable on paper and still put you out of business. The mechanism is timing, and it catches contractors who have never had a loss-making job in their lives.

How it happens

You win a contract worth 150,000. Your margin is a healthy 14%. Nothing about the job is wrong.

Then the sequence starts. You pay for materials on delivery. You pay your crew weekly. You pay subcontractors at thirty days because that is what you agreed to get them on board. Your client pays at sixty days, and the first valuation is not certified until month two.

For the first ten weeks, money leaves faster than it arrives. The job is profitable the whole time. You are simply funding it.

The part that surprises people

Growth makes this worse, not better.

Win a second job and you double the funding gap before you double the income. This is why contractors fail in good years more often than bad ones. The order book looks excellent right up to the week the payroll does not clear.

The three numbers that matter

Forget complicated forecasting. Three numbers tell you almost everything:

• Your payment gap. Average days you get paid, minus average days you pay out. If clients pay at sixty and you pay at thirty, your gap is thirty days. Every job you run has to be funded across that gap.
• Your peak exposure. The largest cumulative negative balance across the life of the job. This is the amount of cash the job will actually demand of you, and it is almost never the same as the contract value.
• Your retention. Typically 5% held until practical completion and half of that for another year. On a 150,000 contract that is 7,500 you will not see for a long time. It is margin you have earned and cannot spend.

Forecast forward, not backward

Most contractors look at the bank balance and extrapolate. That tells you where you have been.

A cash flow forecast works the other way: it starts from what is contracted and committed, and projects the balance forward month by month. Money in, money out, balance carried forward. Simple arithmetic, done honestly.

The value is not precision. It is spotting the month where the line goes below zero, twelve weeks before it happens, while you still have options: bring a valuation forward, negotiate a deposit, delay a purchase, or arrange facility.

Twelve weeks of warning is a manageable problem. Twelve hours is a crisis.

The variations trap

Variations wreck cash flow more than any other single factor.

You do the work when asked, because refusing damages the relationship. But the variation is not certified for weeks, and it is not paid for weeks after that. Meanwhile you have already paid for the labour and materials.

Every unapproved variation is a loan you made to your client without agreeing terms. Two or three running at once on a small job is enough to cause a serious squeeze.

The discipline is simple and rarely followed: price it, get it agreed in writing, and log it the same day. Not the same week.

What good looks like

A contractor with control over cash can answer, without hesitating, what the bank balance will be at the end of next month and the month after. Not exactly, but within a sensible range, and with the reasoning visible.

That answer takes an afternoon to set up and about twenty minutes a month to maintain.

The contractors who cannot answer it are not worse at their trade. They are just carrying a risk they have not measured.