A profitable job that runs out of money

Profit and cash measure different things. Profit is value earned less cost incurred, recognised when the work is done. Cash is money that has actually arrived, less money that has actually left.

A business can be profitable on every job it runs and still fail, because insolvency is a cash event and not a profit event.

The structural gap in construction

• Work is done in month one.
• It is valued at the end of month one.
• The due date is a week later.
• The final date for payment is a fortnight after that.
• Retention removes three per cent of it permanently, for now.
• Meanwhile labour was paid weekly, in month one.

Even with everything working exactly as the contract intends, the contractor funds around five weeks of work continuously, with a slice permanently withheld.

What turns the gap into a problem

Growth. The most dangerous condition for a construction business is a good year. More turnover means a larger funded position, and the profit from the extra work arrives long after the cash to support it was needed.

Late payment. A fortnight of slippage on receipts, sustained, is a permanent increase in the funded position of a fortnight’s outgoings.

Paying down faster than being paid up. Subcontractors on shorter terms than the main contract is a direct transfer of the funding burden onto the main contractor.

Disputes. An unresolved final account is profit recognised and cash not received, sitting there for a year.

Two numbers, tracked separately

Margin answers whether the work is worth doing. Cash answers whether the business survives doing it. A report that shows only one of them is answering half the question.

The practical protections

• Value on time, every cycle, without exception. The commonest self-inflicted cash problem is a late valuation.
• Align subcontract payment dates to fall after the main contract dates.
• Chase retention releases actively rather than waiting to be asked.
• Model the peak before taking the job, and again before taking the next one.

None of that improves margin by a penny. It is the difference between earning the margin and being around to collect it.