Cash Flow Explained

Contractors run on very thin profit margins however cash flow is even more important for sustainable growth.

D. Brown Management Profile Picture
Share

This is how capital (cash) flows in and out of the business over time.  Poor cash flow is a primary reason for contractors failing or their profitable growth being seriously constrained.  

Cash Flow: Money flowing in and out over time. It's not how much capital you have. It's how you make it flow through the business cycles.

When we looked at the basics of project profitability and compared it to a paycheck of $1,000 per week we saw that we only had $50 per week for taxes, savings, unexpected expenses and discretionary spending.  For a contractor discretionary spending includes things like investment in new tools, equipment and technologies.  

We all know the pressures of managing a household budget that was that tight.  We were thankful for the weeks of overtime and dreaded the weeks with rain or no work.  

  • How much more money would you have to have saved if you got paid monthly instead of weekly?
  • What if it were every 45, 60 or even 90 days like many contractors?  
  • What if 10% of your gross income ($100 per week) were held back from your payment for a year or more?  That’s retention!  

Remember that a contracting business has three major constraints to growth.  Sustainable growth is about systematically removing each of those constraints:


Cash Flow
Great cash flow is a key driver of valuation and successful successions. Running out of cash is is the #1 reason contractors fail. Improving cash flow improves your Return on Equity. Protect yourself and never let cash flow be the limitation to your profitable growth....

Cash Flow
Great cash flow is a key driver of valuation and successful successions. Running out of cash is is the #1 reason contractors fail. Improving cash flow improves your Return on Equity. Protect yourself and never let cash flow be the limitation to your profitable growth....

Two Key Results for Project Planning
There are two critical key results that should be focused on as part of every project planning process.
Black Box Thinking
Failures, mistakes and problems are part of every contractor’s business. What separates out high-performing teams is a relentless focus on learning from these problems then creating systems and training to mitigate them in the future.
Organizational Structures and Succession Preparation
Whether you are focused on growing profitably or preparing for an ownership transition, the strength of your organizational structure is a major factor.