Why growth runs you out of cash

There is a particular kind of bad year that catches good contractors: revenue up, work quality fine, everyone busy, and no money in the bank.

The short answer: every job consumes cash before it produces any. Materials and payroll go out weeks before the customer pays. Grow 40% and you are funding 40% more of that gap simultaneously. Profitable businesses run out of cash this way, and the profit is real — it is just tied up in work you have done and not yet been paid for.

The cash cycle of one job

Take a single $60,000 job with a 25% margin, running four weeks, with 30-day payment terms.

The job made $15,000. It also required you to fund $45,000 for roughly two months.

That is the entire mechanism. Nothing went wrong in that example — no overrun, no late payment, no dispute. A perfectly executed, properly priced job still took $45,000 out of the business for eight weeks.

Now run three at once

This is where growth stops being an abstraction.

One job at a time needs $45,000 of working capital. Three overlapping jobs need $135,000. Five need $225,000.

Your margin has not changed. Your profitability has not changed. Your cash requirement has scaled linearly with volume, and nobody sent you a memo about it.

Going from three concurrent jobs to five — which feels like ordinary growth and looks excellent on a revenue chart — requires another $90,000 of cash that has to come from somewhere.

It comes from one of four places: retained profit, a credit line, delaying suppliers, or deposits. If none of those are arranged in advance, it comes from the next job's deposit, and at that point you are running a business where each job funds the previous one. That works until one customer pays late.

Why it feels like success right up until it doesn't

The cruel part is the timing. Every signal you normally trust says things are going well.

Revenue is climbing. The schedule is full. The phone is ringing. Your team is busy. If you look at the P&L, profit is up.

The only number that is telling you the truth is cash, and cash is the number people check last — usually because it feels like an administrative detail rather than a strategic one.

Profit and cash move in opposite directions during growth. A growing, profitable contractor has more profit and less money every month, and there is nothing wrong with the business. It is just that the profit is sitting in receivables and work in progress rather than in the bank.

What actually breaks

The failure is rarely dramatic. It is a Thursday where payroll is due Friday and a customer who promised to pay on Tuesday has not.

At that moment you have a small number of options, and all of them are expensive:

• Draw on the credit line, if you have one and it has room
• Delay a supplier, and lose your terms or your discount
• Delay your own pay, which works once or twice
• Factor an invoice at a punishing rate
• Take a deposit on a job you are not ready to start, and push the problem forward a month

None of those are business decisions. They are triage, and they get made under pressure by someone who has not slept properly.

Funding growth deliberately

Growth is not the problem. Unfunded growth is. There are five levers and most contractors use none of them.

1. Take deposits that cover materials. If the deposit funds the material order, the worst week of the cycle disappears. This single change removes a large share of the working capital requirement and costs you nothing but the conversation.

2. Bill progressively. A four-week job invoiced only at completion is financed for four weeks plus terms. Invoiced at 50% mid-job, it is financed for half as long. Milestone billing is normal in commercial work and perfectly acceptable in residential if you set it up front.

3. Collect properly. Receivables over thirty days are cash you have already earned. Most contractors have more sitting there than they realise, mostly because nobody asked a second time. An afternoon of calls routinely beats a month of selling.

4. Get a credit line before you need one. Banks lend on the strength of last year's statements. Arrange the facility when the business looks good and the balance is healthy — not in the week you need it, which is exactly when it is hardest to get.

5. Grow at a rate you can fund. This is the one nobody wants to hear. If you have $80,000 of spare working capital and each additional concurrent job needs $45,000, you can add one job, not three. Taking the fourth job means something has to give, and what gives is usually your ability to pay suppliers on time.

Knowing when to say no

The hardest decision in a growing trades business is turning down good work because you cannot fund it.

It feels like failure. It is the opposite — it is the decision that keeps the business alive long enough to be able to take that work later.

A useful test before signing anything large:

• What is the peak cash requirement on this job?
• When does it occur?
• What is my available cash and credit at that moment, accounting for every other job running?
• What happens if the customer pays thirty days late?

If the answer to the last question is "I cannot make payroll," the job is too big for the business today. That is not a judgement about the work. It is arithmetic.

The metric to run

Track weeks of cash runway weekly, and track it alongside backlog.

Rising backlog with falling runway is the signature of the cash trap. It means you are winning more work than your balance sheet can carry, and it is visible weeks before it becomes an emergency.

The month you notice that pattern is the month to arrange funding, tighten collections, or slow down — while you still have the option of choosing, rather than being told.

The business that fails is almost never the unprofitable one. It is the profitable one that grew faster than its cash could follow.

Asking for the deposit

Lever one — a deposit that covers materials — removes more working capital pressure than the other four combined, and it is the one most contractors skip, because asking feels like admitting you need the money.

It is worth being deliberate about.

Set it as policy, not as a request. "Our terms are 40% on signing, which covers the material order, and the balance on completion" is a statement about how your business works. "Would you be able to put something down?" is a favour being asked, and favours get negotiated.

Tie it to something concrete. A deposit that funds the material order has an obvious purpose the customer can see. A deposit with no stated use sounds like a cash flow problem, which invites the question of whether you have one.

Put it in the quote, not in the conversation afterwards. By the time someone has agreed to a price, the terms should already be on the page they agreed to. Introducing them later makes them feel negotiable.

Have an answer for the objection. The reasonable version is "how do I know you'll turn up?" — answer it with your terms: the deposit covers materials, a progress payment at a defined milestone, the balance on completion and inspection. A customer who is protected at every stage has nothing left to worry about.

Size it to the materials, not to a habit. A job that is 40% material and 60% labour needs a different deposit from one that is 15% material. Copying a standard percentage across every job means over-asking on some and under-funding others.

Expect a small number of refusals. Some customers will not pay a deposit, and a few of those were never going to pay the final invoice either. Losing them at the deposit stage rather than at the collections stage is a considerably better outcome.

On the $60,000 job above, a 40% deposit turns a −$45,000 peak into −$21,000. That is the difference between funding three concurrent jobs and funding five, on exactly the same balance sheet.

Common questions

How do I know if I am growing too fast?

Watch backlog and cash runway together. Backlog rising while runway falls is the signature of unfunded growth. If that pattern runs for two months, you are winning more work than the balance sheet can carry, and the time to arrange funding or slow down is then rather than when payroll is due.

Should I take a big job that I cannot easily fund?

Work out the peak cash requirement, when it occurs, and what happens if the customer pays thirty days late. If the honest answer to the last question is that you cannot make payroll, the job is too big for the business today. That is arithmetic, not a judgement about the opportunity.

Is factoring invoices a reasonable solution?

It is expensive money and it works as an occasional bridge rather than a operating model. If you find yourself factoring routinely, the underlying problem is usually pricing or collections rather than financing. Fix the deposit policy and the receivables process first — both are free and both address the cause.