Profit vs Cash
Why Does Your P&L Show Profit But Your Bank Account Is Empty?
It's one of the most frustrating moments in running a construction company.
You pull up your Profit & Loss statement. It shows you made money—maybe good money. Revenue exceeded expenses. Net income is positive.
Then you check your bank account. And it's barely enough to cover next week's payroll.
How is this possible?
Profit Is Not Cash
This is the fundamental truth most business owners don't understand until they live it:
Profit measures revenue minus expenses over a period of time. Cash flow measures when money actually moves in and out.
These are not the same thing. And in construction, they're often completely disconnected.
Why Construction Makes This Worse
In most industries, the gap between profit and cash is manageable. In construction, it's a chasm.
You pay before you get paid. Materials go on your credit card or account before the project starts. Crews get paid every two weeks. Subcontractors expect payment within 30 days. But your client? They pay 30-60 days after you invoice—which might be weeks after you incurred the costs.
Retainage traps your profit. Every progress payment comes with 5-10% withheld as retainage. On a $500,000 project, that's $25,000—$50,000 of your profit sitting in limbo until the job closes out. Your P&L counts that revenue as earned. Your bank account doesn't have it.
Overbilling and underbilling distort reality. If you're underbilling (completing work you haven't invoiced), you've earned profit you haven't collected. Your P&L looks great; your cash position doesn't. If you're overbilling, you have cash but owe work—which creates different problems. This is why WIP reporting is so critical for understanding your true financial position.
The Working Capital Trap
Here's the cycle that kills contractors:
You land a big project. You mobilize crews and buy materials—cash goes out immediately. You invoice for the first draw—but won't collect for 30+ days. Meanwhile, payroll doesn't wait. Neither do material suppliers.
By the time you collect the first draw, you're already spending for draw two and three.
The bigger you grow, the more working capital you need. And profit doesn't automatically become working capital—not in construction.
Understanding that profit and cash are different is step one. Managing them separately is step two.
Cash flow forecasting shows you exactly when money will be tight—so you can arrange financing, accelerate billing, or delay expenses before the crunch hits.
Draw schedule optimization aligns your billing with your costs as closely as possible.
Retainage tracking ensures you know exactly what's owed to you and when it becomes collectible.
WIP analysis reveals whether your profit is real or timing-based.
The goal isn't just to be profitable. It's to convert profit into cash before you run out.
Salisbury Bookkeeping helps construction companies bridge the gap between paper profit and actual cash. We build forecasting systems so you see problems before they hit. Our fractional controller services include 13-week cash flow forecasting and ongoing cash position monitoring. Contact us to learn how predictive cash management can eliminate your financial surprises.
