A contracting business can be profitable and still struggle to cover payroll, materials, and other bills. That is because profit and cash flow are not the same. Profit measures whether your business earned more than it spent. Cash flow measures when money actually enters and leaves your bank account. Contractors often pay employees, suppliers, and subcontractors before receiving payment from customers. Without a clear system for managing cash flow, even a busy company can experience financial pressure.
Send Invoices Promptly
Every day you wait to invoice is another day you wait to get paid. Create and send invoices as soon as work is completed or a billing milestone is reached. Invoices should clearly explain the work performed, the amount due, the payment terms, and the available payment methods. For longer projects, deposits and progress billing can help reduce the amount of work your business must finance.
Review Unpaid Invoices Regularly
Sending an invoice does not guarantee it will be paid on time. Review your accounts receivable report each week to identify upcoming and overdue balances. A consistent follow-up process can improve cash flow without requiring you to take on additional work.
Automatic reminders and convenient online payment options can also make it easier for customers to pay promptly.
Plan for Upcoming Expenses
Your current bank balance does not show the complete financial picture.
Some of that money may already be needed for:
- Payroll
- Supplier bills
- Subcontractor payments
- Loan payments
- Credit card balances
- Insurance
- Taxes
Maintaining current bookkeeping records helps you understand what cash is truly available after upcoming obligations are considered.
Set Money Aside for Taxes
Money collected from customers should not automatically be treated as available pending money. Contractors may need to prepare for income taxes, payroll taxes, sales tax, or other obligations. Setting aside money consistently can help prevent a large tax payment from creating an unexpected cash shortage. Your bookkeeper and tax professional can help you monitor these obligations throughout the year.
Use a Cash Flow Forecast
A cash flow forecast estimates the money expected to enter and leave your business over the next several weeks or months. It may include expected customer payments, payroll, vendor bills, loan payments, taxes, and equipment purchases. A forecast will not predict every transaction perfectly. Its purpose is to identify potential shortages early enough for you to take action.
Better Bookkeeping Creates Better Visibility
You cannot manage cash flow effectively when your books are several months behind.
Accurate bookkeeping allows you to see what customers owe, which bills are approaching, how much debt the business carries, and whether sufficient cash is available. Course North helps contractors and trades businesses maintain accurate records and gain better visibility into their finances. Understanding where your cash is coming from and where it needs to go can help you make decisions before a shortage becomes a crisis.
