Your accountant says you made money last year. So where is it?
If you’ve ever looked at a profitable year and an empty bank account and wondered what happened, you’re not crazy.
Here’s the thing: profit and cash aren’t the same. And in construction, the gap between them can get big.
Why is profit different from cash?
Profit counts what you’ve earned. Cash counts what’s actually in the bank.
You can finish a job, invoice it, and book the profit today. But if the customer pays in two months, that money isn’t in your account for two months. Meanwhile, your crew still wants paying on Friday.
In construction, a handful of things sit between profit and cash. Let’s go through them.
How do holdbacks hurt cash flow?
In BC, a slice of every contract gets held back by law.
Under the Builders Lien Act, the person paying on a contract has to hold back 10% of what’s owed. As the Act reads today, the holdback period ends 55 days after a certificate of completion is issued.
So on a big job, 10% of what you’ve billed sits with your customer until well after the work is done. It’s your money. You just can’t spend it yet.
Do you know, today, how much of your money is sitting in holdbacks? If not, that’s the first number to find.
Run a few jobs at once and those holdbacks add up fast. That’s why your books should track them in their own account, job by job, so you know exactly what’s out there and when it’s due back.
Why does progress billing squeeze cash?
Because you pay for the work before you get paid for it.
You buy materials up front. Your crew works two weeks before payroll. Your subs want paying on their terms.
Then you bill a stage, and the customer pays when they pay.
Say you bill a $40,000 stage and the customer takes 45 days to pay. That’s a made-up example, but you know the feeling. For those 45 days, you’ve already paid for most of that work out of your own pocket.
The fix isn’t complicated, but it takes discipline:
- Bill the day a stage is done, not at the end of the month
- Get a deposit before you order materials on big jobs
- Put payment terms in writing, and follow up the day an invoice goes overdue
- Bill change orders right away, before you forget what was extra
Why does GST catch contractors off guard?
Because it lands in your bank account looking like your money. It isn’t.
The GST you collect on your invoices belongs to CRA. You get to keep it until your return is due. Then it all goes out at once.
Bill that made-up $40,000 stage from earlier and another $2,000 of GST comes in on top. That $2,000 was never yours.
If you’ve spent it on payroll and materials in the meantime, the return turns into a cash crunch. And if you file late because you can’t pay, the late-filing penalty and interest make it worse.
The simple habit: when a customer pays, move the GST portion to a separate account. Don’t touch it. When your return is due, the money’s there.
What other cash drains should you watch?
- Payroll remittances. The source deductions you take off your crew’s pay go to CRA, on CRA’s schedule.
- WorkSafeBC premiums. They run off your payroll. Budget for them like any other bill.
- Truck and equipment payments. Fixed, every month, whether jobs pay on time or not.
- Materials for the next job, bought before the last one has paid.
None of these are surprises. But if you’re not looking ahead, they feel like surprises.
How do you see a cash crunch coming?
With a cash flow forecast. It sounds fancy. It’s not.
It’s a list, week by week, for the next couple of months:
- Money in: which invoices you expect to get paid, and when
- Money out: payroll, subs, materials, GST, loan payments, WorkSafeBC
Add it up week by week, and you’ll see the tight weeks long before you’re in them. That gives you time to chase an invoice, push a materials order, or talk to the bank about a line of credit before you need it.
You can do this in a spreadsheet in half an hour. Honestly, the hardest part is having books current enough to trust the numbers.
What should you do when cash is already tight?
So the forecast shows a bad week coming. Now what?
- Call your biggest overdue customer today. Not an email. A call.
- Bill everything that’s done, including change orders and any holdback that’s due back.
- Talk to your suppliers before the bill is late, not after.
- Push purchases that can wait, like the new tool or the truck upgrade.
- Keep your remittances and GST current. CRA penalties and interest turn a tight month into an expensive one.
- Talk to your bank early. A line of credit is easier to get when you don’t need it yet.
Notice what’s not on the list? Skipping your crew’s pay or your subs. That’s the fastest way to lose the people who make the money.
Why do clean books come first?
Because a forecast built on messy books is a guess.
If you don’t know who owes you, which holdbacks are outstanding, or what each job really cost, you can’t plan cash. You can only react to it.
That’s where job costing comes in too. If a type of job keeps running over, it’s draining cash every time you do one.
And if you’re behind on your books, catch up first. Everything else depends on it.
Want clean books to plan cash from?
Trades and construction is our specialty at MBC Canada. Every client gets monthly financial reports in plain English, and our Growth Partner bookkeeping adds monthly in-depth reporting, so you can see where the cash is going.
Our bookkeeping starts at $800 a month, and here’s what decides your number. See everything we do on our services page, or book a free 30-minute call.
Holdbacks, progress billing and the rest of the contractor picture: bookkeeping for contractors.