I’ve been thinking about something that doesn’t get discussed enough in the contracting business.
You can have plenty of work lined up and still run into cash flow problems.
Between paying employees, buying materials, covering equipment costs, and waiting for customers to make payments, there’s a lot of money going out before it comes back in.
And if you’re working on multiple projects at once, I can imagine that gets even more challenging.
I’m curious how contractors here are handling that.
Do you normally use customer deposits, your own cash reserves, or some form of business financing to keep everything moving?
I’d be interested in hearing what works best for everyone.
They have almost zero inventory, they should be one of the most cash rich business possible. Now do people have no money and can’t get another job start a contracting business? Sure they do. Imagine if they has started an any business where you aren’t paid until after 100% of the work, basically 99% of businesses. If you start getting business’s, especially property managers or larger companies, you can expect to,wait 15-30 days after the jobs down before you get a penny.
Starting a contracting business without being able to float for at least a month or two is like investing in real estate without enough reserves to do the same. W harp on investors needing reserves but seem to let small business owners off the hook when they shoudl have large reserves.
As soon as a company needs a downpayment for a job that costs less than $5-10k you know there’s a chance they don’t have the financial wherewithal to finish the job.
Bill, I agree with you that having reserves is extremely important, especially in contracting where you’re often paying for labor, materials, and equipment before getting paid. That 15–30 day gap can put a lot of pressure on cash flow, even for a profitable business.
I think that’s also where having access to business funding can make a difference. A properly structured business line of credit or revenue-based financing can help established contractors cover expenses while waiting on payments, without draining their cash reserves.
I work in business funding, and one thing I’ve noticed is that sometimes the issue isn’t a lack of business, it’s a lack of working capital to keep up with the business they’re getting. I’m curious, do you think more contractors struggle because they aren’t managing their money properly, or because they’re taking on more work than their cash flow can support?