More clients. More projects. More revenue. (More problems?)
Growth feels like a reward, and it should. You worked hard to get here. But growth can also put serious pressure on your cash. When that pressure shows up, it usually lands squarely on the shoulders of the owner.
We see this most with construction companies, contractors, professional services firms, and other project based businesses. It is even tougher when you do not have a firm understanding of how cash flow works in your business.
And do not take that as judgment. Many of the business owners I meet feel like they should already understand all the financial “stuff”: working capital, cash conversion cycles, financial statements, all of it. Unless you have a background in accounting or finance, why would you?
You did not start your business to become a financial expert. But as the CEO, you do have a responsibility to understand enough about the financial side of the business to make good decisions.
That is part of why we exist. Nobody hands you a lesson on cash flow, working capital, or financial statements when you start a business. Most owners learn it as they grow, and our job is to help make that learning practical and useful.
The Timing of the Money Matters
Timing can cause cash problems in two ways. They look similar on your bank statement, but they’re different problems.
The first is the terms you agreed to. Say you land a big project and your client is net 60. That means you won’t see that money for 60 days after you invoice. In the meantime, payroll is due. Materials need to be ordered. Your subcontractors want to be paid. The client is doing nothing wrong. That’s the deal you made, and you’re the one funding the gap.
The second is clients who pay late, over and over. Net 30 turns into 45, then 60, then “I’ll look into it.” Maybe you’ve started to expect it. Late payment is easy to shrug off as just how this client is, but it works like a loan you never agreed to make. Every week they stretch it, your cash is tied up in their business instead of yours. And it gets worse as you grow, because more clients means more chances for invoices to pile up. And once a client has trained you to expect late payment, it can start to feel normal. It isn’t. It is just familiar.
Here’s the tricky part. When both happen together, you have a 60 day wait that quietly becomes 75 or 90 days. That’s the gap that makes growth feel so stressful.
Somebody has to fund that gap, and most of the time it’s you. The money is coming, eventually.
The bigger the project, the bigger the gap. That is how a business can win the best work of its life and still feel like it’s scrambling.
We’ve seen it many times with businesses that were killing it. Revenue was growing rapidly. But no matter how many new contracts or customers were added, they still never seemed to have as much money in the bank as they expected. Then, when we looked at the timing of invoice payments, payroll, owner distributions, and projects, it all made sense.
A Profitable Business Can Still Run Out of Cash
This one surprises people. Your profit and loss statement tells you what you earned. It doesn’t tell you when the money hits your bank account.
Accounts receivable looks great on a report, but you can’t make payroll with it. You can’t pay rent with it. You can’t pay yourself with it either. Cash in the bank does all of that.
That’s true whether the delay is built into your terms or your clients are just late. So you can be profitable on paper and still be short on cash. Meanwhile, payroll is due.
Know How Much Cash Your Growth Requires
So how much cash does your business need to carry the work? Start with a few very practical questions:
- Do you collect a deposit up front, or do you wait 30+ days after the work is done?
- Are you paying employees, subcontractors, or a mix of both?
- Are you buying materials or purchasing other services before the job starts, or mostly selling your own time?
Each answer changes how much cash you need to have on hand before the next big project begins. A business that collects deposits before work begins may need a different cash cushion than one required to buy materials, cover payroll, and pay subcontractors while waiting two months to get paid.
You need to understand yours. And it’s much better to learn it before the next big project or client comes along.
Better Visibility Gives You More Options
At LTA, we believe in seeing and understanding our clients’ problems before we prescribe a solution. When you can see the problem or gap coming, you have choices. When you discover it the week payroll is due, your choices are limited.
The right move depends on which timing problem you have.
If the gap comes from your payment terms, consider:
- Changing your deposit requirements
- Invoicing sooner
- Setting up progress billing instead of waiting until the end
- Increasing pricing to account for longer payment terms, since waiting 60 days has a real cost
- Exploring financing options including a line of credit or factoring
If the gap comes from clients who pay late, consider:
- Following up on receivables on a regular schedule, not only when cash gets tight
- Stating payment expectations clearly in your contracts and on your invoices
- Adding a late fee, or at least having a conversation before the next project starts
- Making deposits or progress payments a requirement for clients who keep paying behind
- Deciding whether a chronically late client is worth keeping, or at least worth growing with
If the numbers say so:
- Slowing growth for a while
That last one is not a failure. Sometimes taking every project you can win is actually the riskier decision. A short pause can give the business time to rebuild cash, collect receivables, strategize, and get ready for the next round of growth.
More Revenue Doesn’t Automatically Mean More Cash
It’s easy to celebrate the top line. Revenue is the number many owners focus on and brag about, and it only tells part of the story.
Revenue is exciting. Growth is exciting. We want both.
We just want the cash to be able to keep up.
This right here is one of our favorite things to dig into with clients. We help them look ahead at what the business is going to need, how long the money may be tied up, and where the pressure points are likely to show up.
Winning more work feels a whole lot better when you aren’t wondering how you’re going to fund it.