Revenue and cash flow are not the same thing.
A contractor can have a profitable project on paper and still experience serious financial pressure if payments arrive after payroll, materials, insurance, equipment, and subcontractor costs are due.
Working capital is the money available to support a company's everyday operations.
Contractors should understand their monthly operating expenses and estimate how long the business could continue operating if a customer payment were delayed.
A strong working-capital strategy may include business savings, retained earnings, a business line of credit, disciplined billing procedures, careful accounts-receivable management, and realistic project scheduling.
Before accepting a large contract, contractors should calculate how much cash will be required before the first payment arrives. They should also understand retainage requirements and payment schedules.
Growing too quickly can create the same cash-flow problems as having too little work. A contractor that wins several large projects simultaneously may suddenly need to finance much more payroll and material expense than the company has historically managed.
NAMC Central Texas encourages contractors to evaluate both the profit potential and the cash-flow requirements of every major opportunity.
The goal is not simply to win contracts. The goal is to successfully perform those contracts while maintaining a financially healthy business.
NAMC Central Texas provides this information for general educational purposes. Financing, grant, bonding, and business-program requirements vary by provider and program. Members should verify current requirements directly with the appropriate funding organization, lender, surety, or public agency.