Profit and cash are not the same thing
Here's the trap that kills healthy-looking trade businesses: you finish a $40,000 job, it's profitable, the P&L looks great — but you fronted $15,000 in materials, made payroll twice, and the customer pays net-45. For six weeks you're profitable and broke at the same time. That gap between doing the work and getting paid is where shops die.
Managing cash flow means managing the timing of money in versus money out. Three levers control it.
1. Speed up money in (accounts receivable)
- Take deposits on big jobs — 30–50% up front on anything material-heavy. The customer funds the materials, not your bank account.
- Invoice immediately. The clock to getting paid doesn't start until you bill. Invoice the day the job is done, not at the end of the month.
- Take payment on site. For residential service, collect by card on your phone before you leave the driveway. "Net-30" on a $400 service call is a habit worth breaking.
- Track A/R days — the average time to collect. Aim for under 30 days and chase anything older. Money owed to you is an interest-free loan you're giving your customers.
2. Slow down money out (accounts payable) — sensibly
- Use supplier terms. A net-30 account with your distributor means materials are often invoiced after you've been paid for the job they went into. That single alignment fixes most cash crunches.
- Don't pay early for no reason — but never burn a supplier relationship or your own credit to stretch a bill. Reputation with your suppliers is worth more than a few days of float.
3. Keep a reserve
Build a cash cushion of 2–3 months of operating expenses and protect it. It's what absorbs a slow season, a truck repair, or a customer who pays late — without forcing you to take a bad job just to make payroll. This is separate from your tax-savings account; don't raid one to cover the other.
Watch the leading indicators
Cash problems announce themselves before they arrive, if you're looking:
- A/R days creeping up — you're financing your customers.
- The reserve trending down month over month — the business is consuming cash, not generating it.
- Relying on a single big check to make payroll — that's not a plan, it's a coin flip.
Recurring revenue from service agreements is the most durable fix of all: predictable monthly cash smooths the whole picture. But the habits above — deposits, fast invoicing, on-site payment, supplier terms, and a real reserve — are what turn a profitable shop into a stable one.