Busy, Backlogged — and Broke: Why Full Schedules Still Leave No Cash
By Henry Goudreau, C.S.L., Contractor Coaching
Talk to a contractor these days and you’ll hear the same sentence, usually with a tired laugh: “Henry, we’re busier than we’ve ever been — I just can’t figure out where the money goes.”
The trucks are out. The crews are booked weeks ahead. Revenue is up over last year. And the bank account is flat, the credit line is doing the heavy lifting, and the owner is working longer hours than he did when the business was half this size.
If that sounds familiar, hear this first: it is almost never a work problem. Busy companies do not go broke from lack of effort. They go broke — slowly, and then all at once — because the cash leaks out in three places most owners never look at until the account is empty.
Leak one: a backlog priced too low is just a list of future losses
A full schedule feels like security. It is only security if the work in it was priced to make money.
Run this example. Say you are carrying $1.2 million of booked work. If that work was priced to deliver an 18% gross margin, it will throw off about $216,000 of gross profit. If your business actually needs a 28% gross margin to cover overhead, pay you properly, and keep a real profit, that same backlog needed to produce $336,000.
The difference is $120,000 — and it was decided before the first crew ever showed up on site. No amount of hustle in the field buys it back. Your people can execute that backlog perfectly and you will still come up $120,000 short of what the business required.
That is why “we’ll make it up on volume” is the most expensive sentence in construction. Volume priced below your required margin does not fix the problem. It schedules more of it.
The check: take your current backlog and ask one question of every job on it — what gross margin was this priced at, and is that the margin my business actually needs? If you cannot answer job by job, that is the first leak, whether the numbers turn out good or bad.
Leak two: work done is not money in — billing and collections set your cash clock
Profit is an opinion on paper. Cash is a fact in the bank. The gap between the two is mostly timing, and timing is a system.
Say your company completes about $250,000 of work a month — a $3 million-a-year business. If billing waits until somebody finds time at the end of the month, and customers then take their usual 30 days to pay, the money for work your crews did in the first week of the month can easily arrive two months later. Meanwhile payroll is weekly, materials are due on the supplier’s terms, and the tax man does not wait for your receivables.
Fall just 30 days behind on billing rhythm and you have, in effect, lent your customers an extra month of your production — roughly $250,000 of finished work sitting unbilled or unpaid at any given time, while your line of credit carries it and charges you for the privilege.
None of that shows up as a loss on the profit and loss statement. The jobs can even be “profitable.” The business still starves, because the cash clock was never set: bill on a fixed rhythm, bill for completed work promptly, put payment terms in writing before the job starts, and follow up on the same day a payment goes past due — every time, by system, not by whoever remembers.
The check: how many days, on average, between finishing work and sending the bill — and between sending the bill and seeing the money? If nobody in your company can give you those two numbers, your cash is running on hope.
Leak three: job costing that arrives too late is history, not management
Most owners do look at job costs — after the job is done, when the report is an autopsy.
Take a $100,000 job priced to make a 20% gross margin: planned cost $80,000, planned profit $20,000. Now let the actual costs drift just 10% over plan — $88,000 instead of $80,000, the kind of overrun that happens a little at a time, in labor hours nobody flagged and materials nobody questioned. The profit is now $12,000, a 12% margin. Eight thousand dollars gone, and on a finished job there is nothing left to fix.
But here is the reckoning most owners never run — and it makes that leak look small. That $20,000 of gross profit is not money the company keeps. Gross profit first has to pay the overhead: the office, the trucks, the insurance, the bookkeeper, the phones, your own salary — everything it costs to keep the doors open whether a job is running or not. For the average contractor, overhead runs about 25% of sales. On this $100,000 job, the job’s share of overhead is $25,000.
Now look at the job again. Planned gross profit: $20,000. Overhead: $25,000. This job was a $5,000 loser the day it was signed — at its planned costs, before a single hour drifted. After the cost creep, the loss grows to $13,000. A job the books describe as “20% margin” never had a dollar of real profit in it.
That is the blind spot in watching margin alone: margin only measures gross profit against price. It says nothing about whether your overhead got covered. Overhead does not care what your margin was — it takes its 25% of every sales dollar first, and whatever is left is your net profit, or your loss.
This is exactly why pricing has to be built with markup on your job costs, not by picking a margin that sounds healthy. Markup is the tool that pulls your overhead — and your net profit — into the selling price where they belong. Work it backwards: overhead at 25% of sales, plus a 10% net profit worth working for, means the job must produce a 35% gross margin. On $80,000 of job costs, that price is $80,000 ÷ 0.65 = $123,077 — a 53.8% markup on cost. At that price, gross profit is $43,077; overhead takes $30,769 (25% of sales), and $12,308 of real net profit is left. Same job, same crew, same costs. The only difference is that this time the price was built to carry the whole business, not just the job.
Caught at the halfway point, that same overrun is a conversation, a correction, maybe a change order. Caught at the end, it is just a smaller bank account and a shrug.
Job costing only earns its keep when it is current — costs posted while the job is live, compared against the estimate while there is still time to act. Weekly on active jobs is not paperwork. It is the difference between managing a job and remembering one.
The check: pick the biggest job you have running right now. Can you see, today, what it was estimated to cost, what it has cost so far, and what is left to finish? If that answer takes more than a day to produce, you are flying the plane by looking at where it has been.
The bottom line
Busy is not the same as healthy. A full backlog priced too low, slow billing, and late job costing will keep a hard-working owner broke at any revenue level — $2 million, $5 million, $15 million. The fix is not more work. It is structure: pricing built with markup that pulls your overhead and your net profit into every selling price, a billing and collections rhythm that runs whether you remember it or not, and job numbers you can see while they can still change the outcome.
That is exactly what my S3 Diagnostic is built to find. In a free Business Evaluation, I will look at your pricing, your cash rhythm, and your systems, and show you where the money is leaking and what it is costing you — in plain dollars, not theory.
Book your free Business Evaluation here
No pitch, no pressure. Just your numbers, straight.
— Henry Goudreau, C.S.L., Contractor Coaching
