Why a profitable month can still leave you broke

It's one of the strangest feelings in business. The month was great. The jobs were profitable. And you're staring at the bank account wondering how you'll make payroll.

You're not bad with money. You've run into cash timing.

Profit and cash aren't the same thing

Profit is what a job earns once it's done and paid. Cash is what's in the account today.

On a big foundation or waterproofing job, the order usually goes like this. You pay for the marketing that brought the lead. You buy materials. You pay your crew every week they're on the job. Then, weeks later, the customer pays. If they financed, maybe later still.

Every big job is a little loan you make to your customer. One at a time, you don't notice. Ten at a time, you do.

Why growth makes it worse

Here's the trap. The faster you grow, the more jobs you're paying for up front at the same time. A record month can drain the account, because you're funding next month's jobs with this month's cash.

That's how fast growth breaks businesses that were profitable the whole time.

Know your cash timing

Pick your last ten big jobs. For each one, count the days from your first dollar out to the customer's last dollar in. That's your cash timing.

Then you can answer the real question: if I take on twice the work next month, how much cash do I need on hand to fund it?

Build a slow season reserve

Every trade has a slow season. Know what your slowest months cost you: payroll, rent, trucks, insurance, the bills that don't slow down when the phone does. Set that cash aside before those months come, not during them.

Ask your accountant for payroll by month for the last two years. That one number tells you most of what you need.

Ways to close the gap

• Take deposits on big jobs, in your contract, every time.
• Bill in stages on long jobs instead of all at the end.
• Watch the slow payers. A few customers who always pay late can eat your cushion.
• Grow on purpose. Take the big month, but know what it costs in cash before you say yes.

Clean books make it visible

None of this works if your books are a year behind. Reconciled every month, in standard categories, so you can see cash coming and going while you can still do something about it.

Here's what to ask your accountant for this week. The full money and risk checklist is in our free playbook.

Not sure where your business stands yet? Our free Growth Ladder assessment takes about four minutes.

Written by Coach AKFounder of Momentum. Former Executive Sales Coach Lead at Google.