{{first_name}},
If you are like most contractors, you possibly finished the last month strong, jobs were done, invoices were sent, margins looked decent. Then you checked your bank account and wondered where the money went.
You know your trade, you are not bad at business. Possibly, what you are experiencing is something I have seen in hundreds of trade contractor businesses over the last 20 years. I call it the Cash Conversion Gap, it is the time between when you earn money and when you actually have it sitting in your bank account.
Here is how this gap works against your business.
You pay your crew every two weeks. Your suppliers want payment in 30 days. But your commercial client takes 60, sometimes 90 days to pay. That gap; cash going out fast, cash coming in slow, quietly strangles businesses that look profitable on paper but feel broke every single month.
I have found that contractors who fix this problem don't necessarily work harder or win more jobs. They just close the cash conversion gap.
Here are three places where I find cash bleeds in most roofing businesses.
1. Your invoicing timing: Most trade contractors wait until a job is fully complete before sending an invoice. That is the single most expensive habit in your business. If you switch to milestone billing instead, 30% upfront, 40% at mid-point, 30% at completion, it will help bridge the gap. One owner I spoke with went from 67-day average collections to 42 days by changing nothing except when he sent his invoices. Same jobs, same clients, same crew. Just different timing.
2. Your holdback sitting uncollected: If you do commercial work, you most likely have holdbacks sitting on your balance sheet right now doing absolutely nothing. Go add them up. For most roofing contractors doing $3M to $10M in revenue, that number sits somewhere between $150K and $400K. That is your money, in someone else's account, funding their business while you are out there winning new work to cover the gap. Chase your holdbacks like they are overdue invoices, because they are.
3. Your material float: Every time you buy materials before collecting a deposit, you are financing your customer's job out of your own pocket. Start requiring a material deposit on every job over a threshold you set. Make it non-negotiable. The clients who push back hard are going to be your slowest payers anyway. You are in business to make money, not to fund other people's projects.
The number this week: 60
On an average, I see sixty days is the average time it takes for a contractor doing under $10M in revenue to collect what they are owed. Best-in-class operators collect in 28 to 32 days.
Here is what that difference means in real money. Every 10 days you shorten your collection cycle on $5M in revenue frees up approximately $137,000 in working capital; without winning a single new job, without hiring anyone, without changing anything about how you do the actual work.
Cash locked in slow collections is cash that cannot fund your next job, your next hire, or your growth.
The question I want to leave you with
How many days does it take your business to collect payment after a job is complete and do you actually know that number, or are you estimating? Watch this number like a hawk. Cash is King. Protect it.
Now. Why I am writing this?
I have spent 20 years working alongside construction and trade business owners across Canada. My firm N3 Business Advisors has helped hundreds of contractors buy, grow, value, and sell their businesses.
I started by career as a teacher and that part of me never left. So every Thursday morning I want to put one lesson in your inbox, for FREE; the kind of thing most owners only hear when they pay someone $400 an hour.
I don’t have any other motivation but to just share the lessons that I have learnt from the “Business of Construction”.
If this was useful, please forward it to one owner who needs to hear it.
If it wasn't, reply and tell me why and also tell me what else would you like me to write about.
Nitin Khanna, CFA | Founder, N3 Business Advisors | Mastering the Business of Construction