By Eddy Hood, Founding Partner, Ignite Spot Accounting
I've worked with many construction companies facing an uncomfortable squeeze: large invoices have gone out, customers may take weeks or longer to pay, and employees still expect their weekly paychecks.
The business has money coming. That doesn't mean it has enough cash for Friday.
A profitable business can have no cash because revenue may be recorded before customers pay, while payroll and other payments leave the bank sooner. Debt principal, equipment purchases, and owner distributions can also use cash without reducing profit by the same amount.
You don't have to run a construction company to recognize this. Agencies, consultants, and IT firms face the same mismatch when they pay people before collecting for their work.
My philosophy is simple: Profit is great, but cash is king. Here's how I'd give your cash flow a more dependable weekly heartbeat.
Your profit and loss statement, or P&L, measures revenue minus expenses over a period. Your bank balance measures cash at a point in time. They're answering different questions.
On an accrual-basis P&L, you generally recognize revenue when earned and expenses when incurred, regardless of payment timing. Cash-basis reporting generally follows receipts and payments more closely. Check which basis your reports use before interpreting them.
For illustration only, suppose a consulting firm starts the month with $80,000 in cash. It earns and invoices $120,000, incurs $90,000 in expenses, and pays all those expenses. Customers pay only $60,000 during the month.
Its accrual-basis profit is $30,000: $120,000 minus $90,000. But cash falls to $50,000: $80,000 plus $60,000 collected minus $90,000 paid. Assume no other transactions or noncash expenses in this simplified example.
The remaining $60,000 is accounts receivable: money customers owe. You can't use an unpaid invoice to fund payroll.
Loan principal payments reduce cash and the loan balance, rather than becoming an expense. Interest is treated separately as an expense. Equipment purchased for cash may be capitalized and expensed over time through depreciation, so the initial cash outflow can exceed the expense reported that month.
Owner distributions also reduce cash but generally aren't business expenses. Unpaid vendor bills can create the opposite effect: an accrual expense appears before cash leaves. These differences matter even when your bookkeeping is accurate.
ACTION ITEM: Ask your bookkeeper to walk you from reported profit to the change in cash for the same period.
I recommend a regular appointment with your cash, rather than making every spending decision from the number on your banking app.
Weekly cash flow management means reviewing available money, expected collections, and upcoming obligations together. Bring the person handling bookkeeping and the person authorized to approve payments. In a smaller business, that might be you and one other person.
A weekly review doesn't replace daily fraud monitoring or urgent decisions. If cash is tight, check more frequently. The weekly meeting gives those checks context.
ACTION ITEM: Put a recurring 20-minute cash review on your calendar and name who's responsible for preparing the numbers.
Choose one consistent day to review bills, approve them, and schedule payments. You can make decisions together without sending every payment that day.
For example, a Tuesday review can schedule a Thursday payment and another for the following Monday. Allow for processing time so each payment meets its contractual deadline.
Honor vendor terms, payroll funding requirements, taxes, loan obligations, and other required schedules. Don't delay an agreed payment simply because another date would be more convenient. If you foresee a shortage, contact the vendor early to discuss an arrangement.
Check automatic withdrawals and previously scheduled payments, too. Otherwise, the money you earmark for a bill may already be committed elsewhere.
ACTION ITEM: Create one upcoming-payments list showing amount, due date, planned payment date, and approval status.
Strong sales won't fix invoices sitting unsent. Bill promptly when your agreement permits, including milestones or recurring billing dates.
Check the customer's legal name, billing contact, purchase order requirements, service description, payment terms, and due date. Attach required time records or approvals. Confirm the invoice reached the person or portal responsible for payment.
Make paying straightforward with appropriate electronic payment options. Agree to any deposits, milestone billing, or automatic payments before implementing them. Consider processing costs and customer authorization requirements.
Then give accounts receivable management an owner. Use reminders before payment is due, follow up promptly when overdue, and call when reminders aren't resolving the issue. Record disputes, promised payment dates, and the next follow-up.
Our article on invoice management strategies offers additional billing-process ideas.
ACTION ITEM: Review one delayed invoice today. Identify whether the obstacle is missing paperwork, a dispute, payment processing, or a customer cash problem.
Start a simple forecast covering the next four weeks, extending it when your collection cycle requires. For each week, calculate beginning cash plus expected receipts minus scheduled payments. Carry the ending balance into the following week.
Include payroll funding dates, employer taxes, tax deposits, rent, debt payments, and automatic withdrawals. Count each payment once, including payments already initiated but not reflected in your starting balance.
Expected customer payments are estimates. Use payment history, invoice status, and recent conversations to choose realistic collection dates. Test what happens if a significant receipt arrives a week or two late.
If that creates a shortfall, act before payroll: accelerate legitimate collections, pause optional purchases, or discuss financing with your advisor. A forecast exposes a gap; it doesn't guarantee the money will arrive.
Use receivables and payables aging reports to see who owes you and what you owe, organized by age or due status. Your balance sheet shows cash, receivables, debts, and other balances.
Your P&L explains profitability. A statement of cash flows explains historical cash movements across operating, investing, and financing activities. The SEC's financial statement guide explains these distinctions. Your forecast looks forward; the historical statements don't replace it.
ACTION ITEM: Compare your next payroll funding date with your forecast's lowest cash point.
With current bookkeeping and reports prepared, use this as your weekly agenda. The first setup or a complicated collection issue may take longer.
ACTION ITEM: End with named owners and deadlines. Next week, compare expected receipts and payments with what happened, then adjust.
Yes. Collect existing invoices sooner, reduce avoidable spending, and plan purchases and distributions around obligations. Negotiate future payment terms where appropriate. Better timing can release cash, but persistent shortages may also require examining pricing, margins, and debt.
Review and schedule bills weekly, but pay according to agreed terms and required deadlines. A weekly review is a decision-making routine, not permission to postpone payroll, taxes, or invoices until your preferred payment day.
Contact the responsible person, confirm receipt, resolve documentation or service disputes, and ask for a specific payment date. Record the commitment and follow up. Avoid repeatedly counting an unreliable promise as cash available for your next payroll.
Growing revenue is exciting. Knowing how you'll meet your obligations gives you room to make decisions with a clearer head.
Start with one weekly appointment, one bill-review day, and a consistent invoicing and collections process. Profit is great, but cash is king.
If maintaining that foundation is taking time you need elsewhere, we can help. Ignite Spot's dedicated U.S.-based bookkeepers handle reconciliations, invoicing, bill pay, financial statements, and a monthly financial review. You can learn about our outsourced bookkeeping services whenever you're ready.