Why can a profitable job still run out of cash?

Profit and cash are different things that arrive at different times, and confusing them is how solvent-looking firms fail. Profit is the margin between what the works are worth and what they cost, earned the moment the work is done. Cash is the money in your account, and on a construction contract it lags the work by a long way: you do the work this month, apply for it, wait for the certificate, then wait out the payment period, so the money for March might land in May, less a retention deduction you will not see for a year. In the gap you are still paying for labour, plant and materials as they are consumed, often weekly. So a perfectly profitable job borrows working capital from you to exist, and the faster it grows or the more front-loaded its spend, the more it borrows. Slow payment terms, a fat retention percentage, a certifier who undervalues, a variation you fund while it is argued over: each widens the gap between value earned and cash received. This is why a job can show a healthy margin on a CVR and still not make payroll, and why cashflow has to be forecast as its own thing rather than assumed to follow the profit. The cure is not more profit but seeing the tight month coming: a forecast that models cost going out against cash genuinely coming in, so the working-capital gap is funded deliberately, in advance, rather than discovered at the bank.

Picture a small fit-out contractor who wins a good, profitable job with a heavy first two months: joinery bought up front, a big labour push to hit an early milestone. The margin is real and the CVR confirms it, but the payment terms give a monthly application, a payment period that pushes each receipt out by around seven weeks, and five per cent retention. By the end of month two the firm has paid for materials and labour worth far more than anything yet received, the merchant account is at its limit, and a profitable job is one bad week from stopping: nothing wrong with the job, everything wrong with the timing, and nobody modelled it. On the next job the contractor builds a cashflow forecast from the programme and the payment terms before starting, sees the identical dip coming in month two, arranges a short overdraft and times the biggest material order to follow a receipt. The dip still happens, but planned for, a line on a chart everyone saw in advance rather than a crisis.