Cash Flow for Trades Businesses | Why Profit and Cash Are Not the Same
As a former trades business owner, Devon Murtagh of Murtagh & Co. explains the cash flow gap that catches most contractors off guard and how to manage it before it becomes a crisis.
Profitable on Paper. Scrambling in the Bank.
As a former trades business owner, I know what it feels like to look at your job schedule, see a full pipeline, and still find yourself stressing about what's in the bank account on a Friday morning.
I ran an exteriors business providing roofing, siding, and glass services. The financial side of running it taught me things that have directly shaped how I work with trades clients today at Murtagh & Co. Financial Services.
One of the most stressful moments had nothing to do with a bad job or a difficult client. We had a roofing project and a siding job both starting the same week. Materials needed to be purchased upfront. Labour costs continued bi-weekly. And the invoices from our previous jobs were sitting at net 30, meaning that money hadn't landed yet.
We were profitable, we had a cash reserve for this situation. However, we still had to inject personal funds to keep the business afloat. Not because the business was failing. Because cash flow and profit are not the same thing.
That experience has taught me valuable lessons about the cash flow gap. And according to the Office of the Superintendent of Bankruptcy Canada, it is one of the leading contributors to business insolvencies in this country (2024), with construction consistently ranking among the hardest hit sectors.
Profit and Cash Flow Are Not the Same Thing.
This is the most important financial concept for a trades business owner to understand, and the one most often confused.
Profit is what's left after you subtract your costs from your revenue. It lives on your income statement and tells you whether your business is making money over a period of time.
Cash flow is the actual movement of money in and out of your bank account. It tells you whether you have money available right now to pay your bills, your crew, and your suppliers.
A business can be highly profitable and still run out of cash. This happens constantly in the trades industry because of the timing mismatch between when money goes out and when money comes in.
Why Trades Businesses Are Especially Vulnerable.
Most industries deal with some version of the cash flow gap, but trades businesses face a particularly challenging version of it.
Materials are paid upfront. Whether you're buying shingles, siding panels, lumber, or concrete, suppliers typically want payment before or immediately upon delivery. That money leaves your account before the job is even started.
Labour is paid routinely. Your crew doesn't wait 30 days to be paid. Payroll runs regardless of where you are in the billing cycle.
Clients pay on terms. Net 30 is standard in the industry. Some commercial clients push for net 45 or net 60. That means money you've already earned and already spent to deliver is sitting in an invoice for weeks before it hits your account.
Multiple jobs compound the problem. When two or three jobs run simultaneously, the outflows multiply immediately. The inflows trickle in over the following weeks as invoices get paid. That gap between the two is where cash flow crises are born.
What the Cash Reserve Gets Wrong.
Most trades business owners know they should keep a cash reserve. And they're right. But a cash reserve alone doesn't solve the problem if you don't understand the size of the gap you're trying to bridge.
In our case, we had a reserve set aside specifically for situations like this. But with two jobs starting simultaneously and net 30 invoices outstanding from previous work, the gap was larger than our reserve could comfortably cover. We were forced to inject personal funds temporarily - we needed liquidity.
The lesson wasn't that we needed a bigger reserve, although that helps. The lesson was that we needed to map out the cash flow cycle for each job before it started, so we could see the gap coming and plan around it rather than react to it.
Practical Steps to Manage the Cash Flow Gap.
There are several strategies trades businesses can use to reduce the impact of the cash flow gap. None of them eliminate it entirely, but together they make it manageable.
Map your cash flow before the job starts. Before taking on a new project, sketch out when money will go out and when it will come in. Materials on day one, labour costs, invoice at completion, payment in 30 days. That simple exercise shows you exactly how wide the gap is and how long you need to bridge it.
Require deposits. A deposit collected before work starts immediately reduces the gap. Even 25 to 30 percent of the total contract value covers a significant portion of material costs and changes the cash flow picture considerably.
Bill progressively on larger jobs. Instead of one invoice at the end of a large project, invoice at defined milestones throughout the job. Each milestone triggers a payment that keeps cash moving into the business rather than arriving all at once at the end.
Stagger your job starts where possible. Running two large jobs simultaneously doubles your outflows immediately. Staggering start dates by even one or two weeks can smooth out the cash flow picture significantly.
Build a rolling cash flow projection. Rather than looking at your bank balance as a snapshot, maintain a simple rolling 8 to 12 week cash flow projection showing what's coming in and what's going out. This turns cash flow management from a reactive scramble into a proactive planning exercise.
How Murtagh & Co. Can Help.
Understanding the cash flow gap is one thing. Building a system to manage it consistently is another. At Murtagh & Co. Financial Services, we work with trades and construction businesses across the Okanagan to build financial clarity into the business - not just at tax time, but throughout the year.
As a former trades business owner who has lived through the exact situation described in this post, I understand what the cash flow gap actually feels like - not just what it looks like on a spreadsheet. That context matters when building practical solutions that work in the real world of running a trades operation.
If you want to talk about building a cash flow strategy for your trades business, reach out for a free initial consultation at info@murtaghco.ca or 778-214-6878. No pressure, no jargon — just a straightforward conversation about where your business stands.
Murtagh & Co. Financial Services serves trades and construction businesses in Kelowna, West Kelowna, Lake Country, Vernon, Penticton, and across BC remotely.