The Profit Illusion: Why Your Construction Business Can’t Make Payroll
Samy Basta, CPA • November 25th, 2025
Your accountant says you made $150,000 last year. Your bank account says you’re three weeks from missing payroll.
Welcome to the most frustrating paradox in the construction industry: being profitable on paper while broke in reality.
If you’re a contractor, construction firm owner, interior designer, or architecture firm principal who keeps asking “Where did all the money go?” – you’re not alone. And you’re not crazy.
I’m Samy Basta, CPA, and I specialize in construction and real estate businesses. I see this exact scenario every single week: Contractors and construction firms with healthy profit and loss statements who can’t pay themselves, can’t cover their bills on time, and are constantly shuffling money between accounts just to survive.
The problem isn’t your work. It’s not your pricing (though that might need work too). The problem is that your P&L statement and your bank account live in two completely different universes.
Let me explain why your financials are lying to you – and more importantly, what to do about it.
Here’s what your profit and loss statement told you last month:
➤ Revenue: $125,000
➤ Cost of Goods Sold: $70,000
➤ Gross Profit: $55,000
➤ Overhead: $35,000
➤ Net Profit: $20,000
“Great!” you think. “$20,000 profit this month. I should be doing fine.”
Then you check your bank account: $8,400. And you’ve got $23,000 in bills due next week.
What the hell happened?
Your P&L uses accrual accounting. That means it records revenue when you invoice it, not when you collect it. It records expenses when you incur them, not when you pay them.
For a construction business, this creates a massive disconnect from reality.
Let me show you what’s really happening with your money:
That $125,000 in revenue?
➤ $45,000 was billed 60 days ago and still hasn’t been paid by the property management company
➤ $30,000 was billed last week and won’t be paid for 30 days
➤ $25,000 is sitting in retainage that you won’t see for 90 days
➤ $25,000 actually hit your bank account
That $70,000 in job costs?
➤ $15,000 went out the door immediately for materials (you pay cash at the supply house)
➤ $35,000 went out in payroll last Friday (can’t wait 60 days to pay your crew)
➤ $12,000 went to subcontractors who demand NET 15
➤ $8,000 is on your credit card that’s due in 30 days
So while your P&L says you made $20,000, your bank account saw:
➤ Cash in: $25,000
➤ Cash out: $62,000
➤ Net cash flow: -$37,000
This is why you’re profitable on paper but can’t make payroll. Your P&L is telling you a story about the future. Your bank account is telling you about right now.
And “right now” is all that matters when your crew needs to be paid Friday.
The fundamental problem with construction cash flow isn’t complicated. It’s actually painfully simple:
You have to pay for everything before you get paid for anything.
Let’s walk through a typical construction job from a cash flow perspective:
Day 1: You win a $50,000 remodeling job. You’re excited. Your P&L is about to look great.
Day 3: You buy $15,000 in materials. Cash out: $15,000. Cash in: $0.
Day 5: You pay your crew for the first week. Cash out: $8,000. Cash in: $0.
Day 12: You pay your crew again. Cash out: $8,000. Cash in: $0.
Day 19: Final week of labor. Cash out: $8,000. Cash in: $0.
Day 21: Job complete. You invoice the customer for $50,000. Cash in: $0.
Day 51: Customer finally pays (NET 30 plus the week they took to “process” it). Cash in: $50,000.
Total cash out-of-pocket for 51 days: $39,000
For nearly two months, you financed this customer’s project out of your own pocket. You were the bank. Except banks charge interest. You didn’t.
Now multiply this across 10 active jobs at various stages. Some jobs you’re waiting 60 days to get paid. Some you’re waiting 90 days because of retainage. Meanwhile, every single Friday your payroll company pulls $25,000 from your account whether you’ve been paid or not.
This is the timing trap. And it’s why contractors, construction firms, interior designers, and architecture firms with millions in revenue can’t keep $50,000 in their operating account.
For property management firms and real estate developers: You’re often on the other side of this equation, holding retainage and paying on NET 60 terms. Just know that every day you delay payment, you’re forcing your contractors to finance your project. The good ones will eventually stop working with you.
For B2B construction firms: When you’re doing commercial work, this timing trap gets even worse. Add in AIA billing, change orders that take 45 days to approve, and draw schedules that don’t match your actual costs, and you’ve got a cash flow nightmare.
As a CPA and fractional CFO for construction businesses, I see the same three cash flow mistakes destroy otherwise profitable contractors:
You think you made money on the Martinez kitchen remodel. You charged $35,000, spent “around $20,000” on it, so you figure you made $15,000.
Wrong.
When I actually track every dollar that went into that job, here’s what I find:
Direct costs you remembered:
➤ Materials: $12,000
➤ Labor (field crew): $8,000
➤ Subtotal: $20,000 ✓ (This is what you thought)
Direct costs you forgot:
➤ Your time estimating and managing (20 hours × $75/hr): $1,500
➤ Dump fees and disposal: $400
➤ Permits and inspection fees: $350
➤ Extra trip to supply house for wrong materials: $100
➤ Warranty callback (3 hours labor): $240
➤ Credit card fees (2.5% of $35,000): $875
➤ Additional costs: $3,465
Real total cost: $23,465
Real profit: $11,535 (not $15,000)
That $3,465 difference? That’s cash that left your bank account but never made it into your mental math. Multiply that across 30 jobs per year and you just found the $100,000 that disappeared.
Without proper job costing, you don’t know which jobs made money and which ones lost money. So you keep taking jobs like the Martinez kitchen because you think they’re profitable, and you keep bleeding cash.
Let me tell you about a general contractor I worked with. $2.8 million in annual revenue. Twelve employees. Profitable every single year for eight years.
Owner’s salary: $0.
“I’ll pay myself when things slow down,” he told me. “Right now I need to keep cash in the business.”
Except things never slow down. And the cash that should have been his salary? It disappeared into:
➤ Covering payroll gaps when customers paid late
➤ Buying a new truck “for the business” (that he also drives personally)
➤ “Lending” the business money for that big material purchase
➤ Keeping extra buffer in the account “just in case”
After eight years, he’d paid himself exactly zero dollars while building a company worth millions on paper.
Here’s what actually happened to that money: It got spent.
When you don’t pay yourself a regular salary, you don’t track where owner compensation goes. So it leaks out everywhere:
➤ Business pays for your personal truck payment
➤ Business credit card pays for some personal meals
➤ You “borrow” from the business to cover personal expenses
➤ Business fronts you cash that never gets properly documented
From a cash flow perspective, you’re still taking the money out. You’re just doing it in the most tax-inefficient, poorly-documented, cash-flow-destroying way possible.
As your CPA, I’m telling you: Pay yourself first. Set a reasonable salary, pay yourself every two weeks like clockwork, and track it properly.
If you can’t afford to pay yourself a market-rate salary, you don’t have a cash flow problem. You have a pricing problem or a profitability problem. But at least you’ll know the truth.
Your business credit card statement shows $35,000 in charges this month. You’re not worried because most of it is for jobs you’ve already billed.
But here’s what’s actually happening:
Week 1: Charge $8,000 in materials for the Johnson job
Week 2: Charge $6,000 in materials for the Anderson job
Week 3: Charge $12,000 in materials for the Chen project
Week 4: Charge $9,000 for various smaller purchases
Week 5: Credit card bill is due: $35,000
Now you’ve got a choice:
➤ Pay the full $35,000 (cash you don’t have because customers haven’t paid yet)
➤ Pay the minimum and carry a balance at 22% APR
➤ Pay as much as you can and hope you get paid before the next statement
Most contractors choose option 3, creating a permanent float of $20,000-$40,000 on their credit cards.
“But I pay it off every few months,” you tell me.
No, you don’t. You pay down one card while another one floats back up. I can see it in your financial statements. You’ve been carrying an average credit card balance of $32,000 for the last 18 months.
That’s costing you $7,000+ per year in interest. Money that’s going to Visa instead of your bank account.
The credit card float feels like a solution because it papers over your cash flow timing problem. But it’s actually making it worse. You’re now paying 22% annual interest to finance your customers’ NET 60 payment terms.
What successful construction firms do instead: They get a business line of credit at 8-10% interest. Same concept (bridge the timing gap), but they cut their financing costs by more than half. As a fractional CFO, this is one of the first things I set up for construction clients.
Your P&L tells you if you’re profitable. Your balance sheet tells you what you own. But neither of them tells you if you can make payroll next Friday.
For that, you need a 13-week cash flow forecast.
This sounds complicated. It’s not. It’s literally just answering three questions every week for the next 13 weeks:
1. How much cash will come in?
2. How much cash will go out?
3. Will I have enough?
Let me show you what this looks like for a typical contractor:
Cash In:
➤ Johnson project final payment: $15,000
➤ Anderson project progress billing: $8,000
➤ Total in: $23,000
Cash Out:
➤ Payroll: $18,000
➤ Material suppliers: $12,000
➤ Truck payment: $850
➤ Insurance: $1,200
➤ Rent: $2,500
➤ Total out: $34,550
Net: -$11,550
Starting balance: $28,000
Ending balance: $16,450
Cash In:
➤ Chen project deposit: $12,000
➤ Wilson project final: $6,500
➤ Total in: $18,500
Cash Out:
➤ Payroll: $18,000
➤ Materials: $8,000
➤ Misc: $2,000
➤ Total out: $28,000
Net: -$9,500
Starting balance: $16,450
Ending balance: $6,950 ⚠️
Now you can see Week 2 is going to be tight. You need to either:
➤ Collect the Anderson payment faster
➤ Delay some material purchases
➤ Use your line of credit to bridge the gap
➤ Push back on that non-critical expense
This is what fractional CFO cash flow management looks like for construction firms. You’re making decisions before the problem hits, not after your account is overdrawn.
Thirteen weeks gives you a full quarter of visibility. For contractors and construction firms, this covers:
➤ Your typical collection cycle (30-60 days)
➤ Your full payroll cycle
➤ Your major recurring expenses (quarterly insurance, quarterly taxes)
➤ Enough runway to see problems coming and fix them
Most contractors run their business one week at a time. Check the account Friday morning, make sure payroll will clear, panic about next week on Monday.
That’s not cash flow management. That’s financial Russian roulette.
With a 13-week view, you can see that Week 6 is going to be brutal because three big jobs won’t pay until Week 7, but your quarterly tax payment is due Week 6. Now you can plan for it: collect deposits on new work early, accelerate some billing, line up your credit line, or adjust the timing on a major purchase.
For property management firms: Your cash flow is more predictable (monthly rents) but you still need this view when you’re funding large renovations or dealing with seasonal vacancy.
For interior designers and architecture firms: Your project-based revenue is even lumpier than general contractors. You might have three projects pay in the same week and then nothing for a month. The 13-week view keeps you sane.
For B2B construction firms: You need this even more urgently because your jobs are larger and your payment terms are longer. One delayed $200,000 draw can destroy your entire quarter if you’re not planning for it.
Your bookkeeper is worth their weight in gold. They categorize transactions, reconcile accounts, send you reports, handle your payables. Great.
But a bookkeeper tells you what happened. A CFO tells you what’s going to happen and what to do about it.
Here’s how to know when your construction business has outgrown bookkeeping and needs fractional CFO services:
You Need a CFO When:
1. You’re constantly surprised by cash shortages. “I don’t understand, we had a great month!” followed by “Why can’t I make payroll?” is the signature sign you need CFO-level cash flow forecasting, not just bookkeeping.
2. You’re making $500K+ in revenue but still living paycheck to paycheck. At this revenue level, the problem isn’t lack of money – it’s lack of financial management. A fractional CFO builds the systems that turn revenue into actual wealth.
3. You can’t answer basic questions about your business:
4. You’re making big decisions based on gut feel instead of numbers. Taking that $300,000 commercial job because “it feels like a good opportunity” without knowing if your cash flow can support it is how contractors go broke on profitable work.
5. Your business is growing but your bank account isn’t. Revenue up 40% year over year, but your personal income is flat? That’s a CFO-level strategic problem, not a bookkeeping issue.
6. You’re spending more than 10 hours per week on financial admin. If you’re a skilled contractor billing at $150+/hour spending 10 hours per week on QuickBooks, you’re losing $1,500 per week ($78,000 per year) on work that a fractional CFO can systemize for a fraction of that cost.
7. Banks or bonding companies keep asking for information you don’t have. Trying to get bonded for a larger project? Banks want to see cash flow projections, work-in-progress schedules, job costing data. If you can’t produce these, you can’t grow beyond small jobs.
Unlike a full-time CFO (salary: $150K-$250K+ plus benefits), a fractional CFO gives you C-level financial strategy at a small business price point.
For contractors and construction firms, I provide:
✓ 13-week rolling cash flow forecasts (so you see problems 12 weeks out, not 12 hours out)
✓ Job costing analysis (know which project types and customers are actually profitable)
✓ Pricing strategy (ensure your bids cover costs, overhead, and profit)
✓ Working capital management (stop financing your customers’ projects)
✓ Banking relationships (set up lines of credit before you desperately need them)
✓ Growth planning (can you afford that new truck/employee/equipment?)
✓ Tax strategy coordination (work with your CPA to minimize taxes while maximizing cash)
✓ Financial KPI dashboards (track the numbers that actually matter)
✓ Profitability analysis (by job type, customer, service line)
This is the difference between:
➤ Running your construction business by looking in the rear-view mirror (bookkeeping)
➤ Running your construction business by looking through the windshield (fractional CFO)
Both are necessary. But only one helps you avoid the crash before it happens.
Let me put some real numbers on what poor cash flow management actually costs your construction business:
Credit card float at 22% APR on $30,000 average balance: $6,600/year
Late payment fees for suppliers (because you didn’t have cash): $1,200/year
Rushed job decisions (taking low-margin work because you need cash NOW): $15,000-$30,000/year
Lost early payment discounts (2/10 NET 30 you can’t take advantage of): $3,000/year
Stress-related health issues and poor decisions: Priceless (but expensive)
Total measurable cost: $25,800-$40,800 per year
Now compare that to fractional CFO services: typically $1,500-$3,000/month ($18,000-$36,000/year) for a construction business doing $1M-$5M in revenue.
It pays for itself. And that’s before we talk about the growth opportunities you’re missing because you can’t see clearly enough to make good decisions.
Construction has uniquely bad cash flow timing because you must pay for materials and labor immediately (weekly payroll, NET 10-30 for suppliers) but collect from customers much later (NET 30-60, plus retainage). You’re essentially providing free financing to every customer. Add in lumpy project-based revenue and you have a perfect storm for cash shortages even when profitable.
As a CPA advising construction firms, I recommend 2-3 months of operating expenses in reserve. For a contractor with $30,000/month in overhead, that’s $60,000-$90,000. This covers payroll gaps, unexpected expenses, and seasonal slowdowns without forcing you into bad decisions.
Yes. A business line of credit is essential for construction cash flow management. It bridges the timing gap between when you pay costs and when customers pay you. Much better than credit card float. Set it up when you don’t need it – banks don’t like lending to desperate borrowers.
Your CPA handles tax compliance, tax strategy, and historical financial reporting. A fractional CFO handles forward-looking cash flow management, profitability analysis, and strategic financial planning. Many construction firms need both – I often work alongside the client’s existing CPA.
Profit (from your P&L) = Revenue minus Expenses using accrual accounting
Cash flow = Actual money in minus actual money out
You can be profitable but cash-poor if customers pay slowly, you carry inventory, or you make large equipment purchases. For contractors, this timing difference is the #1 cause of financial stress.
Professional service firms should: (1) Require deposits on all projects, (2) Bill monthly or at milestones, not at completion, (3) Keep accounts receivable under 45 days average, (4) Consider retainer agreements for ongoing clients, (5) Separate design fees from procurement to improve margins.
Full-time CFO makes sense above $10M revenue or when managing complex scenarios like multiple entities, private equity involvement, or preparing for sale. Below that, fractional CFO services give you 80% of the value at 30% of the cost – typically the better option for growing construction firms.
If you’re profitable on paper but broke in reality – or if you’re spending more time worrying about money than building projects – it’s time to get help.
I’m Samy Basta, CPA, and I specialize in financial strategy for construction firms, contractors, interior designers, architecture firms, property management companies, and real estate professionals.
I’ve helped dozens of construction businesses transform from “can’t make payroll” to “fully funded growth” using the same systems I outlined in this article.
I’m offering a free Construction Cash Flow Checkup call. Here’s what we’ll cover in 30 minutes:
✓ Review your current cash flow situation and identify the specific bottlenecks in your construction business
✓ Build a simple 13-week cash flow forecast so you can see what’s coming
✓ Identify the 2-3 cash leaks that are killing your business right now
✓ Discuss whether fractional CFO services make sense for your situation
✓ Create an action plan you can implement this week
This checkup is specifically for:
➤ General contractors and specialty contractors doing $500K-$5M revenue
➤ Small to mid-size construction firms struggling with cash flow despite profitability
➤ Interior designers and architecture firms with lumpy project-based cash flow
➤ Property management firms managing renovation budgets and tenant improvements
➤ Real estate investors running their own construction projects
➤ B2B construction companies dealing with long payment terms and retainage
No sales pitch. No pressure. Just straight talk from a CPA who actually understands construction business cash flow.
If you’re tired of being profitable on paper while broke in reality, this call might be the most valuable 30 minutes you spend all month.
Schedule Your Free Construction Cash Flow Checkup →
Or keep juggling payments and hoping you make it through next week. Your choice.
Samy Basta brings you more than 20 years experience in tax, financial, and business consulting to his role as founder of Basta & Company. His focus is primarily strategic business planning, empowering clients to set priorities, focus energy and resources, and strengthen operations. In addition, Samy and his firm provide strategic counsel, and technical insight, on a wide range of needs, including tax saving strategies, tax return compliance, as well as choice of entity.
100 Pine Street, Suite 1250
San Francisco, CA 94111