Why Profitable Construction Firms Still Run Out of Cash (and How to See It Coming)
We hear it all the time from builders and contractors across Oxfordshire, Berkshire, Gloucestershire and Wiltshire. The jobs are going well. The accounts say you’re doing brilliantly. The bank balance says otherwise, and nobody can say where the money went.
Here’s where it goes.
Five things quietly eating your cash.
Retentions: your money, their bank
Customers often hold back 3% to 5% of every payment until the job is finished, and some for a defects period that is frequently 12 months. It’s earned, but it isn’t in your account. Diarise every release date the day you sign.
Paying first, getting paid last
Wages go out every week. Suppliers want paying in 30 days or less. Your invoice goes out at month end on 30-day terms. One job can need weeks of funding before a penny comes back.
CIS: tax taken before you see it
20% of a subcontractor’s labour is deducted at source. Sole traders get it back through their tax return. Limited companies can usually offset it against PAYE and National Insurance, or claim repayment after the year end. It comes back, just later. CIS guide
VAT: not your money
The VAT on your invoices is owed to HMRC, usually a month and seven days after each quarter ends. The domestic reverse charge has also changed the VAT pattern for many subcontractors since 2021. Close to the threshold? Read when to register for VAT.
The slow payer
One late payer on a big invoice can wipe out a month’s cash flow. Chasing politely and hoping isn’t a plan. There’s a better way, and it’s further down this page.
A great job that still breaks the bank.
Picture a £120,000 job over four months. Costs are £85,000, spread evenly. You invoice £30,000 at the end of each month, the customer pays 30 days later, and holds 5% retention. Made-up numbers, real pattern.
Running cash balance, month by month
Run two or three jobs like this at once and you can be profitable and out of cash in the same month.
See the numbers as a table
| Month | Cash out | Cash in | Running balance |
|---|---|---|---|
| 1 | £21,250 | £0 | -£21,250 |
| 2 | £21,250 | £28,500 | -£14,000 |
| 3 | £21,250 | £28,500 | -£6,750 |
| 4 | £21,250 | £28,500 | £500 |
| 5 | £0 | £28,500 | £29,000 |
See it coming with a 13-week forecast.
It’s a simple week-by-week list of what you expect to come in and go out. Five steps, and you’re done.
Six fixes you can do this week.
Common questions.
Short answers to the three things builders ask us most.
What is a 13-week cash flow forecast?
It is a week-by-week list of the money you expect to receive and the money you have to pay out over the next 13 weeks, with your running bank balance underneath. It shows you a shortfall weeks before it happens, while you can still do something about it.
Can I get my CIS deductions back sooner?
If you are a sole trader, CIS deductions are credited when you file your Self Assessment return. If you work through a limited company, the deductions can usually be set against your PAYE and National Insurance each month, or repaid after the tax year ends. Either way, the cash only comes back if your records are up to date.
What can I do if a customer pays late?
Business customers owe statutory interest of 8% above the Bank of England base rate on late commercial debts, plus a fixed sum of £40, £70 or £100 depending on the size of the debt. Most builders never claim it, but quoting it in a chaser often gets an invoice moving.
Want a hand building yours?
At Kingsgrove Accounting we work with construction and trade businesses who are growing and want to stay in control of their cash. We build your 13-week forecast with you, sort your CIS and VAT so you’re never surprised, and give you a monthly look at where the business is heading.
Ready to make the move?
It takes one call.
Every business is different. Book a free 30-minute call and we'll talk through your situation and work out exactly how we can help.