BEST REVENUE YEAR EVER.
CASH IS
STILL TIGHT.
A busy construction year often ends with less cash than expected because revenue growth requires working capital investment, retention is still held, large project closeouts are pending, and overhead grew with the workload. The revenue was real. The cash is — somewhere. It's in AR, retention, work in progress, and overhead that scaled with the business. A busy year doesn't automatically produce cash. A managed year does.
December looks tight. The P&L says it was a great year. The bank account says something different. This is not unusual — it's the predictable result of revenue growth outpacing cash collection timing. The question is whether it's a timing problem that resolves as projects close out, or a structural problem where overhead consumed the margin that was supposed to produce cash.
WHERE DID THE
MONEY GO?
Outstanding AR
A busy year means more invoices outstanding at year end. At 60-day average collection, a $7M year has $1.1M in AR at any given time. At December 31, that AR is real — it's not in the bank yet. It will be in January and February. This is a timing issue.
Retention Held
More projects means more retention withheld. A $7M subcontractor at 10% retainage has $700K of earned, documented money held by GCs. At year end, projects that closed in Q3 may still have retention being processed. This is collectible — it just takes time.
Work in Progress — Costs Ahead of Billing
Projects that started in Q4 have costs incurred but limited billing — mobilization and early phases only. The margin on those projects is real but won't be collected until Q1 and Q2. A busy Q4 creates a large WIP asset that doesn't hit the bank until next year.
Overhead That Grew With Revenue
A busy year often brings new hires, new equipment, expanded office space. If that overhead growth wasn't matched by margin growth, the extra revenue produced extra overhead — not extra profit. This is the scenario where the busy year was genuinely less profitable than it appeared.
TIMING PROBLEM
OR STRUCTURAL PROBLEM?
Timing problem: You have significant AR outstanding, retention pending, and projects in progress with margin on paper. Cash is tight now but will improve as collections arrive in Q1. The fix is aggressive AR collection and patience.
Structural problem: Even after accounting for AR and retention, the projected profit doesn't match what the P&L shows. Overhead grew with revenue. Margin per job was lower than estimated. The busy year was genuinely less profitable than it looked at the revenue line.
The diagnostic: Run a WIP schedule as of December 31. Add up: cash on hand + AR outstanding + retention owed + underbilled WIP. Subtract: AP outstanding + overbilled WIP + overhead obligations. That number is your true financial position — not the bank balance.
