Do not index
Do not index
Subject: Profit on paper, broke in real life
Preview: Why “busy and profitable” contractors still run out of cash—and the simple profit flywheel that keeps you in business.
Your business isn’t in danger because you lack hustle.
It’s in danger because nobody ever taught you how to read your own numbers.
This week in Contractor Training Room, I broke down the number one reason contractors go out of business: not knowing their finance and numbers, and the three ways to avoid that train wreck at every stage of growth. We walked through the financial awareness curve, the profit flywheel, and the four levers of profit so you can stop guessing and start leading with real data.
If you want the full framework with the visuals, examples, and stage-by-stage breakdown, watch the replay of this week’s episode.
Here’s what I’ll unpack in this recap:
- Why “profitable” contractors still run out of cash
- The financial awareness curve by stage of growth
- The profit flywheel and the four profit levers
Most contractors think being busy and showing a profit on paper means they’re safe. They glance at the bank account, see money in there, and assume things are fine. Meanwhile, taxes, suppliers, payroll, and overhead are quietly stacking up in the background. By the time the truth shows up, it’s often too late.
Once you understand how money actually moves through your business: job costs, overhead, taxes, cash flow timing—you stop living on “about” and start making decisions from facts. That’s the difference between a contractor who survives the next downturn and one who shuts the doors overnight.
Let’s dig in.
See your numbers clearly at every stage
If you’re like a lot of contractors I coach, nobody ever sat you down and taught you business finance. You learned how to sell, build, and collect. You did good work. You trusted a bookkeeper or CPA to “handle the numbers.”
That works for a while—until it doesn’t.
As your business moves from startup to solo operator to friends-and-family to getting serious and growth, the level of financial awareness you need goes up at every stage. What you could get away with at $300K will destroy you at $3M.
Here’s the pattern I see over and over:
- At Startup, you just need to know what to charge, the difference between business and personal expenses, and the basics of cost of goods sold, gross profit, overhead, and net profit.
- As a Solo operator, you’re wearing all the hats. Now you need simple accounting software, job-based budgets, and basic goal-setting so you’re not just hoping it works out.
- In the Friends and Family / Entrepreneur stage, you’ve got people depending on you. You need to understand profit and loss, balance sheet, cash flow, and how job-based margins add up to a healthy business.
- When you’re Getting Serious, you’re becoming a real business. You need departmental budgets, a profit plan, tax awareness, insurance strategy, payroll strategy, and a regular forecasting rhythm.
Most contractors try to skip this learning curve. They scale their team and overhead without scaling their financial awareness. That’s how you end up “profitable” on paper and broke in real life.
Key idea: As revenue grows, your financial awareness must grow with it. If it doesn’t, your risk grows faster than your profits.
Build your profit flywheel, not a guessing game
Profitable contractors don’t win by accident. They build a profit flywheel—a simple rhythm they repeat over and over so profit becomes predictable instead of a surprise.
The profit flywheel has four parts:
- Revenue accuracy – Knowing your true revenue and margins, not “about” what you think you did.
- Expense control – Watching overhead and job costs like a hawk so they don’t quietly eat your profits.
- Forecasting – Using real numbers to project what’s coming, not just hoping next month is better.
- Rhythm (review) – Regularly looking at the numbers weekly, monthly, quarterly, and annually.
When those four parts are turning, profit stops being an accident and becomes a rhythm.
In the episode, I talked about a red-flag word that tells me immediately a contractor doesn’t know their numbers: “about.”
- “We did about $4 million last year.”
- “Our margin is about 35%.”
- “We spend about 10% on marketing.”
“About” is how you get blindsided.
I learned this the hard way. I once trusted an “amazing” CPA to handle everything. I wasn’t checking my books. I wasn’t running my own reports. I wasn’t in a rhythm. That CPA ended up stealing over $500,000 from my business.
If I had been running the profit flywheel—accurate revenue, tight expense control, regular forecasting, consistent review—I would have caught it early. Instead, I paid dearly to learn that lesson.
Key takeaway: Profit is a rhythm, not a one-time result. If you’re not in a regular review cycle, you’re not running a business—you’re rolling dice.
Use the four profit levers on purpose
Once you’ve got a basic handle on your numbers and a profit flywheel in place, it’s time to learn the four levers of profit. These are the only ways to improve your profitability:
- Price – What you charge
- Cost – What it costs you to fulfill the work
- Volume – How many jobs you run
- Velocity – How fast money moves through your system
Most contractors obsess over just one of these—usually volume. “We just need more jobs.” But if your pricing is too low, your costs are out of control, and your velocity is slow, more volume just digs the hole faster.
Here’s how to think about each lever:
- Price: Smaller companies need higher margins. In the early stages, you should be targeting 20–30% net profit, not 5–10%. As you scale, margin percentage can come down a little because volume and systems go up. But if your cost of goods sold is pushing 55–60%, that’s a bright red signal you need to raise prices.
- Cost: This is materials, labor, commissions, permits, inspections—anything directly tied to the job. As you grow, you gain buying power. You can negotiate with suppliers, refine your crews, tighten waste, and automate some admin so you’re not overstaffed.
- Volume: Volume is a multiplier, not a fix. If your pricing and costs are wrong, adding volume just multiplies the problem. Fix the model first, then pour volume into it.
- Velocity: This is the most underrated lever. It’s how long it takes to go from lead → build → invoice → collected. The longer that timeline, the more you become the bank for your jobs.
In the episode, I walked through a simple way to think about velocity:
- If it takes 100 days from lead to collected on a $10,000 job, that’s $100 per day of cash flow.
- If you tighten that to 50 days with the same job size, that’s $200 per day.
Same job. Same price. Same cost. The only thing that changed was speed, and the business just became twice as healthy.
Now imagine stacking 30, 50, or 100 jobs on top of each other with a slow velocity. You can look “profitable” on paper and still run out of cash because you’re floating everything for too long.
Key takeaway: Don’t yank all four levers at once. Fix pricing and cost first, then layer in volume, and constantly work on velocity so cash doesn’t choke you.
Thanks for hanging out with me and taking a hard look at the financial side of your business.
If this hit close to home, you’re not alone. Most contractors were never taught this stuff. The good news is you can learn it, stage by stage, without becoming a full-time accountant.
Jim
P.S. If you’re tired of guessing at your numbers and saying “about” when someone asks how you’re really doing, ContractorSage gives you 24/7 access to stage-specific guidance based on The Contractor’s Blueprint. Ask it questions like, “What should my net profit target be at my stage?” or “How do I fix my cash flow gap?” and it will point you to the right moves so you stop flying blind and start running a financially healthy business on purpose.