Insights Business
Busy all month, no money at the end of it
A business can be full of work, well regarded, growing, and still arrive at month end with nothing.
When that happens the instinct is to sell more. Sometimes that is right. More often selling more makes it worse, because the thing causing the shortfall scales with volume.
Five causes account for most of it. You can test for all of them with figures you already have.
1. Some of the work loses money
Not the business overall — particular jobs, particular customers, particular lines.
Take your last twenty invoices. Against each, put the direct cost of delivering it: materials, labour, transport, subcontractors, anything that would not have been spent had you not done that job. Subtract.
Almost every business doing this exercise for the first time finds at least one customer or product consistently in the red, usually one that feels important because of its size. Volume has been hiding it.
The fix is not always to drop them. It is to know, and then to decide: reprice, change the scope, change how it is delivered, or let it go.
2. The price is right but the recovery is wrong
The margin is fine on paper and never arrives, because of what happens after the job: unbilled variations, work done as a favour, hours not captured, discounts given at the last moment to close, credit notes.
Compare what you quoted against what you invoiced across a month. The gap is your leakage, and it is usually a process problem rather than a pricing one.
3. The money is in the debtors’ book
Profitable and unpaid is the classic.
Age your debtors: current, 30, 60, 90, older. Then look at what proportion is over 60 days. If a large share is old, you do not have a sales problem or a margin problem — you have a collections problem, and it is the cheapest one on this list to fix because the money already belongs to you.
Who chases invoices, on what day, and what happens on the second reminder? In most small businesses the honest answer is nobody, never, and nothing.
4. Growth is eating the cash
This is the one that catches good businesses.
Growing means buying stock, paying staff and funding work before being paid for it. The faster you grow, the more cash is tied up in work in progress and debtors at any moment. A business growing quickly on long payment terms can be comfortably profitable and still run out of money.
Work out the gap: the days between spending on a job and being paid for it, multiplied by what you spend. That number is what growth costs in cash, and it has to be funded from somewhere deliberately.
5. Drawings and overheads have moved quietly
Overheads creep. Subscriptions nobody cancelled, a vehicle, an extra administrator, premises taken when things were busier, owners’ drawings set in a good year and never revisited.
Pull twelve months of bank statements and sort every payment that is not a direct cost of a job. Compare the first three months with the last three. Most owners are surprised, and the surprise is usually in two or three lines rather than spread evenly.
Doing this properly
It is a day’s work, and the order matters: margin by job, then leakage, then debtors, then the cash gap, then overheads. Doing it in that order means you find out whether the work itself is viable before you start economising on the things around it.
The common mistake is to start with overheads, because they are the easiest to look at and feel like the responsible place to begin. If the work loses money, cutting overheads buys time and changes nothing.
The second mistake is to decide the answer before doing the arithmetic. Every owner has a theory about where the money goes. The figures agree with the theory perhaps half the time.
This note is general information, not advice on your situation. If the business is busy and the money is not there, and you want the five checks above done properly on your own figures, that is work we do.