Growth is a cash event before it's a profit event.
Why your best year for sales can be your worst year for cash
There's a moment that catches plenty of capable operators by surprise. The business is winning more work than ever. The profit and loss looks strong. And yet the bank account is tighter than it was in a quieter year. It feels like a contradiction, or a sign that something is being stolen or mismanaged. Usually it's neither. It's growth doing exactly what growth does.
The mechanism
Project and service businesses fund their work before they get paid for it. The sequence is unavoidable:
Wages, materials and subcontractor costs go out as the work is done.
The invoice is raised on completion or at a milestone.
The client pays on terms, commonly 45 to 60 days later.
In construction and adjacent trades, retention is held back longer again.
Every job, then, opens a gap between cash going out and cash coming in. When you're stable, you're funding a roughly constant set of those gaps and the cycle pays for itself. When you grow, you take on new gaps faster than the old ones close. The faster the growth, the more gaps you're funding at once, and the more cash the business swallows simply to stand up the extra work.
The profit on that work is genuine. It just hasn't converted to cash yet, and won't for a couple of months.
Why good operators get caught
The trap is reading the profit and loss and assuming the bank balance will follow. It's a reasonable assumption in a steady business. In a growing one it's dangerous, because profit and cash are measuring different things on different timelines. A strong P&L tells you the work was worth doing. It tells you nothing about whether you can afford to fund the next three months of it.
What to do about it
This isn't an argument against growth. It's an argument for funding it on purpose rather than discovering the bill halfway through.
Forecast cash separately from profit. A rolling short-term cash forecast will show you the squeeze before you feel it, while you still have options.
Understand the working capital cost of each new job, not just its margin. A high-margin job with long payment terms can still drain you in the short term.
Decide deliberately how you'll fund the gap: a facility, tighter payment terms, staged invoicing, or simply growing at a pace your cash can carry.
Growth is a cash event before it's a profit event. If you're scaling and only watching the P&L, you're watching the right business through the wrong lens.
