Construction Cash Flow for UK Builders: Price for Margin, Get Paid on Time and Stop Funding Jobs Yourself
Busy all year, but never much left in the bank? It’s rarely a work problem. It’s jobs priced as “cost plus a bit”, payments that arrive after the work, and next month’s deposit quietly paying for this month’s job. Here’s how to fix it.
- The true cost of a job and the markup vs margin mistake
- Deposits and stage payments that keep you on the client’s money
- CIS, VAT reverse charge, retentions and the Construction Act explained simply
- A 4-week cash forecast and the 5 numbers to check every Friday
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The short answer
To fix cash flow in a construction business:
- Know the true cost of every job — labour (including yours), subbies, materials, prelims and contingency.
- Price to a target margin, not a markup. A 20% markup is only a 16.7% margin.
- Add your overheads and a fixed salary for yourself to every price.
- Take a deposit and make every stage payment due before that stage starts.
- Plan for CIS deductions, reverse charge VAT and retentions so they don’t surprise you.
- Ring-fence the money: separate tax and profit accounts, and never use a new deposit to finish an old job.
- Forecast four weeks ahead and check five numbers every Friday.
Why profitable builders still run out of cash
A construction business can look profitable on paper and still be one late payment away from trouble. The three usual causes are the same in almost every business I look at:
- Pricing by gut feel. The quote covers materials and subbies, but not your own labour, prelims, overheads or a salary for you.
- Getting paid after the work. Invoicing at the end of each stage means you’re lending the client your wages, your subbies and your materials for weeks.
- Mixing the money. Deposits from new clients fund the end of older jobs. It works while work keeps coming in — and collapses the moment it slows down.
I came to the UK with £6K of debt, started as a labourer and then worked as a carpenter. Within three years Craftex was turning over £1M a year. What changed the business wasn’t more work — it was pricing properly and getting paid before we worked.
Find the true cost of every job
List every cost line before you quote: your own team’s labour at a real wage (including yours), subcontractors, materials, plant, skips, scaffolding, parking, waste, travel, site protection and supervision. On refurbishments add a 5–10% contingency and say so in the quote.
| Example: £60K refurb | Cost |
|---|---|
| Own labour (2 people × 7 weeks, incl. employer costs) | £14,000 |
| Subcontractors (electrics, plumbing, plastering) | £16,000 |
| Materials | £12,000 |
| Prelims: skips, protection, parking, supervision | £2,500 |
| Direct cost of the job | £44,500 |
Price for margin, not markup
Markup is added to cost. Margin is the share of the price you keep. Mixing them up is one of the most expensive mistakes in construction.
| If you add (markup) | You keep (margin) | Price on £44,500 |
|---|---|---|
| 20% | 16.7% | £53,400 |
| 25% | 20% | £55,625 |
| 43% | 30% | £63,600 |
| 50% | 33.3% | £66,750 |
Formula: price = cost ÷ (1 − target margin). For a 30% margin: £44,500 ÷ 0.70 = £63,600. On main-contractor work we aim for 25–35% gross margin.
Step 3Recover your overheads and pay yourself first
Add up 12 months of overheads — van, insurance, accountant, software, office, marketing, admin — including a fixed salary for you. Divide by the turnover you expect. That’s your overhead percentage (for example £60K ÷ £500K = 12%). Every quote must cover it and still leave a net profit. On the £63,600 job above: £19,100 gross profit, minus £7,632 overheads, leaves £11,468 — an 18% net margin.
Want the worksheets?
The free blueprint includes a job profit calculator, payment schedule template and 4-week cash forecast.
Get paid before you work: deposits and stage payments
The single biggest cash flow fix in construction is simple: money in before the work, not after. Take a deposit on signing, make each stage payment due before that stage starts, have clients pay upfront for long-lead items like kitchens and glazing, and price every variation in writing before you do it.
| Example schedule: £120K refurb | % | Amount |
|---|---|---|
| On signing (deposit) | 15% | £18,000 |
| Before strip-out & first fix | 20% | £24,000 |
| Before second fix | 25% | £30,000 |
| Before finishes & decoration | 25% | £30,000 |
| Practical completion | 10% | £12,000 |
| Snagging signed off | 5% | £6,000 |
Know the UK rules that hit your cash
CIS (Construction Industry Scheme)
As a main contractor you verify subcontractors with HMRC and deduct 20% (registered) or 30% (unregistered), filing a monthly return. As a subcontractor, 20% is held back from every payment unless you have gross payment status — so budget for it.
VAT domestic reverse charge
Since March 2021, on CIS work between VAT-registered businesses the customer accounts for the VAT, so you don’t receive it. It doesn’t apply to homeowners. Many subcontractors move to monthly VAT returns to reclaim input VAT faster.
Retentions
Commercial clients often hold back 3–5% of each payment, usually half at practical completion and half after the defects period. Price it in, diarise the dates and chase them.
The Construction Act and late payment
On commercial contracts (not homeowners in their own home) you have rights to interim payments on longer jobs, payment and pay-less notices, suspension for non-payment after notice, and adjudication. On business-to-business invoices you can also claim statutory late payment interest and fixed compensation. These are general points, not legal advice — check with your accountant or solicitor.
Ring-fence the money
Run at least three accounts: Operating, Tax (VAT, CIS, corporation tax) and Profit & reserve. Move the tax share out the day money arrives. Track cash per job so each job pays for itself, and build a reserve of 4–8 weeks of overheads before you take on a much bigger project.
Step 7Forecast four weeks ahead and check five numbers every Friday
- Cash in the bank after the tax pot.
- Money owed to you — and how overdue it is.
- Money you owe in the next two weeks.
- Margin on live jobs compared with what you quoted.
- Weeks of signed work ahead. Under four weeks? Sales becomes this week’s priority.
The free blueprint includes the job profit calculator, a payment schedule template and the 4-week cash forecast as fill-in worksheets.
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Builders who fixed their pricing and cash
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Frequently asked questions
What is a good profit margin for a UK builder?
On main-contractor work we aim for 25–35% gross margin and 10%+ net profit after overheads and a fair salary for the owner. Small jobs usually need a higher percentage because the same office time and travel sit on a smaller price.
What is the difference between markup and margin?
Markup is a percentage added to cost; margin is the percentage of the price you keep. A 25% markup gives a 20% margin. To price for a margin, divide cost by (1 − target margin).
How much deposit should a builder take?
Enough to order materials and secure your programme — many builders use 10–15% on signing, then stage payments due before each stage starts. Put the schedule in a written contract.
Does the VAT reverse charge apply to homeowners?
No. The domestic reverse charge applies to CIS-reportable work between VAT-registered businesses, not to end users such as homeowners.
How do I improve cash flow in my construction business fast?
Chase every overdue invoice, move to stage payments in advance on new jobs, separate your tax money and start a 4-week forecast. Then fix pricing so each job carries its share of overheads and profit.
Keep going
Get the full Cash Flow & Margin Blueprint
- Your cash & margin score in 5 minutes
- Job profit calculator, payment schedule and 4-week forecast
- UK rules: CIS, reverse charge VAT, retentions
From Sviat Jay, founder of Craftex (150+ projects across London) and BizMentor.
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