Profitable on Paper but No Cash? Where Construction Money Goes
The short answer
Profit is what you earned; cash is what you collected and kept. Find which of the 7 gaps holds your money and fix that one first.
- Profit isn't cash. Your accounts count work when it's earned, not when the money lands.
- Most of the gap is money you're owed. Overdue invoices, retentions and work done but not yet invoiced.
- Tax is due on the profit, cash or no cash. A big year with an empty bank becomes a tax bill you can't pay.
- The fix is a weekly habit. One page: profit on live jobs, cash after the tax pot and money owed.
Your construction company is profitable on paper, but there's no cash. Your accountant says the company made £80,000 last year. Your bank account says £6,000. The VAT bill is due next month and you're wondering if the accounts are wrong.
They probably aren't. Profit and cash are two different numbers, and in construction the gap between them is wider than in almost any other business. Here is where the money sits, how to find your gap in an hour, and how to close it. If you'd rather go through your own numbers with us, book a free strategy call.
This is general information from a contractor's experience, not accounting or tax advice. For your figures, speak to a construction-specialist accountant.
Profitable on paper but no cash: profit and cash are different
Profit is what you earned: the value of the work you invoiced, minus what it cost. Your accounts count it when the work is done and invoiced, not when the client pays.
Cash is what has actually landed in the bank and stayed there.
In most businesses the two move close together. In construction they drift apart, because:
- You pay first, get paid later. Labour, subcontractors and materials go out weeks before the stage payment comes in.
- Clients hold money back. Retentions, disputed variations and slow payers.
- HMRC changes the timing. CIS deductions and VAT move money in and out on their own calendar.
So "profitable on paper" usually means the profit is real. It's just not in your account yet, or it has already gone somewhere that never shows up as a cost.
The 7 places your profit hides
Go through these one by one. Most owners find two or three that explain almost the whole gap.
| # | Where the money is | Shows in profit? | Left your bank or never arrived? |
|---|---|---|---|
| 1 | Invoices and applications not yet paid | Yes | Never arrived |
| 2 | Retentions held by clients | Yes | Never arrived |
| 3 | Work done but not yet invoiced | Usually yes (in year-end accounts) | Never arrived |
| 4 | CIS deducted from your payments | Yes | Held by HMRC until offset or refunded |
| 5 | Van, plant or tools paid outright | Only a share each year | Left all at once |
| 6 | Loan and finance repayments | Only the interest | Left every month |
| 7 | What you took out (drawings, dividends, director's loan) | No | Left |
1. Money owed to you. Every unpaid invoice is profit in your accounts and nothing in your bank. Construction clients pay late, and a few large overdue invoices can be most of the gap.
2. Retentions. Commercial clients often hold back 3–5% of every payment. Usually half comes back at practical completion and half after the defects period, often 12 months later. On a busy year that's a lot of profit sitting in someone else's account. See how to get retention released.
3. Work done but not invoiced. The stage is finished, the variation is built, but the application hasn't gone out. You've paid for it. The client hasn't.
4. CIS. If you're a subcontractor, contractors deduct 20% from the labour part of every payment (30% if you're not registered). It counts towards your tax, but it's not in your bank until it's offset or refunded. If that's your main leak, read about gross payment status.
5. Assets paid outright. Buy a £30,000 van with cash and £30,000 leaves the bank today. Your profit only takes a share of it each year.
6. Loan repayments. Only the interest is a cost. The rest of each repayment leaves the bank and never reduces your profit.
7. What you took out. Drawings, dividends and money lent to yourself are not costs. If you've been taking out more than the business makes in cash, the bank shows it first.
Not sure where your own cash is leaking? The free 4-minute Construction Business Scorecard shows your weakest area first. Want someone to run valuations, variations and final accounts for you? See our commercial management service.
A worked example: £80K profit, £4K less in the bank
This is an illustrative example, not a client's accounts. A limited company refurbishment contractor started the year with £10,000 in the bank. It made £80,000 profit. It ended the year with £6,000. Where did £84,000 go?
| Where it went | Amount |
|---|---|
| Clients still owe (invoices and applications) | £26,000 |
| Retentions held on two commercial jobs | £12,000 |
| Work done in the last month, not yet invoiced | £14,000 |
| CIS deducted, waiting to be offset | £6,000 |
| Van bought outright (beyond this year's share in profit) | £12,000 |
| Loan repayments (the part that isn't interest) | £6,000 |
| Owner took out more than his salary | £8,000 |
| Total | £84,000 |
Every pound of the profit is real. £58,000 of it is just not collected yet: owed, retained, unbilled or with HMRC. Collect that and the company has plenty of cash.
Now the trap. Corporation Tax is charged on the £80,000 profit, cash or no cash. On these numbers that's about £17,000, due 9 months and a day after the year end.
If the money is still owed when the bill lands, the owner pays tax on money he hasn't received. That's how a good year turns into a crisis. If it's already happening, read can't pay the VAT bill.
Want us to do this exercise on your own numbers?
Book a free call and bring your last accounts.
Why growing makes it worse
Here's the part nobody warns you about. The faster you grow, the more cash you need.
Every new job needs labour, subcontractors and materials paid before the first stage payment arrives. Win a £150,000 job when your biggest was £50,000. You may need three times as much of your own money tied up in it at once.
That's why turnover can go up while the bank goes down. The profit is real, but it's always one stage behind you.
The fix isn't to stop growing. It's to change who funds the job. If each stage is paid before it starts, the client's money pays for the work, not yours. Here's how much deposit to take and a schedule you can copy.
Using a new client's deposit to finish an older job. It feels fine while work keeps coming in, and it collapses the moment it slows down. Each job has to pay for itself.
How to find your own gap in one hour
You need three things: your last accounts (or management accounts), your bank statements and your list of unpaid invoices.
- Write down the profit for the period.
- Write down how much cash went up or down over the same period.
- List the 7 places above with a figure next to each: money owed, retentions, unbilled work, CIS, assets, loan repayments, what you took out.
- Add them up. They should explain most of the difference between profit and the change in cash.
- Circle the two biggest lines. That's where you start.
If the lines don't explain the gap, or the profit itself looks wrong, the problem is the price, not the cash. Read busy but no profit and check your profit margins.
The Cash Flow & Margin Blueprint
Profit on paper, nothing in the bank? 7 steps, 3 worksheets and the 5 numbers to check every Friday.
Get the free guideHow to close the gap
Match the fix to your biggest lines.
| Biggest line | The fix this month |
|---|---|
| Money owed | Chase anything over 7 days late. On business clients, add statutory late payment interest. See client won't pay the final invoice |
| Retentions | Diarise every release date and chase in writing. Negotiate a lower % or a cap on new contracts |
| Unbilled work | Send applications on the agreed date, every time. Price and invoice variations as soon as they're agreed |
| CIS | Budget for the 20%, keep your records clean and apply for gross payment status when you meet HMRC's tests |
| Assets | Stop buying kit outright from the operating account. Decide big purchases against the 4-week forecast |
| Loan repayments | Put them in the forecast so they're never a surprise |
| What you took out | Pay yourself a fixed salary, not whatever is left |
Then protect what you collect:
- Three accounts: Operating, Tax (VAT, CIS, Corporation Tax), Profit & reserve. Move the tax share out the day money lands.
- A reserve of 4–8 weeks of overheads before you take on a much bigger job.
- Stage payments due before each stage, written into every contract.
The clients who argue about paying upfront are usually the same clients who pay late at the end. A clear schedule filters them out before they cost you money.
The Friday 30 minutes that stops it happening again
Cash problems show up weeks before they hit. Every Friday, look at five numbers:
- Cash in the bank after the tax pot
- Money owed to you, and how overdue
- What you owe in the next 2 weeks
- Margin on live jobs against the quote
- Weeks of signed work ahead
Red flags: a closing balance below 4 weeks of overheads, or any invoice 14+ days overdue. Also a live job's margin 5+ points below the quote, or under 4 weeks of signed work.
If this all sounds right but nobody in the business has time to do it, that's the real problem.
In our one-to-one mentoring, Sviat sets these numbers up with the owner in the first weeks. He uses the same system he runs in his own construction company, Craftex. To start on yours, book a free strategy call. The full method is in the cash flow guide.
Profit on paper, nothing in the bank?
Book a free strategy call and we'll find your gap with you.
Your checklist
- Profit vs change in cash written down for the last year
- The 7 places listed with a figure next to each
- Every invoice over 7 days late chased this week
- Retention release dates in the diary
- Tax account opened and the tax share moved out on every payment
