A profitable contract can still need more working cash than a small contractor expects.
Winning a larger job can look like the answer to a quiet month. But a signed contract does not put its full value in the bank. Labour, supplier deposits and hire charges may fall due well before the related customer payment arrives.
Before accepting the start date, sketch the job’s cash timeline. The question is not only whether the work should make money, but whether the business can fund the weeks between spending and collecting.
Follow the money by week
Business.govt.nz recommends cash-flow forecasts that estimate money coming in and going out over time. For a contractor, the useful extension is to place the new job beside the business’s existing commitments, rather than view it on its own.
Use realistic collection dates. An invoice issue date is not necessarily the day money arrives. Include supplier payments, wages, subcontractors, hire, overheads and obligations already committed on other projects. Keep tax assumptions consistent with the way the forecast is prepared and have the accountant check them.
As an illustrative example, a job might require NZ$18,000 of outgoings before a NZ$24,000 payment is expected. That does not mean NZ$6,000 is free profit: other costs may remain, and the timing still leaves NZ$18,000 to fund. The example is arithmetic, not a benchmark for an appropriate contract margin.
Test the uncomfortable version
Move the expected receipt later and add a plausible extra cost. Does the account remain able to meet its commitments? If not, discuss the gap before signing, rather than treating another future job as the automatic solution.
Possible responses might include a different agreed programme, revised purchasing arrangements or appropriately assessed finance. Any contract changes need agreement; a forecast is not permission to withhold payments or impose new terms.
After work starts, replace estimates with actual dates and amounts. A forecast that is never updated soon becomes a record of what everyone hoped would happen.
Growth is easier to manage when the owner can explain the lowest expected cash point, what causes it and how it will be covered. That is a more useful test of readiness than the size of the order book alone.