5 Cash Flow Mistakes That Kill Contractor Businesses

Busy and Broke

The most dangerous phase for a contractor: booked solid with work but can't make payroll. It happens more often than you'd think, and it's almost always caused by one of these 5 mistakes.

Mistake #1: No Deposits

You accept a $15,000 job, buy $6,000 in materials on your credit card, pay your crew $3,000 for the week, and then wait 30 days for the customer to pay. You're $9,000 in the hole before you see a dime.

Fix: 30% deposit minimum. On a $15,000 job, that's $4,500 before you order a single item.

Mistake #2: Slow Invoicing

Every day between job completion and invoice sent is a day you're financing someone else's project for free. If you wait a week to invoice, you're giving the customer a free week of credit.

Fix: Invoice the same day the work is done. Not Friday. Not "when I get around to it." That day.

Mistake #3: No Payment Terms

"Pay when you can" isn't a payment term. If your invoice doesn't have a due date, it doesn't have urgency.

Fix: "Due upon receipt" or "Net 15" on every invoice. Include a payment link to make it instant.

Mistake #4: Taking on Too Much Work Too Fast

Paradoxically, growing too fast kills cash flow. Each new job requires upfront costs (materials, labor) before payment comes in. Scale faster than your cash can support and you'll be busy, successful on paper, and unable to pay your bills.

Fix: Only take on new work when existing invoices are being paid. Track your receivables weekly.

Mistake #5: Mixing Business and Personal Money

When business cash and personal cash live in the same account, you have no idea whether the business is profitable. You might be subsidizing your business from personal savings without realizing it.

Fix: Separate business bank account. Transfer yourself a fixed "salary." Don't touch business cash for personal expenses.

"I was doing $300,000 a year in revenue and couldn't figure out why I was always broke. The answer: no deposits, slow invoicing, and no payment terms. I was basically a bank giving free loans to homeowners." — Carlos M., Sacramento CA

Your next step: Check your receivables right now. How much money are you owed? If it's more than one month's expenses, you have a cash flow problem that needs fixing today.