Plenty of profitable trade businesses go under — not because they weren't making money on paper, but because they ran out of cash at the wrong moment. Profit and cash flow are not the same thing, and not knowing the difference is one of the most dangerous blind spots an owner can have.
You don't need to become an accountant. But you do need to know your numbers well enough that you're never blindsided. Here are the basics every trade business owner should have at their fingertips.
Profit vs cash flow
Profit is what's left after costs, on paper. Cash flow is the actual money moving in and out of your account, and when it moves. You can have a great month on paper and still not be able to pay wages on Thursday, because the client hasn't paid you yet and materials went out on your card. Cash flow is timing — and timing is what catches owners out.
The handful of numbers to watch
- Gross margin — for every dollar of work, how much is left after the direct cost of doing it (materials and labour). If you don't know this per job, you're flying blind.
- Overheads — what it costs to keep the doors open each month before you do a single job (vehicles, insurance, tools, admin, phone).
- Break-even — how much you have to bill each month just to cover everything. Below this, you're losing money.
- Debtor days — how long, on average, clients take to actually pay you. The longer this is, the more your cash is stuck in other people's pockets.
- Cash on hand — how many weeks you could survive if the work stopped tomorrow.
Revenue is vanity. Profit is sanity. Cash is reality.
Three habits that protect your cash
- Invoice fast and chase faster. The job isn't done when the tools are packed up — it's done when you've been paid. Invoice the day you finish, set clear payment terms, and follow up the moment they're overdue.
- Take deposits and progress payments. Don't fund your clients' projects out of your own pocket. Deposits on materials and progress claims on bigger jobs keep cash flowing in step with the work.
- Put tax and super aside as it comes in. Money that isn't really yours shouldn't sit in your everyday account tempting you. Separate it, so a tax bill is never a nasty surprise.
What changes when you know your numbers
One client told me the thing that changed everything wasn't a single big win — it was finally knowing his numbers cold. When you can see your margins, your break-even and your cash position, you stop making decisions out of fear and start making them with confidence. You quote better, you spend smarter, and you sleep at night.
The bottom line
You can't improve what you don't measure. Get across these few numbers, build the habits that protect your cash, and you'll go from hoping the business is healthy to knowing it is — and that's the foundation everything else is built on.