“We’re profitable on paper, but I can’t make payroll next week.”
This is the most common panic call we get from small business owners in Texas. The P&L shows profit. The bank account shows $2,400. Payroll is $18,000 on Friday.
How does a profitable business run out of cash?
The answer: profit and cash are completely different things. You can be profitable and broke. You can be unprofitable and cash-rich. Understanding the gap between them is the difference between sustainable growth and constant financial panic.
Here’s what causes small business cash flow problems—and the specific fixes that work for service businesses, contractors, and trade companies across Texas.
Why Profitable Businesses Run Out of Cash
Profit measures what you earned. Revenue minus expenses. If you did $100K in work and spent $70K doing it, you made $30K profit.
Cash measures what’s in the bank. Actual dollars you can spend today.
These two numbers can be wildly different because of timing:
Timing Problem #1: You Get Paid After the Work
You finish a $50,000 HVAC install in March. Customer has net-30 payment terms. You don’t get paid until April.
But your costs hit immediately:
- Materials purchased: paid up front or on 15-day terms
- Labor costs: paid weekly or bi-weekly
- Subcontractors: paid at completion or 15-day terms
- Overhead: paid monthly (rent, insurance, utilities)
So March’s P&L shows a profitable job. March’s bank account shows $50,000 worth of outflows and $0 inflows. That’s a cash flow problem.
Common in Texas industries:
- General contractors waiting on progress payments
- Commercial HVAC companies with net-30 or net-60 terms
- Landscaping businesses that bill monthly but pay crews weekly
- Electrical contractors doing commercial projects with retention holdbacks
The bigger your projects and the longer your payment terms, the worse this timing gap gets.
Timing Problem #2: Growth Eats Cash
This one surprises owners the most. You’re growing—shouldn’t that mean more cash?
No. Growth consumes cash.
Here’s why: every new job requires upfront investment before you get paid.
Example from a Dallas plumbing contractor:
Month 1: $200K revenue, $140K costs = $60K profit
- Cash out: $140K (materials, labor, overhead)
- Cash in: $150K (collections from last month’s jobs)
- Net cash: +$10K
Month 2: $300K revenue (50% growth!), $210K costs = $90K profit
- Cash out: $210K
- Cash in: $200K (collections from Month 1)
- Net cash: -$10K
Profit went up. Cash went down.
This is why fast-growing small businesses in Austin, Houston, and San Antonio constantly feel cash-strapped despite “doing well.” Growth requires funding the gap between work performed and payment received.
Timing Problem #3: You’re Funding Customer Purchases
Every dollar tied up in work-in-progress or accounts receivable is a dollar you can’t use to pay bills.
What this looks like:
- $80K in unbilled work sitting in your project management system
- $120K in outstanding invoices (AR aging)
- $40K in materials inventory for upcoming jobs
That’s $240K of your money that’s working but not available. It exists on your balance sheet, not in your checking account.
For Texas trade businesses, this problem peaks during busy season. You’re running flat-out, revenue is great, and somehow you’re scrambling to cover basic expenses.
The business is profitable. The cash is just stuck in the work.
The Real Causes (Not the Obvious Ones)
Most small business owners blame cash flow problems on:
- “Customers pay too slow”
- “I need a line of credit”
- “My margins are too thin”
These might be symptoms, but they’re not root causes. Here’s what actually breaks cash flow:
Cause #1: You Don’t Know Your Job Costs Until It’s Too Late
You estimate a job at $25,000. You think you’ll make $8,000 profit. Halfway through, the job is over budget—but you don’t know it yet.
You keep working. You keep spending. By the time you finish and close the books, you discover the job actually cost $23,000. Your $8,000 profit became $2,000.
Now multiply this across 10-20 jobs running simultaneously. Some are over budget, some are under, but you don’t know which until month-end when your bookkeeper closes the books.
The cash flow damage:
- You spent money assuming one profit margin
- Reality delivered a different margin
- You can’t unspend the money
- Next month starts already behind
Job costing in real-time prevents this. When you track costs as they happen—not 30 days later—you can adjust before cash flow gets damaged.
Cause #2: Your AR Aging Is Invisible Until It’s a Crisis
Most small business owners look at total AR: “I have $150K outstanding.”
They don’t look at AR aging: how long those invoices have been unpaid.
What they discover when they finally look:
- $40K in current AR (0-30 days): this is fine
- $60K in 31-60 days: this is getting late
- $35K in 61-90 days: this is a problem
- $15K over 90 days: this probably won’t get paid
That $150K in AR isn’t all real. Some of it is bad debt that hasn’t been written off yet.
When owners realize this, they panic: “I thought I had $150K coming in. I actually have $40K coming and $110K that’s questionable.”
Cash flow plans based on total AR instead of collectible AR fail every time.
Cause #3: No Cash Flow Forecast
Most Texas small business owners run on gut feel:
- “We should be fine this month”
- “Big payment is coming soon”
- “We always figure it out”
Then Friday hits and payroll is $6,000 short. Panic mode.
This isn’t a cash problem—it’s a visibility problem. If you’d known two weeks ago that you’d be short, you could have:
- Accelerated collections on past-due invoices
- Delayed non-critical expenses
- Arranged a short-term draw on your line of credit
- Adjusted job schedules to get progress payments faster
But you didn’t know. So now you’re scrambling.
A simple cash flow forecast—money in vs. money out over the next 30-60 days—eliminates 80% of cash panic. Financial literacy is not accounting, but it does require seeing what’s coming.
Cause #4: Profit Is Subsidizing Poor Operations
Your P&L shows profit. Your bank account is empty. Where did the profit go?
Common culprits in Texas service businesses:
Unbilled work sitting too long: You completed jobs 30-45 days ago but haven’t invoiced them yet. That’s revenue you earned but cash you can’t collect. Every week of delay costs you working capital.
Slow job closeout: The job is done, but final paperwork drags. Change orders aren’t documented. Customer disputes minor items. You wait weeks to send the final invoice because “we need to sort it out first.”
Meanwhile, you’ve already paid for all the costs. The profit exists on paper but cash is locked up in the dispute.
Inventory bloat: You bought materials for jobs that shifted, delayed, or cancelled. Now you have $15K in inventory sitting in the warehouse. That’s $15K of cash you can’t use for anything else.
Equipment purchases: You bought a $40K truck. Great investment. But your cash is now tied up in a depreciating asset instead of available for operations. The P&L barely notices (just depreciation), but cash took a $40K hit.
These aren’t bad decisions—they’re operating realities. But if you don’t account for them in your cash planning, you’ll constantly feel broke despite being profitable.
How to Fix Small Business Cash Flow Problems
Now for the actual solutions. Not generic advice—specific fixes for Texas small businesses doing $500K to $10M in revenue.
Fix #1: Get Paid Faster
The single biggest cash flow fix: reduce the time between completing work and collecting payment.
Specific tactics:
Progress billing for larger projects: Don’t wait until the end. Bill at milestones:
- 25% deposit upfront
- 25% at rough-in / substantial progress
- 50% at completion
- Final 10% held for punchlist
This keeps cash flowing in as you incur costs instead of funding the entire job yourself.
Shorter payment terms: Net-30 is standard. But standard isn’t required. Try:
- Net-15 for smaller jobs
- Due on completion for service calls
- 2% discount for payment within 5 days
A Houston plumbing contractor cut their AR days from 38 to 22 just by changing invoice terms and following up. That freed up $60K in working capital overnight.
Deposits on all jobs: 50% deposit for residential work. 25-30% for commercial. No exceptions.
This isn’t just about cash—it’s about customer commitment. Customers who won’t put down a deposit often become payment problems later.
Credit card payments: Yes, you pay 2.5-3% processing fees. But you get cash in 2 days instead of 30-60 days. For jobs under $5K, offer a discount for credit card payment to cover your fees and accelerate cash.
Fix #2: Track Job Costs in Real-Time
Stop waiting until month-end to know if jobs are profitable.
What real-time job costing looks like:
Daily tracking:
- Labor hours coded to specific jobs
- Materials assigned to jobs when purchased
- Subcontractor costs allocated as work happens
Weekly reviews:
- Job-by-job profit margin check
- Budget vs. actual comparison
- Flag overruns before they compound
Monthly reconciliation:
- Close completed jobs
- Update estimates based on actuals
- Adjust pricing for future similar work
An Austin HVAC contractor implemented this and discovered 30% of their service calls were losing money. Not because of bad pricing—because field techs were running long and nobody noticed until month-end.
They adjusted dispatch, set time expectations, and trained techs on efficiency. Margin improved 8 points. Cash flow stabilized because they stopped bleeding money on small jobs.
Fix #3: Build a Rolling Cash Flow Forecast
You need to see 30-60 days ahead, updated weekly.
Simple 13-week cash flow forecast:
Week-by-week breakdown:
- Starting cash: What’s in the bank today
- Cash in: Collections expected this week (from AR aging)
- Cash out: Payroll, materials, subs, overhead due this week
- Ending cash: Where you’ll be by week end
Update it every Monday. Takes 20 minutes. Eliminates 90% of cash surprises.
What this reveals:
- Week 3: $12K short → start collections push now
- Week 6: $40K surplus → good time for that equipment purchase
- Week 9: Tight but manageable → don’t take on new expenses
Most Texas business owners resist forecasting because “things change too much.” Yes, they do. That’s why you forecast—so you can see changes coming and adjust.
Fix #4: Manage Your AR Aging Aggressively
Don’t let invoices age past 30 days without action.
AR collection process:
Day 0 (invoice sent): Confirm receipt. “Invoice sent, expect payment by X date.”
Day 15: Friendly check-in. “Just confirming you received the invoice, any questions?”
Day 30: Direct follow-up. “Invoice is now due, when can we expect payment?”
Day 45: Serious conversation. “Invoice is 15 days past due. We need to resolve this. What’s the issue?”
Day 60: Final notice. “Payment is now 30 days overdue. If not received by X date, we’ll pause future work and consider collections.”
Day 75: Collections action. Send to collections, stop work, whatever your policy dictates.
The key: consistency. If you let some customers slide to 90 days while pressuring others at 45, you’re training customers that your terms don’t matter.
San Antonio contractors especially struggle with this—they don’t want to “bother” good customers. But good customers pay on time. Customers who habitually pay late aren’t doing you favors by giving you more work.
Fix #5: Separate Operating Cash from Owner Distributions
Many small business owners run one checking account. Business income and owner draws all mixed together.
This makes cash planning impossible. You can’t tell if you’re short because business needs cash or because you took too much out.
Better structure:
Operating account:
- All business revenue goes in
- All business expenses come out
- Maintains a minimum balance (e.g., 2 weeks operating expenses)
Owner distribution account:
- Regular draws/salary paid from operating account
- Keeps owner compensation consistent and predictable
- Excess profit distributed quarterly, not randomly
Tax account:
- Set aside 25-30% of profit monthly
- Available when quarterly estimates or annual taxes are due
- Prevents “where did the tax money go?” panic
This separation creates visibility. When operating account is low, you know it’s a business problem, not a personal spending issue.
Fix #6: Reduce Inventory and WIP
Every dollar tied up in materials sitting on shelves or work in progress is cash you can’t use.
Tactics to free up cash:
Just-in-time material ordering: Order materials closer to job start. Yes, you might pay slightly more. But you free up cash and avoid waste from jobs that change or cancel.
Bill unbilled work immediately: If the work is done, bill it. Sitting on completed work for weeks is giving customers free financing.
Clear out old inventory: Sell, return, or donate materials from cancelled jobs. Even at a loss, cash in hand beats inventory on shelves.
Tighten job closeout process: From substantial completion to final invoice should take days, not weeks. Every day of delay is cash stuck in limbo.
A Dallas general contractor was sitting on $85K in unbilled work. They implemented a weekly billing review, cleared the backlog, and suddenly had $85K in AR instead of WIP. Within 30 days, $60K of that converted to cash.
Fix #7: Know Your Cash Conversion Cycle
This is the metric that determines if your business model is cash-hungry or cash-efficient.
Cash conversion cycle formula: Days to complete work + Days to invoice + Days to collect - Days to pay suppliers = Cash conversion cycle
Example:
Scenario A (cash-hungry):
- Complete work: 30 days
- Invoice delay: 10 days
- Collect payment: 45 days
- Pay suppliers: 15 days
- Total: 70 days
You’re funding operations for 70 days between starting a job and collecting cash.
Scenario B (cash-efficient):
- Complete work: 15 days
- Invoice delay: 2 days
- Collect payment: 20 days
- Pay suppliers: 30 days
- Total: 7 days
You’re only funding operations for 7 days.
The difference is massive. Scenario A needs huge cash reserves or credit lines. Scenario B is nearly self-funding.
How to improve your cycle:
- Shorten job duration (better scheduling, more crews)
- Bill immediately upon completion
- Accelerate collections (deposits, shorter terms)
- Negotiate longer vendor terms (30 days instead of 15)
A Houston landscaping company cut their cycle from 52 days to 28 days just by implementing progress billing and weekly invoicing. Freed up $120K in working capital without changing their business model.
Cash Flow Problems Specific to Texas Small Businesses
Seasonal industries:
- HVAC peaks in summer, slow in winter
- Landscaping busy spring/summer, dead in winter
- Roofing surges after storms, quiet otherwise
Build cash reserves during peak season to fund slow season. If you spend all summer profits on trucks and equipment, winter will break you.
Weather disruptions: Texas weather creates scheduling chaos. Jobs delay, costs overrun, customers postpone. Build buffer into your cash forecast for weather delays—especially for exterior work.
Fast growth markets: Austin, Dallas, and parts of Houston are growing explosively. Lots of work available. But growth eats cash. If you’re scaling fast, your cash needs are growing even faster.
Competitive payment terms: Commercial work often demands net-60 or net-90 terms. You can push back, but you might lose the bid. Factor longer payment cycles into job pricing—if you’re funding work for 90 days, charge accordingly.
When Cash Flow Problems Signal Bigger Issues
Sometimes cash flow problems aren’t really cash flow problems—they’re symptoms of something deeper.
Warning signs:
Consistently profitable but always broke: Your margins might be phantom. You’re counting revenue you can’t collect or profit that doesn’t materialize.
Cash problems despite slowing growth: You should be catching up. If you’re still tight despite stable revenue, your operations are bleeding cash somewhere.
Relying on credit lines to make payroll: Occasional use is fine. Regular use means your business model doesn’t generate enough cash to sustain itself.
Robbing Peter to pay Paul: Using one customer’s deposit to finish another customer’s job. This is a downward spiral—don’t wait until it collapses.
If you recognize these patterns, the problem isn’t collections or payment terms. The problem is operational dysfunction or a fundamentally unprofitable business model.
Fix the root cause, not the symptom.
What Good Cash Flow Looks Like
You know your cash flow is healthy when:
You can see 60-90 days ahead with reasonable accuracy
Payroll is never a surprise or source of stress
You maintain a cash buffer equal to 2-4 weeks of operating expenses
Growth doesn’t create cash panic because you plan for it
You make financial decisions based on data not gut feel
Slow-paying customers are the exception not the rule
Most Texas small businesses doing $1M+ can achieve this with basic financial discipline and systems. It doesn’t require fancy software or a full-time CFO.
It requires:
- Real-time job costing
- Weekly cash flow review
- Aggressive AR management
- Separation of business and owner cash
- Understanding your cash conversion cycle
The Real Cost of Cash Flow Problems
Beyond the obvious stress, poor cash flow costs you:
Opportunity cost: You turn down profitable work because you can’t fund the upfront costs. Your competitor with better cash flow takes the job.
Vendor relationships: Late payments strain relationships with suppliers and subs. They stop extending credit, demand COD, or prioritize other contractors.
Strategic decisions: You make decisions based on immediate cash needs instead of long-term value. Buy cheaper equipment that breaks faster. Hire whoever’s available instead of who’s best. Cut corners that hurt quality.
Owner burnout: Constant cash stress is exhausting. It bleeds into every decision and conversation. It’s why profitable business owners still feel like they’re failing.
Growth constraints: You can’t scale because you can’t fund growth. Every new job requires cash you don’t have.
The irony: fixing cash flow often costs less than suffering through broken cash flow. A $3,000/month bookkeeper who tracks job costs and manages AR will generate $50K+ in improved cash flow within 6 months.
Getting Help with Cash Flow
If your small business has chronic cash flow problems despite being profitable, you need three things:
1. Real-time financial visibility Know your job costs, AR aging, and cash position weekly—not monthly.
2. Aggressive collections process Don’t let invoices age. Get paid fast.
3. Cash flow forecasting See problems coming 30-60 days ahead so you can adjust.
Most Texas small business owners try to handle this themselves while also running operations, managing teams, and serving customers. It’s too much.
Small business consulting focused on financial operations can fix cash flow problems in 60-90 days—often by implementing the exact processes outlined in this article.
The question isn’t whether you can fix it yourself. You probably can.
The question is whether the time, stress, and opportunity cost of doing it alone is worth avoiding the investment in help.
For most small business owners in Dallas, Houston, Austin, and San Antonio doing $500K-$10M in revenue, the answer is no.
Get the help. Fix the cash flow. Get back to running your business instead of constantly scrambling for cash.