A contractor with $62,000 in the bank still couldn't make payroll. Mike Andes explains why: project-based businesses have lumpy cash flow. A big job inflates the account temporarily, but vendor payments and payroll drain it fast. The more you depend on large projects, the bigger your cash cushion needs to be.
Let's now jump into Nick's financials. He shared his balance sheet and his profit and loss statement. Let's see if there's anything more we can uncover or learn here. So we do have $62,000 in the bank. Not bad. I have a feeling that this snapshot is after a big job was completed or something because he's saying that he's struggling to make payroll, which tells me that the cash flow is probably very lumpy. I'm assuming there's probably $60,000 in the bank today and next week after paying a couple of vendors and doing payroll, it could be down to almost zero. That is very common when it comes to large project-based jobs. And typically the more project-heavy a business, the more cash I need on hand because there are bigger expenses, subcontractors, materials, or just big ticket items that can come up throughout the project.
