By Bruce Orr, Founder and Chief Data Scientist, ProNovos
Opinions are the author’s own.

In construction finance, few phrases are as common — or as misleading — as “cash is king.” Contractors often rely on it as a guiding principle. But in reality, simply having money in the bank won’t protect you in a high-stakes, low-margin environment where timing and liquidity are everything.

“Cash is king” might be the most overused phrase in construction finance — and one of the most misleading.

The real power lies in cash flow — the movement of money through your business, from the moment you incur a cost to the day you collect payment. Managing that flow, not hoarding cash, is what separates sustainable growth from potential failure.

Cash on Hand Isn’t the Safety Net You Think It Is

One of the biggest misconceptions in the industry is that a strong cash reserve equals financial health. But that isn’t always true — especially in construction, where delayed payments, change orders, and slow billing can quietly bleed your business dry.

“You can have plenty in the bank and still be on the brink.”

“It’s not how much cash you have; it’s how well you control the movement of cash through your projects, partners and pipeline.”

Without real-time visibility into how money moves through your business, you’re not in control — you’re reacting. And that puts even the most well-capitalized contractors at risk.

“Without visibility into how money is moving — when it’s coming in, going out, and where it’s getting stuck — you’re not running your business. You’re reacting to it.”

A Strong Backlog Won’t Save You Without Cash Flow Discipline

Many contractors rest easy when their backlog looks healthy. But backlog is just potential — not liquidity. If your billing discipline is poor or your receivables are aging past 60 or 90 days, you may be bleeding out and not know it.

“I once worked with a contractor with over $100 million in backlog. On paper, they looked unstoppable. However, they had poor billing discipline and 70+ day receivables. They weren’t broke, but they were bleeding slowly.”

This isn’t an isolated case. According to the Construction Financial Management Association’s 2024 Benchmarker survey, the average construction company has just 23.5 days of cash on hand. That’s a slim cushion when billing delays and slow payments hit at the same time.

Sitting on Cash Comes with Opportunity Costs

It’s easy to mistake a large cash reserve for financial strength. But idle cash loses value due to inflation and missed opportunities for reinvestment — and savvy contractors know that money should always be working.

“Seeing a large bank balance can create a false sense of security. But cash that just sits there is losing value due to inflation, missed discounts and opportunity costs.”

Top performers in the construction space understand the importance of return on assets (ROA). According to the same survey, the average ROA in 2023 was 11.8%, but the best-run firms achieved nearly 28.4%. That’s not luck — it’s financial strategy.

“That kind of gap doesn’t happen by accident. It happens by design — through strategic reinvestment and smart financial management.”

3 Financial Metrics That Matter More Than Just Cash Balance

So how do you evaluate your business’s financial fitness beyond checking your bank account? These three metrics are a great place to start:

1. Cash-to-revenue ratio (CTR): This shows how much cash you have relative to your revenue. A low CTR may mean you’re living dangerously. A high one signals opportunity — if you manage it well.
2. Days of cash: This measures how long your business can operate without new income. Industry average is 23.5 days. More is better, but only if the money is flowing effectively.
3. Return on assets (ROA): A clear indicator of how well you deploy your resources. If you’re below the industry average, there’s room for operational improvement.

“Want to know if you’re positioned for growth or just coasting? Track these three indicators.”

You Can’t Manage What You Can’t See

Managing cash flow doesn’t mean doing a weekly bank account check. It means using tools and data to gain visibility into how money moves through every layer of your operation.

“You can’t manage what you can’t see.”

Here are some key questions contractors should be able to answer at all times:

• What will our cash position be in 30, 60 and 90 days?
• Which jobs are cash-positive or cash-negative?
• How fast do our customers pay — and is that trend improving?
• How reliant are we on a few large receivables?

“If the answer to any of these is ‘not sure,’ you’ve got a problem. And the tools exist today to solve it — if you’re willing to commit.”

Cash Flow Management Starts With Leadership

Managing cash flow is not just the job of your accountant or controller. It’s a leadership function that directly affects your ability to grow, pay your team, invest in technology and survive downturns.

“This isn’t accounting’s job. It’s yours.”

“Cash flow drives your ability to take on new work, pay your team, invest in tech and weather downturns.”

I’ve worked with construction companies that looked profitable on paper but struggled to meet payroll. The issue wasn’t profitability — it was the failure to manage cash flow.

“I’ve seen companies showing solid profit margins but unable to make payroll, not because they weren’t earning money, but because they weren’t managing the movement of their cash.”

How to Improve Your Cash Flow Discipline

Controlling cash flow requires a consistent strategy. Here are several practices high-performing firms use to take control of their finances:

• Bill early and often.
• Track your Days Sales Outstanding (DSO) and work aggressively to shorten it.
• Forecast based on real behavior, not assumptions.
• Take advantage of early payment discounts — they are essentially free profit.

“Discipline beats drama every time.”

“To reduce the drama:
– Bill early and often.
– Track DSO and push it down.
– Forecast based on behavior, not hope.
– For money going out, take advantage of early payment discounts — they’re free margin.”

The Bottom Line: Cash Flow is King

Yes, it’s nice to have cash in the bank — but it’s more important to know how quickly and efficiently it’s moving through your business.

“Cash might be comforting. But cash flow is king.”

“In an industry where timing is everything, the winners aren’t the ones with the most money in the bank — they’re the ones who move it fastest, smartest and most deliberately.”

“So stop asking ‘How much cash do we have?’ Start asking ‘How fast are we moving it — and where is it stuck?’”

“Because when you lead with your cash flow, you put your business in a position to lead the competition.”

Originally reported by Bruce Orr in Construction Dive.