Your Bank Balance Isn’t Your Profit: What Contractors Need to Know
You check your business bank account.
There’s $40,000 sitting there.
It feels like a good month.
But can you actually say your business made $40,000?
Not necessarily.
Your bank balance tells you how much cash is in your account at a specific moment. It doesn’t tell you how profitable your business is.
For contractors, understanding the difference between cash and profit is especially important.
Cash Isn’t the Same as Profit
Imagine your contracting business receives a $30,000 customer payment.
Your bank account goes up by $30,000.
But that doesn’t mean you’ve earned $30,000 in profit.
You may still have:
Employee wages to pay
Subcontractor invoices
Material bills
Vehicle and equipment costs
Insurance
Rent or other overhead
GST obligations
Other upcoming expenses
The money may be in your account, but some of it already has a purpose.
That’s why looking only at your bank balance can give you a false sense of financial security.
So What Is Profit?
At a basic level, profit is what remains after the business’s expenses are accounted for against its revenue.
Your Profit & Loss statement helps you see this.
For example:
Revenue: $100,000
Direct/job costs: $60,000
Gross profit: $40,000
Overhead expenses: $25,000
Net income: $15,000
Your bank account could look very different from that $15,000.
That’s because cash flow and accounting profit measure different things.
Why Contractors Need to Watch Both
A healthy contracting business needs to understand two questions:
1. Is the business profitable?
Your financial statements can help answer this.
2. Do we have enough cash to meet our obligations?
Your cash position and cash-flow information help answer this.
You need both.
A business can be profitable but temporarily short on cash.
For example, you may have completed several large jobs and recorded the revenue, but your customers haven’t paid their invoices yet.
Meanwhile, you still need to pay your employees, suppliers and subcontractors.
That’s a cash-flow problem.
Accounts Receivable Can Make This Even More Complicated
Let’s say you’ve invoiced customers $75,000.
Your accounting records may show that money as revenue or receivables depending on the accounting method being used.
But if customers haven’t paid yet, that money isn’t sitting in your bank account.
This is why contractors should regularly review accounts receivable.
You should know:
How much customers owe you
Which invoices are overdue
How long invoices have been outstanding
When you reasonably expect payment
The goal is to avoid being surprised by your own cash flow.
What About Upcoming Bills?
The opposite can also happen.
You might have $40,000 in the bank, but $25,000 of bills are coming due.
If you look only at the bank balance, you may think you have $40,000 available.
In reality, a large portion of that cash may already be committed.
This is why regular accounts payable reviews matter too.
What Should Contractors Look at Every Month?
A useful monthly financial review should include more than your bank balance.
At minimum, look at:
Revenue
How much did the business generate?
Gross Profit
How much did you have left after direct costs?
Expenses
Are overhead costs increasing?
Accounts Receivable
How much money are customers still owing?
Accounts Payable
What bills need to be paid?
Cash
How much money is actually available?
Job Profitability
Which projects performed well?
Which ones didn’t?
The Question to Ask Yourself
Instead of asking:
“How much money do I have?”
Try asking:
“What does my current cash position tell me about my business?”
That question leads to much better financial decisions.
Your bank balance is important.
But it is only one piece of the picture.
Know More Than Your Bank Balance
Good bookkeeping gives you the ability to connect the dots between your cash, revenue, expenses, outstanding invoices and job profitability.
That’s where your numbers become useful.
Bricked Bookkeeping helps contractors and trades businesses organize their books and gain clearer financial visibility.
GET THE FREE CASH FLOW TRACKER
Or, if you’d rather talk through your current bookkeeping setup, book a free Contractor Business Review.
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Know your numbers. Know your business.