What Your Balance Sheet Isn’t Telling You (But Should)

Most construction trade contractors focus heavily on their Profit & Loss Statement—tracking revenue, job costs, and profit margins. But if you’re ignoring your Balance Sheet, you could be missing critical insights that impact your cash flow, job funding, and long-term financial stability.

In construction, cash flow is king. Your Balance Sheet is where you’ll find the hidden clues to improving it without having to increase revenue or take on more debt.

Your Balance Sheet: The Financial Blueprint of Your Business

Think of your Balance Sheet like a job site blueprint—it gives you a clear picture of where you stand financially and helps you make smarter decisions. Ignoring it is like starting a project without checking site conditions—sooner or later, you’re in trouble.

Construction businesses deal with long payment cycles, high material costs, and fluctuating job schedules. Without a strong handle on your balance sheet, you might find yourself scrambling for cash when suppliers, subcontractors, and payroll come due.

The good news? Mastering just a few key financial principles can help you:
✅ Improve cash flow
✅ Increase working capital
✅ Boost profitability

And the best part? You can do this without increasing revenue.

4 Key Balance Sheet Ratios Every Contractor Should Track

If you’re feeling stuck financially, chances are you’re not reviewing these numbers. Measuring these monthly will help you make smarter business moves.

1️⃣ Current Ratio – Your Business's Financial Health Check

🔹 Formula: Current Assets ÷ Current Liabilities
🔹 Why it matters: This tells you if you have enough short-term assets (cash, receivables) to cover short-term liabilities (payables, loan payments).
🔹 Goal: 1.25:1 or higher.

💡 Example: If your ratio is below 1.0, you may be running too tight on cash and need to renegotiate payment terms or secure additional working capital.

2️⃣ A/R Turnover Ratio – How Fast Are You Getting Paid?

🔹 Formula: (Total Credit Sales ÷ Average Accounts Receivable)
🔹 Why it matters: In construction, waiting 60-90 days to get paid is common—but it can crush your cash flow. Tracking this ratio helps you speed up collections and reduce “Payroll Panic.”

💡 Pro Tip: Even shaving 5 days off your receivables cycle can make a huge impact. Offering early payment discounts or tightening payment terms can help.

3️⃣ Inventory Turnover Ratio – Is Your Inventory Working for You?

🔹 Formula: (Cost of Goods Sold ÷ Average Inventory)
🔹 Why it matters: Stagnant inventory ties up cash that could be used elsewhere. The faster you turn materials into completed jobs (and invoices), the better your cash flow.

💡 Tip for Contractors: If you’re stocking too much material, consider a just-in-time inventory approach to free up cash.

4️⃣ Debt-to-Equity Ratio – Are You Overleveraged?

🔹 Formula: (Total Debt ÷ Owner’s Equity)
🔹 Why it matters: Many contractors take on too much debt to finance equipment, materials, or growth. A high debt-to-equity ratio means you’re relying too much on borrowed money, increasing financial risk.

🔹 Rule of thumb: Keep your ratio below 3:1 (for every $1 of equity, no more than $3 of debt).

💡 Pro Tip: If your debt is too high, focus on increasing equity—either through profits, owner contributions, or strategic financing.

Growth Eats Cash – Don’t Let It Eat Yours

Fast-growing construction businesses burn through cash quickly. If you’re constantly short on cash—even with high revenue—it might not be a sales problem. It could be an equity problem.

👉 51% of business owners skip their paycheck to keep their business running. Don’t let that be you.

If your balance sheet shows low or negative owner’s equity, your business is underfunded. You may need to:
🔹 Seek additional capital (from banks, investors, or personal funds)
🔹 Reinvest profits strategically
🔹 Improve your cash flow management

A well-capitalized business means you can grow sustainably—without constantly worrying about how to cover payroll or materials.

Final Thoughts

If you want to build a strong, financially stable construction business, you must go beyond your P&L and start leveraging your Balance Sheet.

✅ Track these four key ratios monthly
✅ Make data-driven financial decisions
✅ Ensure your business is well-capitalized for sustainable growth

I’ve developed The Contractors Financial Blueprint Assessment specifically for contractors who want to take control of their finances. If you’re ready to dig deeper and boost your cash flow, the assessment takes less than 90 seconds with personalized results sent right to your mail.

[Take The Assessment], and let’s talk!

Have a great (and profitable) week! 🚧💰
Patrick

Patrick Shurney, MBA
Founder, 3P Consulting
📞 443.539.6276
🌐 www.3pcllc.com

Getting Trade Contractors’ Finances Sorted

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About Me:

As a veteran in financial coaching with over 30 years of corporate banking experience, my mission is to empower Trade Contractors like you to become numbers confident, optimize cash flow, leverage debt, and pay yourself competitively.

Ready for More?

Here’s how I can help you:

1.     Profit Accelerator Program: Master your business numbers in just 30 days, uncovering hidden profits of $25K-$75K+ over the next 3-12 months.

2.     Loan Consulting: Need the best rates and terms on your next loan? With 30+ years of banking experience, I’ll make sure you get a deal that works for you.

3.    Profit Accelerator Digital Course: Become confident with your numbers, boost cash flow, and learn to pay yourself first in just two hours. This course is designed for busy professionals who want immediate results. ($197)

Ready to take your financial strategy to the next level? Let’s connect and make sure you’re running a thriving business while paying yourself what you’re worth.