Cash is a Fact, Profit is an Opinion.

Cash flow and profit are two sides of the same coin; cash flow provides the present, profit secures the future. Striving for both and striking the balance is the key to success.

Cash is a Fact, Profit is an Opinion: The Construction Industry's Survival Truth

In construction, balance sheets lie. Cash flow statements don't.

When Alfred Rappaport stated "Cash is a fact, profit is an opinion," he could have been speaking directly to the construction sector. No industry better demonstrates this brutal financial reality.

Construction companies routinely collapse while reporting profits. How? Because accounting profit is an artificial construct—a mathematical conclusion based on assumptions, allocations and accounting policies. It exists on paper but not necessarily in your bank account.

Cash tells a different story. It represents the actual money available to pay suppliers, meet payroll and fund operations. No interpretation required.

Why construction is uniquely vulnerable to this disconnect:

• Projects often require substantial upfront expenditure before any payment

• Payment terms frequently stretch 60-90 days, creating massive cash gaps

• Retention holds back significant portions of earned revenue

• Variations and claims can take months or years to resolve

• Subcontractor payments may be due before client payments arrive

Consider the reality: A £10M project reporting 5% profit (£500K) can easily consume £2M in working capital during delivery. The accounting profit becomes meaningless if you run out of cash mid-project.

Construction's profit illusions:

• Recognition of profit on uncertified variations

• Accrued income on disputed change orders

• Underestimated costs to complete

• Optimistic recovery assumptions on claims

• Delayed recognition of project losses

The savviest contractors ruthlessly prioritise cash management through:

• Front-loaded payment schedules

• Accelerated certification processes

• Reduced retention percentages

• Supply chain payment terms aligned with client payments

• Rigorous change order management

Profitable contractors fail every day. Cash-positive contractors survive downturns, supply chain disruptions and client insolvencies.

The construction businesses that thrive over decades understand that while profit keeps score, cash keeps you alive. In an industry where insolvency is common, survival depends on managing cash as your primary metric, not accounting profit.

Your bank balance doesn't care what your profit forecast says. Neither should you.