Profit measures what you earned after expenses. Cash measures what’s actually in your bank account. These are two different things, and for contractors they often diverge dramatically.

Your profit and loss statement shows revenue when you bill it, not when you collect it. If you invoiced $80,000 last month but only collected $45,000, your P&L shows all $80,000 in revenue. Your bank account only sees $45,000. The difference is sitting in accounts receivable, which is an asset on your balance sheet but not cash you can spend.

Retainage makes this worse. Most commercial jobs hold back 10% until final completion. You bill $50,000 for framing, your P&L records $50,000 in revenue, but the customer only pays $45,000. That $5,000 sits in retainage receivable for months until you finish the project and clear any punch list items. On a large job, retainage can tie up tens of thousands of dollars that show as profit but aren’t available to pay bills.

Equipment purchases hit your cash immediately but spread across your P&L over years. Buy a $40,000 truck and your bank account drops $40,000 today. Your expense on the P&L might only be $8,000 this year through depreciation. You spent $40,000 but only “expensed” $8,000. That $32,000 difference is profit on paper that doesn’t exist in cash.

Loan principal payments work the same way. When you pay $2,000 monthly on an equipment loan, only the interest portion is an expense. The principal portion reduces your loan balance but isn’t an expense on the P&L. You’re spending cash that doesn’t show up as a cost against your profit.

Owner draws and distributions don’t appear on the profit and loss statement at all. If you’re pulling $8,000 monthly to pay yourself, that’s $96,000 a year that leaves your bank account without reducing your reported profit. The business can show $100,000 profit while the owner drew $96,000, leaving almost nothing in the bank.

Materials purchased but not yet billed to customers create the same gap. You buy $15,000 in lumber for a job that won’t be invoiced until next month. The cash leaves your account now, but if you’re using accrual accounting, the expense doesn’t hit until the revenue does. Your contractor bookkeeping might show flat or positive performance while your checking account keeps shrinking.

The fix starts with understanding that both numbers matter. Profit tells you whether your business model works. Cash tells you whether you can make payroll next Friday. You need to track both.

Run a cash flow statement regularly or at minimum compare your balance sheet month over month. Watch accounts receivable, retainage, and equipment loan balances. If AR keeps growing, you have a collections problem. If retainage keeps climbing, you might be taking on too many jobs without closing out old ones.

Tighten your billing and collection cycle. Invoice promptly when work is complete. Follow up on receivables before they hit 30 days. Negotiate shorter payment terms or progress billing when possible. The faster you turn completed work into collected cash, the smaller the gap between profit and bank balance.

Working with small business bookkeepers in New Mexico who understand construction accounting helps you see these patterns before they become a crisis. Monthly financial reviews should cover both profitability and cash position so you’re never surprised when the bank account doesn’t match the bottom line.