Profitable businesses don't usually die because they're unprofitable. They die because they run out of cash at the wrong moment - owing a subcontractor $5,000 on Friday while the client's $14,000 sits "in the post." In construction arbitrage, cash-flow sequencing is not an accounting detail. It's survival. (Figures in USD; the sequencing works the same in any currency.)
Master this one skill and you can run jobs far bigger than your own bank balance, with almost no money of your own at risk.
The golden rule
The client's money for each stage must arrive before the subcontractor's bill for that stage is due. Always. No exceptions.
If you ever find yourself paying a trade out of your own savings and "waiting" to be reimbursed by the client, you've broken the rule and you're now financing the job - taking all the risk for none of the extra reward. Structure it so that never happens.
How to structure the money
Small and mid-sized jobs: deposit + balance
A clean, standard structure:
- Deposit on acceptance (30-50%). Sized so it covers your materials cost plus the first chunk of labour. You order materials with the client's money, not yours.
- Balance on completion, before final sign-off and handover of any guarantee/certificates.
You pay your trade their final amount out of the balance the moment it lands. At no point is your own cash funding the build.
Larger projects: staged payments tied to milestones
On a $40k+ job, one deposit isn't enough and clients rightly won't hand over half up front. Break it into stages, each released when a visible milestone is hit:
| Stage | Milestone | % of total |
|---|---|---|
| 1 | Deposit on signing | 20% |
| 2 | Strip-out / first fix complete | 25% |
| 3 | Second fix complete | 25% |
| 4 | Snagging complete | 20% |
| 5 | Final sign-off & handover | 10% |
The principle is identical: each stage payment lands before you owe the trade for that stage's work. You're always spending money you've already collected.
Protect yourself on both sides
Cash flow isn't only about timing - it's about not getting stung at either end.
- Hold a retention on your subcontractor's final payment. Keep back ~5-10% of the trade's bill until snagging is signed off. It's your leverage to get defects fixed without chasing. Mirror what the client does to you down the chain.
- Never release the client's guarantee or certificates until the balance clears. Those documents are your collateral. Hand them over only when the money's in.
- Get payment terms in writing in the contract. "Stage 2 due within 3 days of first fix completion" removes every argument. See Contracts, Insurance & Staying Legal.
- Take card or bank transfer, not cheques, and confirm funds cleared before the next stage starts.
The deposit is also a filter
A deposit does a second job beyond funding the work: it filters out bad clients before they cost you money. Time-wasters, hagglers and the rare outright fraudster reveal themselves the moment real money is asked for. A serious client paying for a serious job has no problem committing a deposit - they expect to. The one who fights it is showing you exactly how the final invoice conversation will go.
What good cash flow unlocks
Get this right and something powerful happens: you can take on jobs much bigger than your own savings. A $14k bathroom doesn't need $14k of your money - it needs a $6k deposit from the client that covers the materials and first labour stage. Your capital requirement is tiny because you're moving the client's money through the job, not your own.
That's the quiet superpower of the model. Low capital, high throughput - but only if you sequence the cash perfectly. Sloppy sequencing turns the same business into a personal-overdraft machine.
Run other people's money through the job. Never run your own.
Next: make sure the work that money pays for is actually delivered well - Managing Subcontractors You've Never Met.
Frequently asked questions
How big a deposit should I take?+
For small and mid-sized works, 30-50% up front is normal and reasonable, often structured so the deposit covers your materials cost plus the first labour stage. The client funds the start of the job; you are never buying materials with your own money. On larger projects you use staged payments tied to milestones instead of one big deposit.
What if a client refuses to pay a deposit?+
Treat it as a red flag and a negotiation, not a dead end. A client unwilling to commit anything up front is either inexperienced, cash-strapped, or planning not to pay - all of which are your problem later. Hold the line; a deposit protects both sides. If they still refuse on a real job, you usually don't want them.
How do I avoid being out of pocket when paying the trade?+
Sequence the money so every payment to your subcontractor is already covered by money you have received from the client. Take a deposit before materials, take a stage payment before the next phase of labour, and hold the client's final balance until the job is signed off - then pay the trade's final bill from it. Done right, your own cash is never at risk.
Mohamed El HadriCo-Founder
I'm a co-founder of several construction companies. I built a construction business from a 30-van operation into a lean model with 1,400+ subcontractors in the database - winning the work as the main contractor, subbing it out, and running it as a system from a laptop across multiple countries. I write this site from what actually works.
@mointhemarket · 30k followers on Instagram →Run the model with people who already do
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