The EBITDA Trap: Why Relying on One Number Can Steer Your Small Business Off Course

The Love Affair with EBITDA

If you hang around other business owners long enough you’ll hear “EBITDA” tossed around like it’s the ultimate scoreboard of business success.

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a mouthful, but the idea is simple: strip out certain costs so you can focus on your company’s operating profitability before the “messy stuff.”

Sounds clean, right? And for certain purposes, like valuing a company for sale or comparing performance between businesses, EBITDA has its place.

The problem?
Too many small business owners run their day-to-day operations as if EBITDA is the only number that matters. And that’s like driving across the country with just your speedometer working. Sure, speed matters — but so do fuel, temperature, oil pressure, and whether you’re headed in the right direction.

The Big Problem with Using EBITDA as Your North Star

EBITDA can be dangerously deceptive for small businesses, especially in industries with uneven cash flow, high capital needs, or seasonal swings.

Here’s why:

1. It ignores cash flow realities.
   EBITDA doesn’t tell you how much cash is actually in the bank, or when it will show up. I’ve seen companies show “healthy” EBITDA while scrambling to make payroll because their receivables are 90 days overdue.

2. It hides debt problems.
   Interest is stripped out of EBITDA, which might make sense for comparing businesses with different financing structures. But if you’re staring down a big loan payment, you can’t “ignore” interest in real life.

3. It skips capital expenditure needs.
   Depreciation is added back to earnings in EBITDA, but in construction and professional services, equipment eventually needs replacing, and technology licenses come due. Those are real future cash needs.

4. It tells you nothing about growth sustainability.
   You can crank up EBITDA for a year by delaying equipment purchases, under-investing in marketing, or running your team ragged. That’s like running on fumes; it works until it doesn’t.

The “Looks Great on Paper” Story

One company that I worked with was singularly focused on EBITDA as their end goal was to sell the company they had grown.  They aggressively pursued acquisition of specialized equipment and expansion into new markets as it drove up revenue and ultimately EBITDA.

What they weren’t seeing is the ever-increasing debt service costs, nor the steadily growing DSO coming in the new markets they entered. All they were seeing was the growing EBITDA number, and the larger multiple they could achieve.

Fast forward 24 months and the credit line is maxed, and the company was making 11th hour calls to the silent partners for cash calls to cover payroll, and the bank was starting to get nervous.

The company survived, but they learned a very painful lesson:

You can’t deposit EBITDA in your bank account.

What to Use Alongside EBITDA for a Real Picture

I’m not saying ditch EBITDA completely, it’s still a useful benchmark. But you need a dashboard of numbers that tell you the full story. Think of EBITDA as one gauge on that dashboard, not the whole control panel.

Here are four complementary metrics I recommend to my clients — all straightforward to calculate, and incredibly powerful for decision-making.

1. Operating cash flow (OCF)

Why it matters:
OCF tells you how much cash your core business activities are generating after accounting for the actual timing of receipts and payments. It’s the lifeblood of your operations.

How to calculate it:
You can pull it right from your Statement of Cash Flows, it’s the first major section. Or, in simplified form:

Net Income

+ Non-Cash Expenses (Depreciation, Amortization)

+/- Changes in Working Capital (AR, AP, Inventory)

= Operating Cash Flow

Example:
If you had $500,000 in net income, plus $50,000 in depreciation, but your accounts receivable grew by $100,000 (meaning customers owe you more than before), your OCF drops to $450,000.

Why it complements EBITDA:
EBITDA ignores working capital swings, which can crush cash flow in construction and professional services. OCF keeps you honest about whether your “profit” is actually hitting your bank account.

2. Free cash flow (FCF)

Why it matters:
Free Cash Flow is what’s truly available after you’ve covered operating expenses and necessary capital expenditures. It’s what you can actually use for debt repayment, owner distributions, or reinvestment.

How to calculate it:

Operating Cash Flow

- Capital Expenditures (CapEx)

= Free Cash Flow

Example:
Using the OCF from above ($450,000), if you spend $120,000 on new equipment, your FCF is $330,000.

Why it complements EBITDA:
EBITDA adds back depreciation, which makes your results look prettier. FCF forces you to face the reality of replacing trucks, upgrading servers, or buying new tools.

3. Working capital ratio (Current Ratio)

Why it matters:
This ratio tells you if you can cover your short-term obligations (like bills, payroll, and supplier invoices) with your short-term assets (like cash, receivables, and inventory).

How to calculate it:

Current Assets ÷ Current Liabilities

Example:
If you have $600,000 in current assets and $400,000 in current liabilities:

$600,000 ÷ $400,000 = 1.5

A ratio above 1 means you have more short-term assets than liabilities. Too low, and you risk running out of cash. Too high, and you may be tying up too much in inventory or slow receivables.

Why it complements EBITDA:
EBITDA can be positive while your working capital ratio is sinking, which is a giant red flag for looming cash crunches.

3a. Quick ratio (Acid Test)

Why it matters:
If your business carries inventory that doesn’t sell quickly, or isn’t easily converted to cash, the working capital ratio can give you a false sense of security. The quick ratio strips out inventory so you see your “fast cash” position more clearly.

How to calculate it:

(Current Assets - Inventory) ÷ Current Liabilities

Example:
Using the same numbers from above, but assuming $200,000 of the $600,000 in current assets is inventory:

($600,000 - $200,000) ÷ $400,000 = 1.0

Suddenly, that healthy-looking 1.5 Working Capital Ratio drops to a more cautious 1.0 once you remove slower-moving stock.

Why it complements EBITDA:
EBITDA ignores liquidity altogether and the quick ratio tells you how well you can cover your bills if you can’t (or don’t want to) sell off inventory to do it.

4. Gross margin percentage

Why it matters:
Gross margin tells you how much of each dollar of revenue is left after covering direct costs of delivering the work (materials, subcontractors, direct labour). In construction and professional services, it’s a measure of your pricing power and job efficiency.

How to calculate it:

(Revenue - Direct Costs) ÷ Revenue × 100

Example:
If you generate $2,000,000 in revenue and have $1,400,000 in direct costs:

($2,000,000 - $1,400,000) ÷ $2,000,000 × 100 = 30%

Why it complements EBITDA:
EBITDA might hide job-level profitability problems. Gross margin reveals whether your core work is actually profitable before overhead gets involved.

Why a Metric Mix Matters

When you combine these metrics, operating cash flow, free cash flow, working capital ratio, and gross margin with EBITDA, you get a multi-angle view of your business:

• EBITDA: Are we profitable on an operational basis?

• OCF: Is profit turning into cash?

• FCF: Do we have true cash available after investments?

• Working capital ratio/quick ratio: Can we meet short-term obligations?

• Gross margin: Are our projects or services priced and executed well?

All of these are useful, but as a package they tap into the true health of your business.

Seeing Beyond EBITDA, the advanced but practical stuff

We’ve already covered the primary complementary metrics for small businesses: operating cash flow, free cash flow, working capital ratio/quick ratio, and gross margin percentage.

Now let’s add two more that I encourage almost every construction or professional services client to track. These aren’t Wall Street-level complexity; they’re straightforward, actionable, and often the early warning signs of trouble before it shows up in EBITDA.

5. Backlog-to-revenue ratio

Why it matters:
Backlog is the value of signed contracts you haven’t completed yet. Your backlog-to-revenue ratio helps you understand how much future work is lined up compared to your current annual revenue.

How to calculate it:

Backlog ÷ Annual Revenue

Example:
If you have $2,000,000 in signed backlog and your annual revenue is $4,000,000:

$2,000,000 ÷ $4,000,000 = 0.5 (or 50%)

Interpreting it:

• A low ratio might mean you’ll face a sales cliff soon if you don’t book more work.

• A very high ratio could mean your team is overloaded and might miss deadlines — risking quality and reputation.

Why it complements EBITDA:
You could have strong EBITDA today but be headed for a major revenue gap in 3–6 months. This ratio keeps your eyes on the horizon.

6. Customer collection days (days sales outstanding — DSO)

Why it matters:
DSO measures how long it takes you to get paid after sending an invoice. It’s a direct measure of how fast cash comes in, and slow collections can crush a small business even when EBITDA looks healthy.

How to calculate it:

(Accounts Receivable ÷ Total Credit Sales) × Number of Days in Period

Example:
If your average accounts receivable is $500,000, your annual credit sales are $3,000,000, and we’re looking at a 365-day year:

($500,000 ÷ $3,000,000) × 365 = 60.8 days

So it takes you about 61 days to collect on average.

Why it complements EBITDA:
EBITDA ignores the time it takes for cash to arrive. High DSO means you’re effectively financing your clients which costs you real money.

How These Metrics Work Together in Real Life

Let’s run a simple (but realistic) scenario.

Company A is a design-build construction firm with $5M in annual revenue. Their EBITDA is $750,000 (15%), which sounds solid.

But when we check the complementary metrics:

• Operating cash flow: $300,000, AR is growing faster than revenue.

• Free cash flow: $150,000, after buying a new excavator.

• Working capital ratio: 0.9, meaning they owe more short-term than they have on hand.

• Gross margin: 25%, below their target of 30%, driven by overruns on two big jobs.

• Backlog-to-revenue ratio: 0.3, they only have a few months of work booked.

• DSO: 78 days, nearly three months to get paid.

On paper (EBITDA), they’re thriving. In reality, they’re one or two bad months away from a serious cash crunch.

In this scenario none of the metrics looks too alarming, even the working capital ratio could be interpreted as a momentary blip. However, when we look at all the metrics together, it is clear that changes need to be made now, before a real problem materializes.

Why small businesses are most at risk of the EBITDA trap

Large corporations have layers of analysts and dashboards that track every possible metric. Small business owners? You’re often juggling sales calls, staffing headaches, and a truck that needs new tires, you don’t have time to swim in spreadsheets all day.

That’s why having a “north star” metric like EBITDA feels tempting. It’s one number. It’s easy to explain. It’s what banks and investors like to see.

But it’s also dangerously incomplete if you’re not looking at the bigger picture.

Building your “CFO dashboard” in under 30 minutes

Here’s the good news: You don’t need to build a massive ERP system to track these numbers. You can start simple and level up as needed.

Step 1: Open Excel, Google Sheets, or your accounting software’s reporting tool.
Step 2: Create columns for each metric: EBITDA, OCF, FCF, Working Capital Ratio, Gross Margin %, Backlog-to-Revenue Ratio, and DSO.
Step 3: Update the numbers monthly.
Step 4: Add simple green/yellow/red highlights so you can instantly see what’s on track, what needs watching, and what’s in the danger zone.

Tip: Even better, chart each metric over time. The trend is often more telling than the number itself.

The metric blind spot that hurts owners most

I’ve worked with several business owners who only realized they were in trouble when cash dried up, and by then, options are fewer and more expensive.

The truth? The warning signs usually showed up months earlier in gross margin erosion, backlog shrinkage, rising DSO, or a falling working capital ratio. Because they were fixated on EBITDA, those signs went unnoticed.

Bringing It All Together

EBITDA is a useful metric, it’s just not the whole story. When you combine it with a handful of cash flow, liquidity, and operational measures, you get:

• A clear picture of today (Are we making money? Can we pay the bills?)

• A clear picture of tomorrow (Will we have work and cash in 3–6 months?)

• The ability to take action early (Before problems become emergencies)

If you’ve been running your business off of EBITDA alone, here’s your challenge: pick two of the metrics from this article and start tracking them this month. Don’t wait until year-end.

Bottom line:
Don’t let one number decide your business’s fate. Think of EBITDA as your speedometer, important, but not enough to keep you safely on the road. Add a few more gauges, and you’ll have the confidence to drive your business farther, faster, and with fewer breakdowns.

Let me know in the comments what metrics you use to keep a pulse on your business, or share what your wake up moment was if you were using just one metric in the past that caught you off guard.

A Fractional CFO’s Playbook for Scaling Without Losing Profitability

Growth isn’t always good

Let’s set the record straight, growth can hurt your business if you don’t handle it right.

Sounds backward, doesn’t it? We’re taught to think more sales equals more profit. Bigger jobs, bigger clients, and more locations are the are signs of success, right?

Not always.

Ask a business owner who scaled too fast; one who added staff, opened a second office, bought new equipment, or landed a big contract, and they might tell you that growth nearly broke them. Why?

Because scaling a business puts massive pressure on your cash flow, operations, team, and infrastructure. You need more people or new equipment before the revenue lands. You need to float costs on longer payment cycles. You need systems that don’t break when you go from five jobs to 15.

And if your financial fundamentals aren’t strong enough? Growth becomes a liability, not an asset.

As a fractional CFO, I’ve seen this firsthand. I have worked with construction and professional services firms across the U.S. and Canada that are full of potential but were bleeding profit and cash during periods of expansion. The answer isn't not to grow, it's to grow smarter.

This playbook outlines the four strategies I use to help business owners scale with confidence, control, and yes, profitability.

Strategy 1: Know your breakeven (and track it like a hawk)

One key metric to know, that is a foundation to planning for your business is your breakeven point; the level of revenue your business must generate to cover all its costs, before you turn a profit.

Why is this so crucial during a growth phase?

Because your costs are changing constantly.

Let’s say your current breakeven is $250,000/month. Then you:

• Hire a new project manager at $90K/year

• Lease an extra truck for $1,200/month

Now your breakeven is closer to $275,000/month, and if you don’t update that target, you’ll make decisions based on faulty assumptions. You’ll think you’re making money when you’re actually treading water (or worse).

What goes into breakeven?

Fixed costs: These don’t change with job volume and include things like:

• Office rent

• Admin and salaried wages

• Insurance

• Software subscriptions

• Equipment leases

Variable costs: These go up or down with the work and include:

• Subcontractor payments

• Direct labor

• Materials

• Fuel and logistics

Breakeven revenue = fixed costs ÷ gross profit margin

Let’s walk through a simplified example:

• Fixed monthly costs: $150,000

• Gross margin: 30%

Breakeven = $150,000 ÷ 0.30 = $500,000/month

That means your business has to earn at least $500K in revenue per month just to keep the lights on.

The scaling problem

Growth often means:

• Adding overhead (staff, space, tech, equipment)

• Accepting larger jobs with longer payment terms or higher upfront costs

• Carrying higher AR balances

All of this pushes your breakeven higher. If you’re not recalculating and adjusting your pricing, cash management, or pipeline goals, you could be flying blind.

Action steps:

• Build a dynamic breakeven calculator in Excel or Google Sheets.

• Update it every time you hire, buy equipment, or change your pricing.

• Tie it into your cash flow forecasting.

Real-world case:

I worked with a new specialty contractor whose management team were energetic and whose owner was “idea” guy. They started one company based on patented equipment and process and grew steadily for 4 years. Their customers were consistently asking for an ancillary service this company had been subcontracting, and they saw an opportunity. Over the next 12 months they acquired over $2M worth of new assets with loans from the bank or capital leases. Their incumbent CFO didn’t update the breakeven calculation, nor did they model and forecast the cashflow. After 18 months they found themselves with low utilization of these new assets, a negative cash flow that was bleeding up to $60K per week and they were very nearly maxed out on their credit line. They had not paid attention to how much additional revenue they needed to cover the cost of the new equipment (loans, fuel, repairs, operators, etc.) that it nearly destroyed the solid company they had methodically built.

Strategy 2: Invest wisely in capacity

Scaling doesn’t just happen, you have to build capacity to handle the extra volume. That means more people, more tools, better systems, or additional space.

But here’s the danger: many business owners “pre-load” too much capacity too early.

The overbuilding trap

In anticipation of growth, it’s tempting to:

• Hire ahead of demand

• Buy or lease trucks or heavy equipment

• Rent larger office or shop space

• Invest in complex software you’re not ready to use

The problem? Growth is rarely smooth. Jobs get delayed. Clients vanish. Payments take longer than expected. You’re left with fixed costs and underutilized assets.

Smart capacity planning

Here’s what I recommend to clients preparing to scale:

1. Use rolling 12-month forecasts

A rolling forecast is a financial projection that updates monthly and looks 12 months ahead. It models:

• Revenue based on booked + expected jobs

• Cash inflows and outflows

• Headcount actual and projected

• Equipment needs (fuel, R&M, operators, etc.)

You’ll see when you actually need to expand capacity rather than guessing.

2. Measure utilization

Before hiring, ask: Are we maximizing the team we already have?

Track:

• Billable hours vs total hours

• Crew downtime

• Equipment idle time

• Equipment downtime and repair costs

If you’re running at 60–70% capacity, fix the underutilization first. You don’t need more, just better scheduling or smarter job selection.

3. Stage your investment

Start small. Pilot. Rent before you buy. Use temp labor or subcontractors before locking in salaries.

Growth doesn’t need to be all-or-nothing and should be thoughtfully executed. Agile businesses grow in sprints, not leaps.

Strategy 3: Track customer acquisition cost (CAC)

Let me ask you something few business owners can answer confidently:

How much does it cost you to land a new client?

If you're unsure, you're not alone. Most construction and professional service firms either don’t know or wildly underestimate their customer acquisition cost. And that’s a problem, especially during a growth phase when marketing and sales efforts ramp up.

When your business is scaling, every dollar spent chasing leads needs to be tied to actual revenue and profit. Otherwise, you risk burning cash while thinking you're building momentum.

What Is CAC?

Your CAC is the total cost of bringing in a new customer. It includes:

• Marketing spend (ads, SEO, brochures)

• Sales team salaries or commissions

• Proposal writing or quoting time

• CRM software and automation tools

• Networking, trade shows, sponsorships

• Referral fees or discounts

Here’s a basic formula:

CAC = Total Sales & Marketing Costs ÷ Number of New Clients Acquired

Let’s say you spend $50,000 on marketing and sales in a quarter and land 20 new clients:

CAC = $50,000 ÷ 20 = $2,500 per client

Why CAC Matters

If a new client generates $8,000 in gross profit, a $2,500 CAC is great. But if you’re only clearing $2,500 per client, you’re breaking even at best.

CAC becomes even more critical as you grow, because:

• Sales cycles lengthen

• Lead quality can decline if you're scaling fast

• New segments or markets often come with higher CAC

• Your sales focus may diminish and it takes longer to land each new client

Compare CAC to CLV

A healthy business keeps CAC well below Customer Lifetime Value (CLV)—the total gross profit a client delivers over their lifetime. As a rule of thumb:

• CAC should be no more than 25–30% of CLV

• If it’s higher, you’re buying business instead of earning it

Track CAC by Channel

Not all marketing is created equal. Break CAC down by source:

• Google Ads

• Organic Search

• Referrals

• Social Media

• Networking or word-of-mouth

This helps you double down on what works and cut what doesn’t.

Real-World Example:

An industrial testing contractor I worked with had been pouring money into tradeshows throughout the United States, sending teams of people to each one costing thousands per show. They were convinced that with the comparative size of the US market this was where the growth was going to come from. Once we started measuring CAC and CLV they quickly realized that the few jobs they did land in the US were generating the lowest profit, while the organically grown referral-based work they were achieving in Canada was at much higher margin at a fraction of the acquisition cost.

They trimmed the ad budget by 80%, ramped up referral incentives, and saw better ROI almost immediately.

CFO Tip:

Even if you don’t have perfect tracking, start estimating CAC monthly. Use simple spreadsheets and refine over time. What gets measured gets managed and improved.

Strategy 4: Standardize operations or you will be scaling chaos

Here’s something most growing businesses learn the hard way:

You can’t scale chaos.

If your operations are inconsistent, undocumented, or overly dependent on a handful of key people, growth will only magnify the dysfunction. Mistakes multiply. Quality slips. Team stress increases. Clients feel it.

The solution? Standardize before you scale.

What to Standardize

1. Job costing

Use consistent codes, processes, and tools to track:

• Labor hours

• Subcontractors

• Materials

• Equipment usage

Tie this directly into your accounting system. Real-time job costing helps you price better, identify margin killers, and catch overruns early.

2. Project management

Don’t reinvent the wheel for every job. Create templates and checklists for:

• Project kickoffs

• Site meetings

• Change orders

• Closeouts and post-job reviews

Use integrated tools that facilitate collaboration, visibility and communication within your project teams.

3. Billing and collections

Set clear billing milestones. Automate invoicing reminders. Standardize your follow-up process for overdue accounts.

The faster and more predictably you bill and collect, the healthier your cash flow.

4. Hiring and onboarding

Every new team member should go through the same orientation:

• Safety protocols

• Tools and login setup

• Time tracking procedures

• Core values and client expectations

This keeps quality consistent and speeds up ramp-up time.

5. SOPs (Standard Operating Procedures)

Write down or record the way things are done. It doesn’t have to be fancy, Google Docs, PDFs, or Loom videos work just fine.

Every key function should be documented:

• How to bid a job

• How to submit an invoice

• How to handle a change order

• How to manage a client handoff

Real-World Example:

I worked with a wireless telecom contractor who experienced growth of 562% growth over an 18 month period. This type of growth would have destroyed most young organizations. However, they had a standardized their operational processes that allowed them to add new crews and contractors seamlessly, obtain project progress updates in real time which was integrated with the client billing requirements. So while tremendous effort was put into requiting technicians and subcontractors, the core business functions required to keep the cash flowing and quality of execution consistent scaled almost effortlessly. This ensured that cash inflows grew with the new expenditures at consistent and even improving profit margins.

Conclusion: Build a business that scales profitably, not just bigger

Let’s zoom out for a second.

Growth feels good. It’s exciting. It’s a sign that your product or service is resonating, your brand is gaining traction, and your market sees your value.

But growth alone doesn’t mean success, especially if it comes with:

• Flat or shrinking margins

• Payroll stress

• Client churn

• Team burnout

True success is profitable, sustainable growth. It’s about building something that lasts—and pays you for the risk you’ve taken.

Here’s a quick recap of the CFO Playbook:

Strategy 1: Know your breakeven

Your costs are always changing. Make sure your pricing and sales goals keep up.

Strategy 2: Invest wisely in capacity

Don’t overbuild. Grow in phases, based on demand, not hope.

Strategy 3: Track customer acquisition cost

Know what it really costs to land a client. Focus your resources on high-ROI channels.

Strategy 4: Standardize operations

Systems beat superheroes. Build a business that runs smoothly, even when you’re not around.

When you use these strategies, you move from reactive to proactive. You stop guessing and start leading with clarity, intention, and control.

What are your “must haves” for a successful growth strategy?  What did you learn from your growing pains? Leave a comment, share your thoughts or reach out if you’d like to have a further conversation.

Is It Time to Upgrade? A Small Business Owner’s Guide to Selecting an ERP That Actually Works

You’ve probably felt it: the creeping frustration when you try to pull what feels like should be a basic report from your accounting system and it takes five different exports, three spreadsheets, and at least mild level of frustration. It could be that you have opened a new division or operating unit and you would like to see how the company is doing as a whole. Or maybe you’ve started to wonder: Is there a better way to manage all this?

If you’re running a construction or professional services firm with growing revenues, more staff, and increasingly complex operations, and you have had any of the thoughts above, chances are your current accounting or project management software is starting to show its cracks.

Many small businesses start out with QuickBooks, Xero, or Excel and these tools are great when you're small, but they start to slow you down once things get more complex. Things like job costing, subcontractor billings, retainage/holdback, multi-unit/multi-location operations and consolidations will push these basic tools beyond their effectiveness.  This is when your system starts to become a liability instead of an asset.

This is where ERP systems come into the picture.

ERP stands for Enterprise Resource Planning. While it sounds like something only giant corporations use, modern ERP systems have become more accessible for small businesses trying to grow and stay profitable. What these systems do that small accounting packages lack is integration.  They allow you to connect all aspects of your business. The most basic systems will allow you to track costs to a specific job, issue purchase orders assigned to a project which can be routed electronically for approval and then matched with an invoice emailed from your supplier. They will allow you to report on and monitor your work in progress and backlog, as well as provide you aged receivables by customer and project and they will integrate with or possibly even complete the time capture and payroll processing for your entire team. In short, they have the ability to provide all the relevant information of your company in the palm of your hand.

But choosing the right ERP? That’s a whole other challenge.

This post is here to help you figure out whether you need an ERP, how to think through your options, and what pitfalls to avoid so you don’t end up spending a fortune on a system that makes your life harder instead of easier.

Is it time to upgrade?

Let’s start with a few questions:

• Are you manually entering the same data in multiple systems (e.g., payroll, job costing, and time tracking)?

• Do you struggle to get accurate or timely financial reports?

• Are your project managers and field teams working off outdated or disconnected tools?

• Is your current system unable to track WIP, multi-phase jobs, or client billing schedules?

• Are your people wasting time doing workaround after workaround?

If you answered yes to any of those, you might be bumping up against the limits of your current system.

The right ERP can help you:

• Get real-time visibility into job profitability

• Automate repetitive admin work

• Streamline your billing and collections

• Standardize processes across departments

• Improve forecasting and cash flow visibility

• Improve the reliability, and your comfort level, in your financial reporting

But it’s not just about features. It’s about fit, and before you start demoing every ERP under the sun, it’s worth stepping back to consider what you actually need.

Scaling up from your current system

Think of your software systems like tools in a toolbox.

When you’re a small outfit, a hammer and screwdriver might be enough to get the job done. But as your projects get bigger and your team grows, you need more specialized tools to work faster, safer, and smarter.

That’s where scaling up comes in.

Most construction and professional services businesses start with tools like QuickBooks Online, spreadsheets, and job tracking apps cobbled together. That’s fine for a $1–2 million business.

But when you’re managing $5, $10, or $20+ million in annual revenue running multiple crews, consultants with multiple contracts, those tools start to fight you.

Upgrading to an ERP is about consolidating and automating the core pieces of your financial and operational workflows.

A few signs that your business might be ready to scale up:

• You need consolidated reporting across departments or business units

• Your accounting and project management systems don’t “talk” to each other

• You’re hiring financial or operations staff just to keep up with manual processes

• Your month-end close takes more than two weeks

• You’re constantly surprised by cost overruns or billing errors

Scaling up to an ERP is an investment, not just in software, but in your business’s ability to run leaner and make better decisions.

Off-the-shelf vs. customizable ERPs

One of the biggest choices you’ll face: do you go with a system that works “out of the box,” or do you need something more customizable?

There’s a spectrum. On one end, you’ve got off-the-shelf software with little flexibility but fast implementation. On the other, you’ve got fully customizable platforms that can match nearly any workflow, but often at higher cost and complexity.

Off-the-shelf ERP options

These are ready-to-use systems tailored for small-to-mid-sized businesses. They usually have industry-specific versions (e.g., for contractors or consultants) and include built-in best practices.

Examples:

• Buildertrend – Great for residential construction and remodelers

• Jobber – Popular with trade contractors (HVAC, electrical, landscaping)

• Core by BQE – Designed for architecture, engineering, and consulting firms

• Sage 100 Contractor – A more powerful solution with general construction in mind

• QuickBooks Enterprise – An intermediate step, not a true ERP, but useful for those who want job costing, inventory, and payroll in one system

These are generally easier to implement and cost less upfront. They’re ideal if:

• Your workflows aren’t too complex

• You don’t need highly customized reporting

• You want to get up and running quickly

But there’s a trade-off. If your business has unique processes, or if you’re growing fast, you may outgrow these systems in a few years.

Note: There are a lot of organizations that feel that their processes are unique, and they need to look for a customizable solution. It is a good practice to sit with your team and have an honest discussion about these processes. Are they truly unique and core to your delivery effectiveness or is this a variation of a standard process that can and should be updated. This is an important question as every modification you impose will add thousands of dollars to the total cost of the implementation.

Customizable or modular ERPs

These systems are designed to scale with you and support deeper business complexity. They can be configured to match your workflows, reporting needs, and team roles.

Examples:

• Sage Intacct – Strong in financials, great for service firms

• NetSuite – Cloud-based, highly customizable, ideal for fast-growing firms

• Acumatica – Flexible and growing in popularity among construction firms

• Vista by Viewpoint – Focused on commercial construction

• Deltek Vantagepoint – Well-suited for architecture and engineering

• Jonas Construction Software – Specifically built for construction contractors in North America, with strong service management and project costing tools

These platforms offer deeper integration, custom workflows, role-based dashboards, and advanced analytics. But they’re more complex and often require implementation support.

They’re ideal if:

• You have multiple business units or locations

• Your projects are large and detailed

• You need to meet specific regulatory or compliance standards

• You plan to scale significantly over the next 5–10 years

Adapt to the ERP or customize the ERP?

This is a major sticking point during ERP selection: Should your business adapt to the ERP, or should the ERP adapt to your business?

Here’s where a lot of ERP projects go sideways.

Many business owners want a system that perfectly fits their existing processes. While that makes sense on the surface, it often leads to expensive customizations, long timelines, and increased risk.

There’s no one-size-fits-all answer, but here’s how to think about it:

Adapting to the ERP

If you choose a system with strong, best-practice workflows, adapting your business to fit can be a smart move. You streamline your operations and align your team around proven processes.

This works well when:

• You’re willing to change how some things get done

• Your team can adapt to new systems with the right training

• You want to reduce customization costs and future headaches

• One of your top priorities is reliability and seamless integration across platforms

Customizing the ERP

If your workflows are a big part of your value proposition or you have regulatory requirements, you may need to customize.

Just be cautious: customizations add complexity and cost. They can also become a liability down the road if you switch systems or need updates.

Your best bet? Start with as little customization as possible. Use the ERP's built-in flexibility (dashboards, reports, user roles) and avoid deep changes unless absolutely necessary.

Implementation: vendor vs. independent consultant

This point could easily be a full discussion on its own, but from a very high level you typically have two choices:

The vendor’s implementation team

Most ERP vendors offer professional services or partner with third-party firms. Their people know the software inside and out, but they often take a “one-size-fits-most” approach. Hourly rates are typically higher, but as they are intimately familiar with the product and the code, they are often much quicker though you may not be able to get exactly what you want or how you want it.

Pros:

• Knows the system well

• Direct line to software support

• Generally, more efficient

Cons:

• Limited understanding of your unique business model

• May recommend additional add-ons to fill gaps

• Project can get delayed if your needs don’t fit their standard workflow

• Possibly, higher per hour cost

Independent implementation consultant

Independent consultants tend to have industry-specific knowledge (e.g., they’ve worked with a lot of contractors or service firms). They may have a lower per hour rate, but if you don’t have your needs and processes clearly mapped out from the start, the project schedule will stretch, and those costs will start to grow quickly.

Pros:

• Deep industry expertise

• Can help optimize business processes alongside implementation

• Often provide post-implementation support and training

• Possibly, lower per hour cost

Cons:

• Not as familiar with the product and code as the vendor

• Harder to evaluate quality and requires good references and reviews

• May not be as concerned for your budget as they are about providing every feature you ask for (scope creep)

Futureproofing: will it grow with you?

ERP transitions are a big investment, not just in dollars, but in time, training, and team energy.

So, the last thing you want is to repeat the process in three years because the system you picked couldn’t scale with you.

Here’s what to look for to future-proof your ERP choice:

• User scalability: Can it handle 10 users now and 50 later?

• Multi-entity or multi-location support: Even if you’re not there yet, will it support future branches or subsidiaries?

• Integrations: Does it play nicely with payroll, CRM, estimating, field tools, or time tracking apps?

• Cloud-based: On-premise software is fading. Cloud ERPs offer better security, remote access, and lower maintenance.

• Vendor longevity: Is this ERP backed by a stable, growing company? Will it still be around (and supported) in 5–10 years?

And perhaps most importantly: who will support you?

An ERP is only as good as your implementation and support partners. Make sure your internal team has a champion and that your vendor (or third-party consultant) is responsive, experienced, and aligned with your business goals.

Pro tips before you choose

1. Don’t rely on the sales demo. What you see in a polished demo may not reflect how the system works in your real-life processes, so ask to see how the ERP handles changes orders, or progress billing or periodic field reporting.

2. Map Your Processes
   Understand how work flows through your business today, quotes, change orders, approvals, billing. This will help you evaluate ERP fit.

3. Get references. Talk to other business owners who use the system, especially in your industry.

4. Define Success
   What problems are you solving? Shorter close cycles? More accurate job costing? Better forecasting? Keep your goals front and center.

5. Budget realistically. Implementation, training, and change management often take more time that initially planned. This process will cost significantly more than the software license itself.

6. Start small. If possible, roll out in phases. Core financials first, then project management, then advanced features.

7. Train your people. The best ERP in the world won’t help if your team doesn’t know how to use it.

Final thoughts

Choosing the right ERP can unlock major efficiencies, boost your profitability, and give you real control over your business. But the wrong ERP, or the right one poorly implemented, can be a costly distraction.

Take the time to map out your business needs, involve your team, and consider not just what you need today, but what you’ll need three, five, and ten years from now.

Make sure you get this right

Choosing an ERP is one of the most strategic decisions a growing construction or professional services firm will make. It affects your operations, your finances, and ultimately your ability to scale without burning out your team or your margins.

Have questions about implementing an ERP in your business?

I’d love to hear from you. Feel free to reach out or comment below to share your thoughts and experiences.

Why ‘Profit’ Doesn’t Equal ‘Cash’: A Guide for Service-Based Business Owners

If you’re like most owners of a construction or professional services business, you keep an eye on your P&L every month. You see healthy revenue. The bottom line shows profit, but sometimes you still feel the pinch. Maybe it is during a payroll week, or near month end when more vendor/subcontractor bills are due and you see yourself dipping into that credit line a little more often that you would like.

It’s one of the most common frustrations of small business owners: “We’re making money on paper, but there’s never enough cash in the bank.”

The truth is, profit doesn’t equal cash.  I’m going to let that sit with you for a moment.

Understanding the difference between profit and cash and how your business converts from the prior to the later is a critical lesson for every small business owner. Without that understanding, you could be in for a painful surprise.

Let’s unpack what’s going on behind the scenes, why it matters, and what you can do about it.

Profit vs. cash: why the confusion?

Most business owners are wired for action. You’re focused on projects, people, deadlines, and keeping clients happy. Financial metrics like “net profit” or “cash flow” get lumped together, often treated like interchangeable terms.

They’re not.

Profit is what’s left over after you subtract your expenses from your revenue. But that’s just one piece of the puzzle.

Cash is what’s actually in your bank account and available to spend. It’s what pays your bills, employees, taxes, and keeps your business running.

In other words, your P&L might say you made $400,000 in profit this year. But your bank account tells another story, one that might show a balance of just $12,000, or worse, a negative overdraft.

The gap between profit and cash is more than a number, it is a measure how efficient the cash conversion cycle is for your company (which we will talk about in a moment). For small and mid-sized firms, particularly in project-driven or service-based sectors, it can also be the difference between growth and chaos.

Let’s talk accounting: accrual vs. cash

Part of the confusion starts with how accountants and accounting systems report results.

Most businesses, including those in the construction or professional services space use accrual basis accounting, which is the most widely adopted accounting method across Canada and the United States. It’s required if you carry inventory or earn revenue before getting paid. But it also comes with a downside: it can make you feel richer than you actually are.

Here’s how it works:

• Accrual accounting records revenue when it’s earned, not when cash is received. Likewise, expenses are recorded when incurred, not when they’re actually paid.

• Cash accounting records transactions only when money changes hands.

Let’s look at an example.

Say you complete all of the work for a $250,000 consulting project in June and issue the invoice. Your P&L now shows $250,000 in revenue for June. But if the client doesn’t pay until September, that’s three months where that $250,000 is a receivable from your customer and not cash so for those three months your profit exists only on paper.

Meanwhile, you’re still paying salaries, rent, subcontractors, and taxes—all in real-time, with real dollars.

If your team grew to support that project or you ramped up marketing and bought materials, you may actually be spending more than you’re taking in. Despite your “profitable” June, your bank account could be shrinking fast.

Profitable but cash-poor: real-world scenarios

Here are some classic examples of what this might look like in your business if you are showing good profitability, but cash is still very tight:

1. The slow-paying customer trap

You may have a $500,000 renovation or design contract, but the client’s payment terms are 90 days. Even if you have been very savvy and negotiated pay when paid terms with your subcontractors, you will still be paying staff every two weeks and paying material suppliers at month end. Not to mention your regular suppliers and general overhead costs.

By the time the client pays their invoice you may have already spent $300,000 - $400,000 keeping the project moving, and you have likely been using your credit line to fund it. And if there is a holdback/retention on the job, then this only makes this scenario worse.

2. Growing to fast

Landing that new marquee project/client is exciting, but the ramp up burns through cash. You are hiring new staff, maybe investing in new equipment or tools, you are buying large quantities of materials for the project, all of which require cash today. By the time the collections start to come in you will be several months into the project/engagement, and once again, you will have been funding all of this from either your working capital or your credit line. You’re showing bigger sales and even growing profit margins, but there is a lag before the working capital will catch up.

3. Inventory and materials creep

In construction or technical services, there is sometimes the tendency to buy a little more material than you need, to ensure you don’t run out on the job. The thinking being that you will use it on the next one. Or maybe your purchaser can get a nice discount if they buy are larger quantity of commonly used material. Those costs show up as assets as they are sitting in your inventory, not expenses. So, your profit looks untouched, but your cash is tied up in stuff sitting in a warehouse or trailer.

4. Overreliance on credit

Many firms bridge cash gaps with lines of credit (LOC), that is what they are for. However, if you aren’t diligent in monitoring the use of your LOC, the mounting interest costs will quietly eat into our profits. Eventually, you realize you’re funding day-to-day operations with borrowed money, and repaying a heavily drawn LOC takes a significant bite out of your available cash.

The metric nearly as important as profit: cash conversion cycle

If profit doesn’t tell the full story, what else should you be watching?

One powerful concept every owner should understand is your cash conversion cycle (CCC).

The CCC measures how long it takes for your business to turn an investment in resources (like payroll and materials) into cash from clients.

It’s calculated by looking at three things:

1. Days sales outstanding (DSO): How long customers take to pay you.

2. Days payable outstanding (DPO): How long you take to pay your suppliers.

3. Work in progress (WIP) / inventory turnover: How long your projects or inventory tie up cash before you can invoice.

Here’s a simplified formula:

Cash conversion cycle = DSO + Days inventory – DPO

The shorter your cycle, the faster you turn sales into spendable dollars.

If your clients take 60 days to pay, but you pay vendors in 15 days, that’s a 45-day gap where you’re floating the business. Multiply that by several projects, and you’ve got a serious drain on liquidity.

By shortening your CCC—even by a few days—you can unlock tens or hundreds of thousands in working capital without needing a loan or investor.

What can you do about it?

If this all feels overwhelming, take a breath. The good news is there are practical steps you can take to improve cash flow—even if you’re stuck in long payment cycles or navigating growth.

Here’s where to start:

1. Map your cash flow

Don’t rely solely on your P&L. Use a rolling 13-week cash flow forecast to understand where money is coming from and going. This lets you anticipate crunches before they happen.

2. Revisit payment terms

Negotiate better terms with both clients and vendors. Can you shorten client payment windows, offer early pay incentives, or require deposits? Can you extend supplier payment terms without hurting relationships?

3. Invoice promptly and follow up

Sounds simple, but many businesses delay invoicing or let A/R age too long. Make billing and collections a priority. Build collection calls into your monthly routine, so they are check-ins with your customer, not calls demanding payment.

4. Track WIP and overruns closely

If you’re in project-based work, know how far along you are and what’s been invoiced vs. delivered. WIP write-offs and scope creep silently eat into both profit and cash, so stay diligent on change management.

5. Review compensation and draws

If you’re taking large owner draws based on profit, be sure they align with actual cash availability. Many businesses unintentionally strain cash flow by distributing too early or too often.

6. Look for leaks

Recurring subscriptions, idle equipment, or redundant staff roles can quietly drain thousands per month. Scrub your overhead line by line.

7. Ensure your project accounting is accurate

Running multiple projects, it can be easy to accept an “allowable” percentage of unbillable costs, or non-reimbursable costs. These accounts are often the biggest drain on your profitability if you are not monitoring then closely, and if you are not segregating these non-billable costs from your other job costs, you could be losing thousands of dollars of profit each year without knowing.

8. Watch your trailing 12-month DSO

If you are not tracking your DSO, you should be. Having a benchmark and watching how your business tracks to that benchmark month over month will allow you to spot when something changes. Once you are measuring it, you can then manage it.

A word to the wise: growth without cash is a risky game

A profitable but cash-starved business is a fragile one. You can’t invest in your team, take on new projects, or weather downturns if you’re constantly watching the bank balance.

In the U.S. and Canada, thousands of service-based companies close every year, not because they weren’t profitable, but because they ran out of cash.

Don’t let that be your story.

If you don’t’ need a full-time CFO, maybe all you need is a fresh set of eyes

If this post has you wondering where your own cash is hiding, you’re not alone. Most business owners I work with are fantastic at delivering value to their clients but run short on time or tools to connect the dots financially.

That’s where I come in.

As a Fractional CFO, I work with small and mid-sized construction and professional service firms. I help owners like you:

• Get clarity on where your money’s really going

• Forecast cash flow with confidence

• Improve billing and collection cycles

• Build strategies that support sustainable growth

No fluff. No jargon. Just real-world insights and a hands-on approach to getting your business running leaner and stronger.

5 Early Warning Signs of a Cash Flow Crunch and How to Fix Them

Cash flow is generally not the first thing on the minds of small business owners, or second or third for that matter. They are focused on providing excellent service to keep customers happy, ensuring their employees are taken care of and have the tools to succeed and they want to grow their business. Honestly, that is exactly what you should be focused on, though if you don’t add your company cash flow to that list, you may just be setting yourself up to a situation where those priorities on put on extended hold.

Cash flow issues don’t appear overnight, and they certainly don’t announce themselves with warning lights. They creep in quietly, and slowly at first, maybe over weeks or months until suddenly you find your self maxed on your credit line, you are worrying about making payroll and you have to start saying no to new projects.

Hopefully you have found this article before any of these things has happened to you and the points below provide some proactive steps, and if this sounds like your business at the moment, then please keep reading.

We have all heard the statistics about how often small businesses fail, but it doesn’t matter if you do $300,000 per year or $300,000,000 per year, if you run out of cash, you close your doors. That is the hard truth. As a fractional CFO supporting small business owners in the construction and professional services sectors, I have seen this with companies in the United States and Canada. The business looks great on the outside, but inside, you’re riding the edge of a cash flow crunch.

Let’s break down the five early warning signs of a cash flow problem and some tools to fix or prevent them.

1. You’re leaning too hard on your line of credit

In both Canada and the U.S., small businesses often use lines of credit (LOC) to cover short-term gaps. That’s smart. But when the business starts treating the LOC like working capital instead of a short term bridge, it is often a sign that they don’t have a clear picture of their cash inflows and outflows. The LOC then starts to mask the underlying issues, becoming a permanent fixture of daily operations, making it a red flag.

What this looks like:

• You are always running deep into your LOC, or even right up to the limit

• Your balance never returns to zero

• Interest charges are steadily growing month over month.

In the short term the LOC is helping smooth the valleys in cash flow, but in the long term, you are paying more for the same cash as your interest expenses continue to rise the deeper you draw into the LOC. If you're relying on borrowed money to cover routine expenses like payroll, and materials, it’s time to take a step back.

What to do:

• Build a rolling 13-week cash flow forecast

• Identify which clients or projects are delaying your cash inflow

• Which suppliers must be paid quickly and which ones are more flexible

• Use the LOC as a tool, not financing.

2. Vendor payments are getting delayed

Stretching your payables occasionally is common practice. But when it becomes a pattern, it signals a deeper problem: your business can’t meet its obligations on time.

This can cause supplier trust issues, and in industries like construction and consulting, damaged relationships can slow your project timelines or increase costs.

What this looks like:

• You’re constantly juggling which vendor to pay first

• You're on the phone negotiating extensions weekly

• Some vendors are refusing to start new work until they’re paid

• Your account is being placed on hold, or worse, switched to C.O.D.

Over time vendors will begin to tighten credit terms, increase your pricing, prioritize other customers or choose to walk away. While it may have started as a cash issue, it is now an operational problem.

What to do:

• Prioritize vendors based on their criticality and terms

• Improve your receivables process (more on that below)

• Try to take advantage of early payment discounts and volume rebate programs

• Budget weekly cash flows so you’re not caught off guard.

3. Payroll is causing anxiety

It needs to be said, payroll is sacred. Payroll stress is more than a cash flow issue, it affects the morale of your organization and your leadership. And in both Canada and the U.S., late or missed payroll can not only have legal consequences, but could cause a sudden lose of your workforce, which could spell the end for your business.

What this looks like:

• You’re moving money around to make payroll in time

• You’re floating payroll with personal funds

• You’ve skipped your own compensation.

This isn’t sustainable. If you’re regularly sweating payroll, it’s time to reassess your financial structure.

What to do:

• Establish a payroll reserve funded throughout the month

• Improve forecasting to anticipate cash gaps 2–3 pay cycles out

• Tighten up job costing to avoid underbidding work.

4. Cash reserves are depleting (or gone)

Many small business owners believe their business is fine as long as there is cash in the bank account. However, strong businesses on either sides of the border build buffers, meaning cash balances that cover 1, 2 or more months of operating expenses, remaining untouched for slow periods or emergencies. If your company used to have 1–2 months of operating expenses in reserve and now you’re down to scraping by, you’re more vulnerable than you think.

Even profitable firms in Canada and the U.S. run into cash crunches due to slow receivables, project delays, or seasonal slowdowns.

What this looks like:

• You’re down to days (not weeks) of cash on hand

• You’ve raided your savings several times this year

• You have no financial cushion for unexpected expenses.

What to do:

• Open a separate reserve account, and consider making it “deposit only”, meaning drawing on it must be very intentional

• Start small: even $5,000/month builds momentum

• Set a goal of covering at least 30–60 days of fixed costs.

Having even a modest reserve fund will create options, and options reduce stress.

5. Growth opportunities are slipping away

This one hits just as hard culturally as it does financially: a new project is awarded, but you can’t afford to staff up or pre-pay materials. You’re stuck watching opportunity pass by because you don’t have the working capital to take the risk. Making this worse is all the hard work of your team to pursue the work has gone to waste, and they fell it.

In both Canadian and U.S. markets, growth requires cash. Not just to fund operations, but to float upfront costs, bid on larger contracts, or bring in new talent.

What this looks like:

• You’ve passed on a job or client due to cash limitations

• You’re saying no when you want to say yes

• Growth feels risky—even when you’re booked solid.

What to do:

• Set project-specific cash flow forecasts before saying yes

• Negotiate better upfront billing terms (mobilization payments, deposits).

How to get Ahead of Cash Flow Problems

Here are the core strategies I’ve found effective in both Canada and the United States to reduce stress and improve cash predictability.

✅ Build a 13-week cash flow forecast

This simple tool, which can be built in a basic spreadsheet, gives you visibility into your short-term cash runway. It helps you:

• Plan for upcoming shortfalls

• Time payments with confidence

• Avoid surprises and last-minute scrambling.

You don’t need complex software. You just need consistency.

✅ Tighten up your invoicing and collections

One of the biggest cash killers in small businesses? Slow billing and slower collections.

If you’re in professional services or construction, and you are delayed in billing, and/or your clients aren’t paying on time, you’re effectively lending them money—for free.

Do this:

• Send invoices immediately after milestones or deliverables

• Automate reminders for outstanding balances, or better yet, have your finance team building relationships with your customers so collection calls are friendly check-ins

• Useful, but at a cost, offer incentives for early payment (or enforce penalties for late ones).

✅ Build (or rebuild) your cash reserve

Think of it like a contingency fund for your business, and just start where you are, adding a little each month until you have the reserve you are comfortable with.

If you’re in the U.S., aim for 1–2 months of fixed overhead in your operating reserve. If you’re in Canada, follow the same rule but consider an additional buffer for seasonality if you’re affected by winter slowdowns.

✅ Reevaluate your pricing and job costing

Are you underpricing your services? Or winning projects that lose money?

Run the numbers. In both Canada and the U.S., inflation and wage pressures have quietly eroded margins over the last few years.

If your pricing hasn’t kept up or if you’re not confident in your job costing it’s time to take a closer look. There is not more disheartening feeling than to complete an operationally successful project only to find out that you earned no meaningful profit, or worse, lost money.

Not Sure Where to Start? Let’s Talk.

As a fractional CFO serving business owners in Canada and the United States, I help companies in the construction and professional services sectors:

• Take control of their cash flow

• Improve financial clarity and confidence

• Create systems to support sustainable, profitable growth

If any of the warning signs above sound familiar, don’t wait for a full-blown crisis. A cash flow audit can give you the clarity you need to move forward. This is a practical hands-on process where we:

• Analyze your cash flow patterns: where is the money really going

• Identify bottlenecks: invoicing delays, slow paying clients, unprofitable jobs

• Forecast the next 90 days: high-level 13 week cash flow

• Create a roadmap: actionable steps to improve cash position

🧭 Book Your Free Consultation

Let’s have a 30-minute call. I’ll walk through your current situation and help you identify where the gaps are and how to close them.

👉 Schedule Your Call Here

You’ll leave with a clearer picture of your cash flow.