The Median Construction Company Holds 20 Days of Cash

There is a number that tells you how long your company survives if every dollar of incoming cash stops tomorrow. It is one division problem. Most restoration owners have never run it, and the ones who have usually ran it in a quiet month, which is the one month it cannot tell them anything useful.

The idea in plain English

In September 2016, the JPMorgan Chase Institute published a study called Cash is King. It was not a survey. The researchers looked at 470 million anonymized transactions and account balances from 597,000 small businesses that banked with Chase, covering February through October 2015, and measured something they called cash buffer days: the number of days of outflows a business could pay out of its cash balance if its inflows stopped. The arithmetic is average daily cash balance divided by average daily cash outflows.

The median small business in that sample held 27 cash buffer days. A quarter held 13 or fewer. The top quarter held 62 or more. By industry, the median restaurant held 16 days, repair and maintenance held 23, real estate held 47.

Construction held 20.

Two honest caveats before that number does any work. The data is from 2015 and the study is now a decade old, so treat it as a structural finding about how these businesses are built, not as this year's balance. And it covers Chase business banking customers, not a census of American contractors. What makes it worth your attention anyway is the definition, not the decimal.

Why restoration is worse than 20

Look at where the number comes from. The numerator is cash you are holding. The denominator is your average daily outflow, which is another way of saying a normal week.

Restoration does not have normal weeks.

You take a large loss on a Tuesday. By Thursday you have crews on overtime, a dozen units of equipment either bought or on surge-rate rental, a sub mobilized, and materials moving. Your daily outflow for the next three weeks is not your average daily outflow. It is two or three times it. Cash buffer days is a ratio, and you just changed the bottom of it.

So twenty days at an ordinary burn is ten days at double burn, and fewer than that in the week after a regional freeze event. Your buffer collapses on the day you win the work. That is exactly backwards from how it feels in the truck. The big loss feels like the answer to a cash problem. Arithmetically it is the cause of one, and it stays the cause for as long as the claim takes.

Then there is what the measure deliberately leaves out. Cash buffer days counts no receivables at all. For most industries that is a conservative simplification. For you it is simply accurate. A receivable where the carrier paid actual cash value, held the recoverable depreciation until documented completion, and has an unapproved supplement sitting behind it is not a buffer. A buffer is something that clears payroll on Friday.

One more comparison worth sitting with. The median restaurant in that study held 16 days and collects at the table. Construction held 20 and mostly quotes a job before starting it. Restoration mobilizes before the scope exists and collects on somebody else's schedule. Nothing about our position in that ranking is flattering.

Five moves

1. Compute it this week. Pull 90 days of bank activity. Average daily balance, average daily outflows, divide. That is it. It is not a forecast and it does not require a model. You will have a number in twenty minutes, and it will be the most honest single figure about your company you have seen this year.

1. Then compute the one nobody computes. Same numerator, but put your peak week's daily outflow in the denominator instead of the average. Call it surge buffer days. That is the number that decides whether you can accept the next large loss, and it is usually about half of the first one.

1. Set a floor and name the trigger. Decide, in writing, the buffer level at which something specific happens: you draw the line, you stop discretionary spend, you do not mobilize a second large loss. A floor with no named consequence is a feeling.

1. Work on the denominator, not just the numerator. Saving cash is slow. Spending less cash per surge week is faster. Deposits where your contracts and state law allow them, actual cash value billed the day the scope is approved rather than at completion, negotiated rental and subcontractor terms arranged before the season. Each one lowers the bottom of the ratio.

1. Arrange the line of credit in the quiet month. A revolver is a manufactured buffer. Your September financials are the ones a lender wants to read. February is when you need the money and also when you are least able to explain why.

None of this is exotic. It is two numbers off a bank statement, a floor with a consequence attached, and credit arranged before the storm rather than during it. What it buys you is the ability to answer the only question that actually decides whether a restoration company survives a good year: can we fund the work we are about to say yes to?

That question, asked before the mobilization instead of after it, is most of what a fractional CFO does for shops like yours.

General guidance for restoration and reconstruction owners, not a substitute for advice tailored to your company's numbers. If you want yours run against your own statements, get in touch.

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