Profitable on Paper, Broke in Practice
Chance meet up with Josh Luebker at a Gretna park back in May, 2026.
Your P&L says you made money last year, but it certainly doesn’t feel like it. That’s a gap where far too many contractors live. And it's costing them the business.
Revenue is not health. In fact, it never was.
It's just the number that feels the best to look at. Ask most owners how the year went and they'll quote you top-line. Not gross profit. Not net. Not cash in the bank. Revenue.
But Josh Luebker, founder of SPM (The Construction CFO), has spent his career watching that habit sink companies that looked, on paper, like they were winning. He calls it the visibility gap. The distance between what your books say and what your bank account feels.
He's not talking about small operators who never learned accounting. He's talking about seven and eight-figure contractors, run by people who came up doing the work with their hands, who assumed that staying busy meant staying healthy.
But in the end, it doesn't. And revenue is the number most likely to lie to you about it, because of how easily it inflates. Double-booked invoices. Unapproved change orders. Missing retention. None of that is fraud, it's just how the accounting works. So that number you're proudest of might just be the least real number in your books.
Inflated Overhead, Hiding in Plain Sight
There is a common misconception among contractors in the preconstruction phase. They have a tendency to bid everything at ten and five: ten percent overhead, five percent profit. It’s simple, standard math, the kind every GC and sub in the industry has used for decades.
But when Josh pulled the real numbers apart for a number of different clients across segments, net profit was negative (like, losing money). Meanwhile, revenue was looking great on the surface, gross profits were sitting around 33 percent on average.
In other words, the overhead was actually 35 percent. Not ten. And the reasons for it were all over the board. Software seats nobody used anymore. Shop labor buried in the wrong bucket. Mobilization and equipment costs absorbed into overhead instead of the jobs they belonged to. None of them visible until someone pulled every line item apart and put it back together correctly.
That right there is the worst part. It’s not about a company doing something reckless. It was all about a company doing the math everyone in the industry does, on a number nobody had ever actually verified.
Growing Fast, Broke Anyway
One would hope that’s where the confusion ends, but alas Josh had more stories. In fact, the second story is worse, because instead of coming from mismanagement it came from success.
A contractor has been scaling like crazy, going from $500,000 in year one to $5 million in year two. The pace was continuing this year (on track for $12 million) and from the outside it looked like the kind of growth every owner in this industry dreams about.
On the inside though, they were weeks away from running out of cash to make payroll.
Plenty of backlog. Plenty of manpower to do the work. Yet no money to pay everyone to show up on Monday. They were running sixty-hour weeks trying to push through everything on the books, but no one noticed the cash wasn’t coming in fast enough to cover what was going out. Luckily, Josh ran a cash flow forecast and found the wall before they hit it: cut back to forty-hour weeks for a handful of weeks until a specific check cleared, that was the fix. It was that or run out of money entirely and start pulling from a 401(k) or HELOC to cover payroll.
Strangely enough, the fix was not more revenue. There was already plenty of that to go around. The fix was slowing down long enough to let collections catch up to output.
Two companies. Two completely different failure modes. Same root cause. Nobody was watching a number that actually mattered until it was almost too late to fix it.
The Four Numbers That Actually Matter
Josh estimates that the percentage of construction companies who survive ten years is in the single digits. Not because the work dries up. Because nobody's watching the leak until it's a flood.
So he tracks four numbers. That’s it, just four. And the order matters as much as the numbers themselves.
Gross Profit: revenue minus cost of goods sold, divided by revenue. If that number is low, your estimating or your field performance is broken, and no amount of overhead discipline will fix it.
Net Profit: If gross profit looks healthy but net doesn't, your overhead is too fat, full stop. That's the 35 percent hiding inside a company that thought it was running at ten.
Cash Flow: cash in this month versus cash out this month, tracked on a rolling twelve. This is the number that catches what the P&L can't. You can be profitable on paper and still be starving in practice.
Revenue: Finally revenue is last, not first where everyone else puts it. It's the multiplier sitting on top of everything above it, which means it multiplies your problems exactly as fast as it multiplies your profit. A bigger top line on a broken cost structure just means a bigger, faster way to run out of money.
Most owners run that list backwards, never getting a chance to come around to the top three.
Knowing Your Costs Is a Condition of Employment
That phrase came up constantly on the way up through this industry: knowing your costs is a condition of employment. Funny enough, now it applies just as much to the owner as it does to an engineer out running the work.
Thankfully, the fix here doesn't need to require an ERP system or a finance degree. It simply requires doing the overhead math at least once a year instead of assuming last year's percentage still holds. It requires tracking cash on a rolling basis instead of trusting a year-end P&L to tell you how the business actually feels. And it requires being honest enough to admit that "my accountant says I had a good year" isn't the same thing as knowing where the money went.
Many of the smaller contractors and subs are often the bank for this entire industry. They front the labor, they wait on the pay-when-paid terms and they absorb the interest on the line of credit to keep the lights on in between. Multiply that across an industry running on the same habits, and the visibility gap stops being one contractor's problem. It becomes the reason good people go out of business, and the reason the rest have to go find new ones.
So ask yourself this question: if you pulled your real overhead number today, would you still bid it the same way tomorrow?
Construction is cool, tell your friends!