The three numbers that predict failure: gross margin per job, days of cash, and the age of what you are owed, with the statutes that move each one
In one paragraph
Contractors rarely fail because they cannot do the work. They fail because three numbers went bad for a few months while everyone was busy: the gross margin on each job, the number of days the bank balance would carry the shop with no new money, and the age of the receivables. This lesson defines each number so a two-truck shop can compute it on the last day of the month from the job files and the bank statement, gives the healthy range and the failure signal for each, and shows how California's payment statutes move them: a deposit cap and progress payments that cannot run ahead of the work, an owner's 30-day duty to pay with a 2 percent monthly penalty, a 5 percent retention cap, the seven-day and ten-day duties to pay subcontractors, the 35-day stop-work trigger, and the rule that makes spending one job's money on another a disciplinary cause. The KPI sheet in this phase is the one page these numbers live on.
The rule
Gross margin per job is contract price minus direct cost (loaded labor, materials, permits, subcontractors, equipment); days of cash is the operating bank balance divided by average daily fixed overhead; receivables age is the days since each invoice was due. The statutes that move them: a home improvement down payment is capped at $1,000 or 10 percent and progress payments may not exceed the value of work performed (B&P 7159.5(a)(3), (5)); an owner must pay an undisputed progress payment within 30 days of demand and owes 2 percent per month on amounts wrongfully withheld (Civil Code 8800); retention on private work is capped at 5 percent (8811); a prime pays subcontractors within seven days of each progress payment and passes retention within 10 days of receiving it (B&P 7108.5, Civil Code 8814); a direct contractor unpaid for 35 days may give a stop work notice (8830-8832); and using funds received for one project on another is a disciplinary cause (B&P 7108).
Why it matters
The bank balance lies. It goes up when a customer pays a deposit that belongs to materials you have not bought, and down the day payroll clears, and neither movement tells you whether the business is working. The three numbers do. A shop that computes them monthly sees a losing job at its second draw, a cash squeeze six weeks out, and a slow-paying general contractor before the stop-work clock is the only tool left. A shop that does not compute them finds out from the supply house.