A civil and maintenance contractor in Nhulunbuy has won a significant new contract.
Good news.
But the contract creates an immediate funding problem.
The business needs another:
excavator
to deliver the work.
Purchase price:
$185,000.
It also expects to spend approximately:
$95,000
mobilising and operating the contract before enough customer payments start flowing back into the business.
So the real requirement isn’t:
$185,000 for an excavator.
It’s closer to:
$280,000 across two different business needs.
Equipment:
$185,000.
Working capital:
approximately $95,000.
That’s an important distinction.
Because winning a contract can increase revenue while simultaneously creating:
a cashflow problem.
The Contract Is Profitable. So Why Does the Business Need Money?
This is one of the strange things about growth.
The contractor has won more work.
Revenue should increase.
The contract is expected to be profitable.
Yet the business may need:
more cash
before it receives:
more cash.
Why?
Because the business has to deliver the work first.
The New Contract Starts in Six Weeks
Before commencement, the contractor needs to organise:
equipment,
employees,
transport,
fuel,
insurance,
site requirements,
accommodation,
and other mobilisation costs.
Then the business starts performing the work.
Employees need to be paid.
Fuel needs to be purchased.
Suppliers need to be paid.
The excavator needs to be operating.
But the customer may not pay:
on day one.
That’s the Funding Gap
Suppose the contractor starts work:
1 November.
During November, it incurs:
wages,
fuel,
materials,
freight,
accommodation,
and operating costs.
It submits its first invoice:
at the end of November.
Depending on the agreed customer payment terms and actual payment timing, cash from that invoice may arrive:
weeks later.
Meanwhile:
December wages still need to be paid.
Fuel still needs to be purchased.
The contract is:
generating revenue.
But the business can still be:
short of cash.
Growth Can Create Cashflow Pressure
This catches business owners by surprise.
They think:
“We just won a $1.4 million contract. Cashflow should improve.”
Eventually, perhaps.
But the first question is:
What has to be paid before the customer starts paying you?
That’s where the funding requirement appears.
Start With the Equipment
The Nhulunbuy contractor needs:
an additional excavator.
The business already operates machinery.
But the new contract requires additional capacity.
The owner has found a late-model excavator for:
$185,000.
The equipment will be used directly in delivering:
the new contract
and
other work when available.
That creates a clear equipment requirement.
Why Not Pay Cash for the Excavator?
Suppose the business has:
$240,000
in available cash.
Technically, it could potentially buy:
the $185,000 excavator
outright.
That would leave approximately:
$55,000.
Now remember:
the business estimates it needs approximately:
$95,000
of additional cash to mobilise and operate the new contract.
Paying cash for the excavator may solve:
the equipment problem
while making:
the working-capital problem
worse.
This Is Why Equipment and Working Capital Should Be Looked at Together
The business may need to preserve cash for:
operations.
Equipment finance may potentially allow the excavator to be funded separately from:
day-to-day contract costs.
That doesn’t mean financing the excavator is automatically the right decision.
It means the business should assess:
both funding requirements
before using its cash.
What Is the $95,000 Actually For?
This needs to be broken down.
Don’t simply say:
“We need $95,000 working capital.”
Why?
Perhaps the estimated requirement includes:
additional wages:
$34,000.
Fuel:
$18,000.
Mobilisation and freight:
$12,000.
Accommodation:
$11,000.
Materials and consumables:
$9,000.
Insurance, site and other commencement costs:
$6,000.
Contingency:
$5,000.
Total:
$95,000.
These figures are illustrative.
But the exercise matters.
The owner now understands:
where the money is expected to go.
Working Capital Isn’t Another Piece of Equipment
This distinction matters for finance.
The excavator is:
an identifiable business asset.
Wages aren’t.
Fuel isn’t.
Accommodation isn’t.
Mobilisation expenses aren’t necessarily equipment.
So don’t assume:
“I need $280,000, therefore I’ll get one $280,000 equipment loan.”
The funding may need to be structured differently.
Equipment Finance Has a Specific Purpose
Depending on the transaction and lender, equipment finance may potentially fund assets such as:
excavators,
loaders,
graders,
trucks,
trailers,
forklifts,
tractors,
manufacturing machinery,
or other eligible business equipment.
Working capital is different.
It is money the business needs to:
operate.
The Contract Is Important, but It Doesn’t Automatically Create Finance
The owner says:
“We’ve won the contract. Surely that makes the finance easy.”
Not necessarily.
The contract is useful information.
But a broker still needs to understand:
the business,
the customer,
the contract,
the equipment,
the financial position,
existing commitments,
and the funding requirement.
A contract isn’t the same as:
cash in the bank.
What Does the Contract Actually Say?
This is where detail matters.
What is the:
contract value?
Start date?
Contract term?
Payment structure?
Invoice frequency?
Payment terms?
Scope of work?
Does the business need to meet particular mobilisation requirements?
Is the work guaranteed or based on:
work orders,
usage,
or minimum volumes?
The headline contract value doesn’t tell the entire story.
A $1.4 Million Contract Doesn’t Mean $1.4 Million Arrives
Suppose the contract is described as:
$1.4 million over two years.
That doesn’t mean:
$1.4 million lands in the business account tomorrow.
It may mean approximately:
$700,000 of annual revenue
if the expected work is delivered.
The business still needs to:
perform,
invoice,
and collect.
Look at the Margin, Not Just the Revenue
A contract can be large and still create problems if:
the margin is poor.
Suppose the business wins:
$1.4 million
of work.
But after:
labour,
fuel,
equipment,
repairs,
freight,
accommodation,
and overheads,
the margin is extremely thin.
The contract value by itself isn’t enough.
“We Won the Work” Is Only the Beginning
The next questions should be:
Can we deliver it?
What resources are required?
How much cash is needed before first payment?
What happens if payment is late?
Do we have enough people?
Do we need additional equipment?
What happens to our existing customers while we deliver the new contract?
Growth needs:
capacity.
Equipment Can Solve One Capacity Problem
The excavator provides:
physical capacity.
But the business also needs:
financial capacity.
That’s why the owner may need to investigate:
equipment finance
and
working-capital options.
Don’t Wait Until Payroll Is Due
This is important.
The business knows:
six weeks before commencement
that mobilisation will require cash.
That’s when the funding conversation should begin.
Not:
the Thursday before wages are due.
Build a Cashflow Timeline
One of the most useful exercises is to map:
when money leaves
and
when money is expected to arrive.
For example:
Before commencement
Equipment deposit or acquisition costs.
Mobilisation.
Freight.
Accommodation setup.
Insurance.
Materials.
First month
Wages.
Fuel.
Consumables.
Accommodation.
Supplier invoices.
End of first month
First customer invoice submitted.
Following weeks
More wages.
More fuel.
More supplier costs.
Customer payment
First major cash receipt.
The gap between:
the spending
and
the receipt
is what needs to be funded.
Don’t Assume the Customer Will Always Pay Exactly on Time
The contract might say:
30 days.
That doesn’t guarantee every invoice reaches the bank account exactly:
30 days later.
Invoices can be:
queried,
approved late,
submitted incorrectly,
or held up administratively.
A sensible cashflow plan should consider:
what happens if payment takes longer than expected.
What if the Customer Pays Monthly?
That can create a substantial gap.
The business may fund:
weeks of operations
before receiving the first payment.
What if the Customer Pays Progressively?
That may reduce the gap.
Again:
read the actual payment structure.
Don’t build a funding strategy around:
what the owner assumes the customer does.
Existing Customers Still Need to Be Serviced
The Nhulunbuy contractor already has:
other work.
Winning the new contract doesn’t make those customers disappear.
The business may still need equipment and employees to deliver:
existing jobs.
That’s another reason the additional excavator may be required.
Simply moving:
the existing excavator
onto the new contract
could create a capacity problem elsewhere.
This Is Where Businesses Can Overstretch
The owner sees:
a major new contract.
Revenue opportunity looks excellent.
So the business commits to:
equipment,
employees,
vehicles,
stock,
and accommodation
all at once.
Then the first customer payment takes longer than expected.
Suddenly the business has:
higher fixed costs
and
less cash.
Growth hasn’t failed.
The business has:
underfunded the growth.
How Much Buffer Should the Business Keep?
There isn’t one number that suits every business.
But don’t calculate the funding requirement down to:
the last dollar
and assume:
nothing will go wrong.
If the model says:
exactly $82,400
is required,
consider what happens if:
fuel costs increase,
mobilisation costs more,
equipment needs a repair,
or customer payment is delayed.
But Don’t Inflate the Requirement Without Explanation
The opposite mistake is:
“We probably need another $300,000 just in case.”
Why?
A lender or broker needs to understand:
how the amount was determined.
A realistic cashflow forecast is more useful than:
a large round number with no explanation.
Could the Business Use Its Own Cash for Part of the Requirement?
Possibly.
Suppose the business has:
$240,000 cash.
It may choose to retain:
a substantial operating buffer
while contributing some cash towards:
equipment
or
mobilisation.
The right mix depends on:
the complete financial position.
What About Existing Finance?
The business already has:
two financed vehicles,
a loader,
and another excavator.
Those commitments don’t disappear because:
a new contract has been won.
The new finance needs to sit alongside:
existing repayments.
What if the Business Has Tax Debt?
Tell the broker.
Don’t leave it out because:
“This application is only for an excavator.”
The overall position may affect:
available options.
The same applies to:
other business loans,
credit facilities,
or significant commitments.
What if the New Contract Is With an Existing Customer?
That can provide useful context.
Perhaps the contractor has worked for:
the same customer
for four years.
The new contract expands:
an existing relationship.
That’s different from:
a completely new customer
with no payment history.
Again, it doesn’t guarantee finance.
But it’s relevant.
What if It’s a Completely New Customer?
Then understand:
who the customer is,
the contract terms,
and the payment arrangement.
What if the Contract Hasn’t Been Signed Yet?
Be accurate.
If the business is:
preferred tenderer,
say:
preferred tenderer.
If it has:
a letter of intent,
say:
letter of intent.
If the contract is:
signed,
say:
signed.
Don’t turn:
“We’re expecting to win it”
into:
“We have a contract.”
Timing the Equipment Purchase Matters
The excavator needs to be available when the contract starts.
But buying it:
months too early
could create repayments before the asset is required.
Buying it:
too late
could jeopardise mobilisation.
The owner needs to coordinate:
finance,
supplier availability,
transport,
and contract commencement.
What if the Equipment Is Located Interstate?
For a regional business, transport can be significant.
The purchase price may be:
$185,000.
But the complete acquisition could also involve:
freight,
inspection,
attachments,
or other costs.
Establish the full requirement before applying.
What if the Business Needs Attachments?
Perhaps the excavator requires:
buckets,
a hydraulic hammer,
or other attachments
for the contract.
Tell the broker.
Don’t finance:
the base machine
and discover later that:
another $25,000
is required before it can do the work.
The Same Problem Happens Outside Civil Contracting
Imagine a manufacturer wins:
a major production order.
It needs:
a $140,000 CNC machine
plus:
$80,000 for materials and wages.
A food manufacturer wins:
a new supermarket supply arrangement.
It needs:
packaging machinery
plus:
stock and labour.
A commercial cleaner wins:
several large sites.
It needs:
ride-on scrubbers
plus:
payroll funding.
A transport business wins:
a freight contract.
It needs:
another truck
plus:
fuel and wages.
Different industries.
Same fundamental issue.
The asset and the operating cash requirement are not the same thing.
Could Invoice Finance Eventually Help?
Depending on the business and its invoices, debtor or invoice finance may potentially become relevant once eligible invoices are being raised.
But that doesn’t automatically solve:
pre-contract mobilisation.
Before the first invoice exists, there may be:
nothing yet to fund against.
That timing needs to be understood.
This Is Why Funding Should Be Planned Before Growth Arrives
The best time to discover:
a $95,000 cashflow gap
is:
before the contract starts.
Not after:
the excavator has been purchased,
new employees have started,
and payroll is due.
What Information Should the Business Prepare?
For the equipment:
supplier quote,
equipment details,
purchase price,
new or used,
and expected delivery.
For the contract:
customer,
contract value,
term,
start date,
scope,
invoice cycle,
and payment terms.
For the business:
trading history,
current turnover,
existing commitments,
available cash,
and relevant financial information.
For working capital:
how much is required,
what it will be used for,
and when the business expects customer receipts.
A Broker Needs the Whole Story
If you call and say:
“I need $185,000 for an excavator,”
we may only see:
part of the requirement.
If the business also needs:
$95,000
to mobilise the contract, say so at the beginning.
Otherwise, the business may solve:
the equipment finance
and still be unable to comfortably deliver:
the work the equipment was purchased for.
Back to the Nhulunbuy Contractor
The business has won:
a significant new contract.
It needs:
a $185,000 excavator.
It also estimates:
approximately $95,000
of additional working capital will be required during mobilisation and the early stages of delivery.
That means the finance conversation should consider:
equipment,
cashflow,
contract timing,
customer payment timing,
existing commitments,
and available cash.
Not simply:
“Can we finance an excavator?”
Won New Work but Need Equipment and Cash to Deliver It?
Speak to Thrive Broking before committing all of the business’s available cash to the equipment purchase.
Tell us:
what contract you’ve won,
when it starts,
how you’ll invoice,
when you expect to be paid,
what equipment you need,
what it costs,
how much cash the business has,
and what expenses need to be funded before customer payments arrive.
We can investigate potential equipment-finance options and, where appropriate, other business-finance options for the broader funding requirement.
Because winning the work is only:
the first step.
The business still needs enough:
equipment
and
cash
to deliver it.