Why Do Contracting and Home Service Businesses Go Out of Business?

What the survival numbers do not say, and why age is not safety

Three limits keep these numbers from meaning more than they do. First, they count establishments, not companies; the BLS FAQ says “Age and survival data are measured at the establishment level.” For a contractor with one shop, the two are the same, and a second branch is counted as an opening of its own. Second, the table records that an establishment stopped reporting employees, not why. A closing can be a failure, a retirement or an owner who chose to stop, and the data cannot tell them apart. The same FAQ even uses a contractor to explain a pause between jobs: “a construction company that digs pipelines. Once a project is complete, the establishment may experience a lull in economic activity with no employees until a new project is started.”

Third, the survival tables on that page stop at the sector. There is no table there for HVAC contractors alone, so a precise answer to how many HVAC businesses fail does not exist in this data. What the BLS industry codes do show is where those trades sit: plumbing and HVAC contractors, electrical and wiring contractors and roofing contractors are all specialty trade contractors inside construction, NAICS 23. The BLS description of that subsector says the work “may include new work, additions, alterations, maintenance, and repairs,” and that “especially in remodeling and repair construction, work also may be done directly for the owner of the property.” Service and repair work is inside the construction count. Home services outside the trades are not: landscaping and janitorial services are classified under administrative and support services, NAICS 561, which sits in sector 56.

Then the point for an established owner. The table also reports, for each group of openings, the share of the previous year’s survivors still operating a year later. Construction establishments that opened in the twelve months to March 1994 and were still operating in March 2024 kept 93.6 percent of their number through March 2025, which means 6.4 percent of a thirty-year-old group closed in a single year. The 2015 openings, in their tenth year, kept 93.4 percent. Age lowers the yearly odds of closing compared with the first count after opening, when about one in five had closed, and it does not take them to zero.

The survivors are also larger. The 2015 openings averaged 4.0 employees in their opening year; the ones still operating in March 2025 averaged 8.9. A larger crew means a larger payroll every week, paid before any customer pays for the work, and that is where the rest of this guide goes.

How can a contractor with a full schedule still run out of cash?

Because the bills for a job are paid on a different calendar from the money for it: crews every week or two, subcontractors and suppliers on their own terms, and the money for the same work only after it reaches a point the contract lets the company bill, is invoiced and is paid, with any retainage held to closeout. A full schedule puts more work into each of those waits at once, which is how a contractor ends up profitable but short on cash; the general mechanics, and how to find where the money waits from two balance sheets, are in the guide to that question.

Illustrative example: a hypothetical remodeler with $3 million a year in revenue spends about 75 percent of it on labor, materials and subcontractors, roughly $43,000 a week, and about eight weeks pass between doing the work and collecting for it, so around $346,000 is always spent and not yet collected. With 25 percent more work, about $433,000 is waiting: the busier year needs roughly $87,000 more cash within its first two months, while the profit on the added work arrives a little at a time. The arithmetic also works in reverse. Invoicing on the day a milestone is reached instead of a week later frees about $43,000 for as long as the habit holds, which is why a draw schedule that bills early and often, within what state law allows, matters as much as the price on the contract.

How underbilling, unbilled extras and slow invoicing compound

Each of the three is a gap between work done and money billed, and each one hides the others.

• Slow invoicing is cash late. The work is finished and the invoice is not out, so the wait in the example above grows by every day the paperwork sits. The revenue is real; it is still inside the company’s own office.
• Unbilled extras are revenue gone. The crew did more than the contract described, on a verbal yes, and the change never reached an invoice. The labor and material were paid for. With no signed change order, the price is one person’s memory against another’s, and it gets harder to collect every week it waits.
• Underbilling is a question that needs an answer. On a job billed by percent complete, underbilling means the work in place, measured by cost, is ahead of what has been billed. Part of it may be work done and not yet billed, which is cash late. Part of it may be cost the estimate never included, which no pay application will recover, which is margin gone. Only a fresh estimate of the cost to complete tells the two apart.

They compound because they feed each other. An extra done without a signed price adds cost to a job without adding to its contract value, so the job looks further along by cost than it really is, and the cost report shows underbilling where there is an overrun. A job that looks underbilled looks like money owed to the company, so nobody questions it. Meanwhile slow invoicing stretches the wait on the billing that does go out. Illustrative example, the same hypothetical remodeler: invoices leave three weeks after each milestone instead of one, which ties up about $87,000 more cash; one in three of its 60 jobs a year carries a $1,200 extra that is never billed, $24,000 a year that never arrives; and one $200,000 kitchen-and-addition job shows 60 percent of its estimated cost spent against a pay application at 50 percent. That last gap is $20,000 that is either waiting to be billed or will never be billed, and nobody has re-estimated the job to find out which. None of the three appears as a line on the profit and loss statement. All three show up in the bank balance.

Which numbers warn early, and how often should an owner look?

Weekly for the numbers that move with cash, monthly for the ones that need a re-estimate. Two of the weekly ones, finished work not invoiced and the oldest past-due invoice, are already in the weekly cash-gap check, done by hand in a few minutes. For a contractor the Friday list runs to six, each brought by one named person and read by the owner:

• Weeks of cash: the bank balance divided by an ordinary week’s payroll, subcontractor and supplier payments. Written down every Friday, it turns a feeling about cash into a number with a direction.
• Finished work not invoiced: milestones reached, service tickets closed and change orders signed this week with no invoice out yet, in dollars and in days waiting. The office manager or bookkeeper brings it.
• Extras without a signed price: work requested or done this week that is not on a signed change order, with the project manager’s estimate of what it is worth.
• Receivables past due: the total, plus the single oldest invoice, its age in days, and the name of the person who called about it this week.
• Signed work ahead: the backlog in weeks of crew time, so a thin schedule shows before the crews are idle. A thin backlog and a short cash runway in the same week is the pair to act on first.
• Bills that waited: any supplier, subcontractor or tax payment made late this week, and why. One late payment is an event; the same bill late two weeks running is a pattern.

Monthly, after the books close, comes the work-in-progress schedule: one row per open job with the contract value including approved changes, billed to date, cost to date, the project manager’s fresh estimate of cost to complete, and from those the over- or underbilling and the margin the job is now heading for against the margin it was bid at. A job that is drifting shows there while there is still work left on which to price changes. Finished jobs get one line each as well, bid margin against actual by kind of work, so the next bid starts from what the last ones earned.

Habits that keep the money between the job and the cash moving

The BLS tables do not record what the surviving establishments did differently, so this is not a study of survivors. It is a set of habits that keep the stretch between the job and the cash short, each one visible in the company’s own records.

• Bill the day the work earns it. One named person turns every reached milestone, closed ticket and signed change into an invoice the same day, and the Friday count of finished work not invoiced is that person’s number.
• Write the money into the contract: draws tied to milestones both sides can see, a deposit within whatever limit the state sets, retainage terms read before signing, and payment terms that start the clock at the invoice date.
• Price and sign every change: a signed change order before the work starts, with its price and its effect on the payment schedule, so the extra lands on the next draw instead of in an argument at the end.
• Re-estimate every open job monthly. The work-in-progress schedule is only as good as the cost-to-complete figures in it, and a project manager who signs a fresh number each month finds the overrun while there is still time to price changes or adjust the crew.
• Keep a cash floor and check it before saying yes. Decide how many weeks of payroll and bills stay in the bank, and look at the weekly cash figure before adding a crew, a truck or a job larger than usual. A credit line arranged before it is needed covers timing gaps; it does not fix a job that loses money. This is not financing advice.
• Never let the payroll tax deposit wait. Income and employment taxes withheld from employees’ pay are what the IRS calls trust fund taxes, “because you actually hold the employee’s money in trust until you make a federal tax deposit in that amount.”

That last habit deserves its own paragraph. The IRS page on the Trust Fund Recovery Penalty puts it plainly: “Using available funds to pay other creditors when the business is unable to pay the employment taxes is an indication of willfulness.” Once the penalty is asserted, the same page warns, “we can take collection action against your personal assets.” A payroll tax deposit that waited so a supplier or a crew could be paid is the loudest warning on any list in this guide. This is not tax advice; if a deposit has already been missed, the next call is to the company’s CPA.

When this is not the problem, and where the Review fits

Not every closing is a money problem. An owner who is ready to retire is facing a succession question, and a company already behind on payroll taxes, or facing a lien or a lawsuit, needs its CPA and an attorney before anyone looks at invoices. One bad job is a job, not a pattern, and the work-in-progress schedule will show which it is. And if the Friday numbers above hold steady and the bank balance follows them, the stretch between job and cash is working and the time is better spent elsewhere.

For an owner-led contractor where those numbers are hard to pull, the Revenue Review counts them under the Payment → Margin hand-off. From the company’s own records (job cost reports, invoices, change orders, pay applications and bank deposits), it lists finished work not yet billed, extras without a signed price, jobs underbilled against their cost, receivables by age, and margin by finished job against the bid, each in dollars. It does not give legal, tax or financing advice. It takes two weeks, and the report is the company’s to keep.

The next step is a free 20-minute call, where we say whether the Friday list above, kept in-house, covers it.