# New Business Cash Flow



## KAP (Feb 19, 2011)

HammerSwing said:


> No, not 20, and don't want a lifted truck:no:
> 
> *I haven't been taking much of a salary, and we have mainly been living off my wife's income.* I've been trying to put everything into the business right now that I can afford.
> 
> Personally I don't have much debt, just the house. My truck is in great shape, but is an 04, so it's paid. My wife babies her car and we made sure to pay it off before starting the business.


Plan in your numbers for you to take a salary, PLUS allowing for a Profit, but don't actually start taking a salary until you have built up 3-6 months of Capital Reserves and Emergency Fund (once you attain it by compounding it using this method, your Profit will feed it from there)... and then you can actually collect a steady salary (weekly, Bi-weely, Monthly, whatever) which you can then bank on the personal side because you'll be used to living on your wife's income... you'll be amazed at how much less stress you'll feel in the day to day both in your business and personal finances... 

Once you have 3-6 months of CR & EF, you'll be in a strong position to do the same on the personal side... living beneath your means is a sacrifice, but it's short-term and will go a long way in creating a prosperous financial future... 

While credit is a tool, it ends up being a crutch for some... money in the bank will always get you credit... banks are always willing to lend when you *don't* need it... once you've established the above, getting a LOC won't be an issue... and you can then use it as the tool it is as opposed to being a safety valve you have to consistently tap because you don't have the CR & EF to self fund... a LOC can be a dangerous tool as well...

HammerSwing... You're not the first or last guy to go into business on a shoestring... but the above goes a long way in reducing the risk of being caught in a rob Peter to pay Paul cycles (which can be hard to get out of) as well as putting you on the road to a sustainable business model that causes you and your family less stress in the personal and business realm...

Best of luck... 8^)


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## cwatbay (Mar 16, 2010)

A couple of reality checks that I've encountered in the past: 

SBA Loans - Don't count on it. The advertising and TV testimonials make it seem like a fairly easy thing to get. It isn't. Most people that get these loans are pretty well off to begin with. They use their house as collateral and/or other large sums of money (savings, other homes, substantial income from other employment). Also helps if you are a minority, woman owner, Vet owned business. 

Line of credit from your bank - again, sounds easy enough. But isn't. Just like SBA, you need to have collateral to back it up. W2's with sufficient income over time will help, home ownership (hopefully not underwater, or, just starting out). 

Nobody (nobody legitimate) is going to lend money to someone that is fairly new and struggling -- no one gambles on "iffy" prospects. 

Get more on down payments and progress payments. Get a deposit, mobilization fee, whatever to pay for labor and materials up front. Many years back, after I retired the first time, then came back as a contractor, I thought I had enough money in reserve. Nope, needed 3 times that amount. Even then, I had to move to a more productive area that had clients with sufficient money to spend. Then I had to work for others a various times when things got tough.


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## 480sparky (Feb 1, 2009)

On the flip side, start looking at ways to save money or spend less money. Many people get into trouble just trying to support their extravagant lifestyles.

Are you driving a $85,000 truck that gets 9 MPG and costs $900/month to insure? Do you _need_ that, or do you just _want_ it?

Are you spending $150/month on your cell phone? Why? Do you actually _need_ unlimited data? Heck, my plan is 2gigs and I never go over that. Stop streaming videos at lunch in the diner. Wait until you're home and can do the bulk of your data via your home's wifi. Or at least have lunch at places that offer free wifi.

These are just two examples. There's a gazillion more.


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## griz (Nov 26, 2009)

quit eating lunch out.

pack it in the morning...:thumbsup:

and lots of fluid...


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## META (Apr 9, 2015)

The beauty and bane of construction is the low cash flow access to many projects. I started out low cashflow and just kept saving until I had a good cushion. I now use credit accounts and a Lowes card but always pay off balances. I tend to start projects with the security I can self finance most of it if things go bad. I never want to stif my contractors for my error or client refusal to pay. 

Of course a healthy draw schedule and downpayment add to security and jobflow progression.

Sent from my SM-N950U using Tapatalk


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## Gatorgrizz27 (Nov 1, 2015)

On any jobs less than $10k, I do a 50% deposit for materials the day before or the day of starting, and 50% when it’s done. On larger jobs, I give them the option of 3-4 installments or weekly checks at certain milestones. 

With your 25% + 25% model up front, you’re either spending some of that first check on bills or other stuff, or you aren’t charging enough. I can’t think of a job where my labor percentage has been less than the materials, unless you’re doing something like installing expensive light fixtures or ornamental railings.

If you figure $10k in materials and $15k in labor, you get $12.5k up front and can pay your guys for a week or two. Don’t put it on a credit card regularly, even if you pay it every month work will slow down and you’ll be left holding the bag. Save that for emergencies or commercial jobs where they will pay Net 30 or longer. I try to never be in a position where I NEED a check the day a job is done to prevent pulling from my savings, but it’s there as a buffer if necessary. 

You need to change your model now though, or your cash flow problems will get worse as you take on more jobs. Having a larger amount in savings doesn’t solve anything, it’s just security.


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## HammerSwing (Feb 23, 2018)

Gatorgrizz27 said:


> On any jobs less than $10k, I do a 50% deposit for materials the day before or the day of starting, and 50% when it’s done. On larger jobs, I give them the option of 3-4 installments or weekly checks at certain milestones.
> 
> With your 25% + 25% model up front, you’re either spending some of that first check on bills or other stuff, or you aren’t charging enough. I can’t think of a job where my labor percentage has been less than the materials, unless you’re doing something like installing expensive light fixtures or ornamental railings.
> 
> ...


Thank you for the reply.

I'm a deck contractor, and the jobs where the 50% does not cover materials are higher end decks with quite a few expensive options. Might have $14k in materials, and be a $26k job (just an example) I have been toying with numbers, but the few bids I've seen from others show me an pretty close to their bids. By the time I pay payroll, and possibly order materials for the next job, I run into trouble. So far I haven't be completely out of cash, but i definitely need to change some stuff to keep things from getting out of hand.

I have been toying with more payments, but haven't started one of those jobs yet. I'll see how that goes once we start doing them


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## ipest (Feb 11, 2018)

*1/2 up front*

Here at iPest in Corpus, and elsewhere a big job will involve a quote. A signature on the quote indicate they will pay when the job is over. 

for small or private customers it is 1/2 up front before and 1/2 just before completion if they are new customers and the input is over $200. 

I've only not been paid by three customers. All three came as a surprise.


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## Jaws (Dec 20, 2010)

If you concentrate on saving operating capital, and become obsessed with it, you will stack up plenty of cash to pay for that whole deck out of pocket if wanted to very quickly. 

Live cheap, bid accurately, and then watch your nickels and dimes on the projects so the dollars will take care of themselves. 

Good luck


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## KAP (Feb 19, 2011)

Jaws said:


> If you concentrate on saving operating capital, and become obsessed with it, you will stack up plenty of cash to pay for that whole deck out of pocket if wanted to very quickly.
> 
> Live cheap, bid accurately, and then watch your nickels and dimes on the projects *and make sure they end up in Capital Reserves and/or Emergency Fund instead of blown or not accounted for*so the dollars will take care of themselves.
> 
> Good luck


FIFY... :thumbsup:


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## Leo G (May 12, 2005)

griz said:


> you should not be in business.
> 
> no credit & no cash, how will you survive if you miss a draw or materials get held up, pay labor, subs......
> 
> with you solely dependent on down payments etc you will soon be robbing peter to pay paul.


That's a little harsh. Many of us started from nothing and built as we went along. I for one despise the thought of owing a bank money. It has it's place but when starting a company with all the unknowns it's scary.

You just make sure you tell the truth to the subs on how they will be paid. They can make up their minds if they want to work that way or not.


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## Leo G (May 12, 2005)

I see you patched it up between you'z two.

:thumbsup:


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## Leo G (May 12, 2005)

On any job make sure they are the ones that pay for the materials. I know that doesn't work in a couple of states but you said yours isn't one of those.

Materials and at least labor payments until the next draw. If they balk at that explain to them exactly what it is for. I usually don't take profit on materials in the down payment to keep the numbers lower on large jobs.


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## Fouthgeneration (Jan 7, 2014)

Keep Score: run the books every Sunday/Saturday till you are well in the black.

Keep track of ALL your hours, to give yourself accurate data about staying in Business.

Pay yourself something, Even if its minimum wage, DON'T forget the O.T. 

Don't end up sponging off your wife for a decade, If you can't support yourself, quit and go back to work as an employee... Don't be that person.

Hording cash as a non-Corp. isn't IRS friendly, Make sure your plan is tax legal/compliant.

Raise your prices 5% a month till you can't keep making your INCOME goal, not "Keeping" busy, retreat 5-10 % ...

You want to succeed working ~40 hours a week, charge O.T. jobs at O.T. rates.

Depending on you and and your crew, 4 x 10 hrs or 9 x 9 hrs( two week) schedule might make more money then 5 x 8 hrs. Especially longer road travel jobs. 

You need enough CASH to walk away from 2 medium sized jobs that are going "Bad", while the slow, slow wheels of justice grind out your $ owed you. " F you money" otherwise some customers will take advantage of your precarious finances.

Raise prices every year.

Don't share $ issues with help, Pay in full, fair, and ON TIME.

Spend as much time studying $$ as you do deck building....


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## EthanB (Sep 28, 2011)

Decks were a decent % of my business near the end and you can get in big trouble with payment terms like that. It's a pretty material heavy project so you need to charge a fair bit up front to stay in the black.

Personally, I won't do a final payment over 10%. Even if I had to get a substantial completion check one day and the final check the next day, it was still going to happen. My goal was to always have one easy but very noticeable piece left to do when we took the substantial completion payment(usually payment #3) so customers weren't tempted to burn me and do it themselves. If someone held the 5-10% final payment, for whatever reason, that was just profit so it didn't affect the business.

I typically took 10-25% to reserve a spot in my calendar and another 30-40% after demo and site work but before materials were delivered(once they are delivered you cannot legally remove them if the customer kicks you off the property). 

As others have said build up a good egg as fast as you can. If a yard won't give you ANY credit after you've spent 10-20k with them then I'd speak with the GM and move to another yard if they still won't budge. With 25k jobs you shouldn't need more than 5-10k total at the yard, but you can start with less than that. Credit cards are also and option but really only for emergencies or if you have enough in the bank to pay them off every month. I preferred to use cc's over yard credit as I got points but I paid them off. Never got a LOC with a local bank. They just don't lend to small biz like they used to and by the time they were willing, I didn't need it.

One thing that I think is more important than any other is to NEVER take a job where your costs outweigh your current cash/credit. You never know when you are going to get stiffed or have a payment legitimately withheld, get hurt, make an expensive mistake, etc.


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## Emmela (Nov 2, 2021)

I made many mistakes in the early days, but one of the biggest was not having enough capital to start with. I don't have business degrees or fancy qualifications, so I had to be innovative to get started - I learned to build businesses without all the expensive software, structures, and red tape that larger companies need. Anyway, I started working with the guys from Invoice Factoring With New York Factoring Companies - Factor For You, and I've started to make a good profit. They found for me great factories that offered me great prices.


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## Leo G (May 12, 2005)

That's not a mistake, that's a problem. It's not like you can go out and just get money all the times. Banks won't lend it to you if they don't believe in your ability to pay it back. If I had enough capital to start out with why would I bother working?


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## Dorisma (Nov 16, 2021)

Yes, there are plenty of options out there that can be learned and done in some minutes. I think a great solution is creating a Cashflow, it's effective and can be done in less than an hour. If you don't believe me, check How To Prepare A Cash Flow Forecast In Under 30 Minutes. I was skeptical at first too but after some researches, I started to implement my knowledge and it appears to be true. On top of that, the results are insane, you'll see a difference in just some months or weeks.


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