[JesseCocozza]

I would like some of your opinions on how you handled growth over the years. I started as an employee of my father, learned my trade, started my own LLC, continued to sub under my father as well as branch off for others. Finally going out on my own fully about 6 years ago. Did a lot of one man band type work, then jobs that required a helper, but paid quickly. Moving to now which, has been over the past year or so, framing large homes with a crew. Had some money in the bank, but with the size of jobs I have, it's not enough capital to get me through a month of floating payroll, because I can only draw once a month from the bigger builders. I need more capital and am currently considering an equity line on my house. I am making money, but in order to make enough profit to have a month's worth or materials / payroll accumulated I'm looking at about 8 months to a year, assuming work stays this course and profits continue. So I guess my question is, how many of you had to borrow money to built capital? Did you do it another way? Any input would be great. Thanks.

 

[griz]

Being in business & assuming your credit is good ask your bank for a Business Line of Credit. Should not have to involve your house unless you are asking for a lot.

1980's a new bank in town offered me a 50g line of credit moving my biz account with them.

Just ask....:thumbsup:

 

[TxElectrician]

I have loaned the company money from my personal savings but would never put my home on the line. Kind of defeats the whole inc. thing.

 

[JesseCocozza]

I have loaned the company money from my personal savings but would never put my home on the line. Kind of defeats the whole inc. thing.

I'm an LLC.

 

[BamBamm5144]

I'm an LLC.

Doesn't mean much anymore as they normally make you personally guarantee it.

You need money to make money.

 

[JesseCocozza]

Doesn't mean much anymore as they normally make you personally guarantee it. You need money to make money.

That was kind of my point in stating that. I'm going to call my bank and ask about business lines of credit, but I couldn't imagine them giving me something without a personal guarantee on my end.

 

[JBM]

I dont know why you couldnt get a draw every 2 weeks. Everything is negotiable. Tell them your "policy". People like to hide behind that word like it changes things. It doesnt. You have your own policy that doesnt get superseded by anyone elses policy. Ive been there, told them I dont care, 2 weeks- I stay busy take it or leave it. Low and behold checks appear.

 

[BamBamm5144]

I was given a business a credit card about 2 years ago with a 5k limit. It is solely in the business name. I would charge it, pay it off and repeat a few times a month.

That limit is now up to 25k and then I asked for a business line of credit which I was given with a limit of 10k. I don't really touch the LOC but it's nice to know I have access to extra "just incase" cash.

This allows me to keep my cash free and able to move around. Once I get near my 25k limit, I pay it off and do it again. I get 1% cash back which doesn't seem like much but it has netted me over $3500 since I started using it and I never paid interest once.

My suggestion is to ask for a business credit card first. Don't be surprised if they ask what personal collateral you have, whether it be a house, car or whatever. I didn't offer any collateral so it made it more difficult for me.

Good luck.

 

[JesseCocozza]

The capital I'm looking for is to float payroll essentially, so I'd have to look into the CC option, but I am assuming that paying employees with that would be like a cash advance on a CC which usually entails extra fees and interest. I really appreciate all the feedback so far. Good food for thought.

 

[BamBamm5144]

Purchase materials and other items on a CC keeps your cash free until you get paid.

 

[Inner10]

I dont know why you couldnt get a draw every 2 weeks. Everything is negotiable. Tell them your "policy". People like to hide behind that word like it changes things. It doesnt. You have your own policy that doesnt get superseded by anyone elses policy. Ive been there, told them I dont care, 2 weeks- I stay busy take it or leave it. Low and behold checks appear.

Often with commercial contracts and big builders they only use standard ccdc contracts, which stipulates 30 day draw cycles. If that doesn't work for you someone else gets the contract.

 

[hdavis]

Running out of money while expanding is one of the most common causes of business going under. Yes, success can bring bankruptcy if you're tight and someone doesn't pay on time.

Get your line of credit, but remember it isn't the same as cash - it's a sign that you're over extended if you NEED the line. Lines of credit should be in place before you need them, but still manage by net cash.

There's one cardinal rule of business - never run out of money. If you do, you're done. Borrow it if you HAVE to (but have a line of credit in case you get in a temporary jam), pick up some fast paying weekend work, whatever you have to do to stay afloat.

 

[kiteman]

I probably had a bank loan for operating capital for the first 20 years of my business. It was usually secured by my truck. I could never seem to get over that hump. It wasn't the weekly payroll as much as it was the monthly tax deposits that gave me fits.

 

[huggytree]

a worry I would have in your position is what happens if someone goes under owing you for a house or 2.....most likely you'd go under too from it with nothing as a backup

first thing is id start saving and building up reserves
then id ask my suppliers if you can pay them after you've been paid

right now your the bank for the builder...your giving them a loan for 30-60 days....if you cant survive that way id ask them to start making 2 week draws....when I first started out I gave them 14 days to pay...just to keep $$ flowing...I switched to 30 days after 6 months......any builders that go to 60 days I typically drop

im friends with most of my prime contractors....I have asked for quick payments on plumbing jobs that have $20,000 in fixtures.....instead of me paying my supplier and then waiting 30-60 days until I get paid.

I have a line of credit using my home....but I have a large personal savings account that I could use to pay it off if it came to losing my house....I would not recommend using your house in your situation since it sounds like you have no backup cash and if a builder went under you'd not only go under, but you may lose your home

 

[Warren]

I started my business using a home equity line of credit. I am also an LLC. I do use a company credit card like Bam does for all materials. About once a year there seems to be a week where I do not get a paycheck. I try to set up draws on my big frame jobs so that I can get a check every two to three weeks. The draws are "due on receipt" and if they want us to keep working, they pay up.

 

[JesseCocozza]

Just for a little more clarification. The only thing I'm really providing is labor, nails, and whatever I need to rent (i.e. Lull, scaffolding, crane service) $20k a month roughly. Fortunately I work for some very reputable contractors, so the concern isn't so much that they'll go under owing me money. They all pretty much use the same draw schedule. Invoice on 25th, get paid by the 10th. I'm not 30-60 days out from time of invoice, I just am only able to bill once a month. I worked for another GC for the longest time that paid weekly, so having to float payroll for a week wasn't ever an issue. This line of credit isn't a permanent situation. It just to bridge the gap for the next 6-12 months. Because the volume of business I'm doing has nearly tripled in the last 2 years, I haven't been able to build the capital to sustain the growth, specially with more employees. I hire good help, which isn't cheap, but is a big reason I am doing business with the top builders in town.

So I guess I just need to try to negotiate either different draw terms, or get a deposit. Which brings me to another question. How many of you are getting deposits on a contract that is primarily labor from GC's? Seems kind of tough to get paid for something you haven't even started yet.

 

[BamBamm5144]

How long are your projects normally?

Can any of the GC you work for do a labor draw schedule type of thing?

 

[jhark123]

Jesse,

I would be VERY hesitant to try to change payment terms with your GCs. Net 10th is the industry standard for good reason and it is usually how the GC is being paid on financed projects.

Every now and then I have a sub that is hot to get paid prior to net 10th (even though they signed a contract with payment terms), I usually never use them again.

 

[overanalyze]

Ask for the buisiness LOC. I wouldn't take a line on my personal residence.

In reality your draws should be milestone based and front loaded. Let's say you have a $25,000 contract to frame a large home. State the first draw is due once the deck is on. Make that draw $10,000. Then next once trusses set, another 10,000. The balance on completion. Just an example, but it would help your cash flow.