[Elite_ND]

My situation:

I've worked for a custom builder as a foreman for 4 years now. To spare the horn tooting hogwash, we build spiffy stuff.

To cut the long story short, at the end of this project I am on my own as a builder. I'm working on foundation for my business as I write this.

My current employer has expressed that he's interested in investing in my young company including the ability of leasing to own our current inventory of tools which I'll price out modestly at 11-12k.

My question to the group is:

How do I go about calculating what sum I'll need of investment capital? Factoring in 1 full time employee to start.

There's so many variables I'm sure this is pretty vague but I'd appreciate all input on this subject from anybody thats dealt with investors.

 

[thom]

You will need enough money to live on for 6 months.

You will need business insurance and that means paying up front. Talk to a local business insurance rep. Liability and Workmens compensation.

You will need tools but you may not need all that your current boss has right away. Most of us accumulated our tools over time as we needed them.

You will need transportation to the job so, if you don't have one, a decent truck.

You need working capital. This is probably the biggest. It takes money to finance a job. Without adequate working capital a single bad customer can destroy a company and the owner's bank account. Don't get yourself in a situation where the customer drags out final pmt, you are desperate, so you compromise and lose money. That is not uncommon for a newbe.

Then, learn the law related to your business. Learn related taxes. Form a corporation or llc. Get whatever licenses are needed.

Then, start marketing yourself and good luck.

 

[Elite_ND]

You will need enough money to live on for 6 months.

You will need business insurance and that means paying up front. Talk to a local business insurance rep. Liability and Workmens compensation.

You will need tools but you may not need all that your current boss has right away. Most of us accumulated our tools over time as we needed them.

You will need transportation to the job so, if you don't have one, a decent truck.

You need working capital. This is probably the biggest. It takes money to finance a job. Without adequate working capital a single bad customer can destroy a company and the owner's bank account. Don't get yourself in a situation where the customer drags out final pmt, you are desperate, so you compromise and lose money. That is not uncommon for a newbe.

Then, learn the law related to your business. Learn related taxes. Form a corporation or llc. Get whatever licenses are needed.

Then, start marketing yourself and good luck.

What I've got so far is an LLC, a truck, liability insurance, and in a few weeks my CL.

I agree with you on accumulating tools over time but a little headstart wouldn't hurt.

What do you think that amount of working capital should be? I agree completely on that being my undoing. A scary thought but a very real possibility.

Thank you for your reply

 

[BDiamond]

When I started I had 6 months of living expenses, 3 months of working capital, a line of credit for 1 month of materials from all suppliers, and a line of credit at my bank for another 3 months of working capital as a backup.

Only you would really know because you have to determine what your initial capital requirements are to get it off the ground (filing fees, attorney fees, logo/web design, apparel, tools, insurance, printing fees, business cards, etc).

Then you need to run 6 months worth of projections. How much volume do you expect? How much money will it take to generate that volume? Will the down payment cover the material or will you have to pay for some of it? How long until you get cashed out? Is there any payroll to meet during that time? Don't forget payroll taxes!If you see cash flow problems how are you going to handle it? Are you going to increase your markup or revenue? If you plan on increasing revenue did you account for the increase in overhead that typically goes with it?

I planned on not making a sale for 3 months and had another 3 months of backup money with the LOC. To help with cash flow if I needed it.

Now that I think of it reading "Markup and Profit" would probably answer a lot of your questions...

 

[Elite_ND]

When I started I had 6 months of living expenses, 3 months of working capital, a line of credit for 1 month of materials from all suppliers, and a line of credit at my bank for another 3 months of working capital as a backup.

Only you would really know because you have to determine what your initial capital requirements are to get it off the ground (filing fees, attorney fees, logo/web design, apparel, tools, insurance, printing fees, business cards, etc).

Then you need to run 6 months worth of projections. How much volume do you expect? How much money will it take to generate that volume? Will the down payment cover the material or will you have to pay for some of it? How long until you get cashed out? Is there any payroll to meet during that time? Don't forget payroll taxes!If you see cash flow problems how are you going to handle it? Are you going to increase your markup or revenue? If you plan on increasing revenue did you account for the increase in overhead that typically goes with it?

I planned on not making a sale for 3 months and had another 3 months of backup money with the LOC. To help with cash flow if I needed it.

Now that I think of it reading "Markup and Profit" would probably answer a lot of your questions...

As much as it shames me to admit it....I am going into this adventure poorly prepared financially in comparison. Best case scenario I have one month of living expenses and that's bare bones.

6 months of living expenses seems to be the golden number and 3 for working capital.

What about dealing with investors? What terms are common as far as ROI and repayment?

 

[pathway]

As much as it shames me to admit it....I am going into this adventure poorly prepared financially in comparison. Best case scenario I have one month of living expenses and that's bare bones.

6 months of living expenses seems to be the golden number and 3 for working capital.

What about dealing with investors? What terms are common as far as ROI and repayment?

My experience has been, if you can in any way avoid it, stay away from directly borrowing lump sums of cash from outside investors. Best scenario for start up would be a fee per use bank line of credit where it cost you nothing to have it and requires interest only payments when you do use some or all of it. Investors want their return whether you' ve used the cash or not. Few people starting out have the resources to go it alone so if it's an option don't be afraid to approach family as co signs on a LOC but if you do this it's important to keep them in the loop whether they ask about it or not & be upfront if you see you may be running into trouble financially. Understand the differance between needing access to working capital and actually borrowing it & having it in your pocession where you may be tempted to not think through thoroully about whether a circumstance actually warrants spending it. Don't buy into the concept of if I spend it I'll be more motivated to go out & earn it. Every investor I've dealt with has based their ROI in relation to what that money is currently earning them eleswhere. If you have decent credit I'd expect terms similiar to the banks: Prime + 2 or whatever their current investment is returning + 2%, of course it could be much higher if they deem you to be a unusual risk. Number 1 with dealing with investors is know your numbers & be honest about what you know. If they have the $ to invest they won't be fooled by a fool who doesn't have a handle on his accounting.Repayment takes every form out there. Best to deal with someone who is open to negotiation & will agree to terms that suit your particular business, particularly if your business is at all seasonal ex: principal & interest March- October & Interest only Nov - Feb. Best of luck, hope that helps a bit as it's just a scrarch of what I've encountered.

 

[Metro M & L]

The most important question is what is your marketing plan. Do you have a system that you know will work or will you be starting your sales campaign from scratch? Took me several years and ten grand to figure out what worked for me. While I was learning I made very little money and spent what savings I had.

 

[pcplumber]

Starting a business!

Before starting a business I always test the water for sales, first.

Without ample sales you are doomed before you start. Too many people worry about tools, how to do the work, etc. and they don't even have the sales down pat.

I started about 20 businesses and the very first thing I do is test for sales before I do anything else. Then, when you are positive (can't think of the correct word) that you have sales everything else can (possibly) falls into place.

Suppose, I lay claim to a billion dollar gold mine in a very remote location and I am penniless. You can bet your booty that assistance and money will come out of the woodwork and people will beg to fund my operation.

So, if you have a gold mine of sales then it is likely that people will invest in you and you can find a way to get the work done. But, your statements and situation make me think you are doomed to fail.

For everything we do we need to consider the risk and you stated your own risk factors. I would not take a chance investing in your business without proof of sales.

If you can prove to relatives, friends, and supply houses that you have a gold mine of work then it may be possible to survive and thrive. You can ask relatives and friends if they will back you up with some cash only if you need it for a short period and prove to them that you can pay them back by showing your contracts. Rent the tools, charge the supplies, and write terrific contracts so you get quick draws as work progresses.

 

[SectorSecurity]

As much as it shames me to admit it....I am going into this adventure poorly prepared financially in comparison. Best case scenario I have one month of living expenses and that's bare bones.

6 months of living expenses seems to be the golden number and 3 for working capital.

What about dealing with investors? What terms are common as far as ROI and repayment?

No one here is going to be able to tell you what an investor will expect as far as ROI and repayment terms. What are you bringing to the table to get your investors?

 

[Maplewood_Homes]

Our company started with a loan for 1 spec home which sold before it was complete and served as a model to sell another home. I survived on odd/small jobs to keep the bills paid (almost) until we got that first sale. It was easier to finance a spec home back then. I think pcplumber has it right - you need to sell! If you could leverage your experience into a build job, you won't need any separate financing.

 

[Elite_ND]

The most important question is what is your marketing plan. Do you have a system that you know will work or will you be starting your sales campaign from scratch? Took me several years and ten grand to figure out what worked for me. While I was learning I made very little money and spent what savings I had.

Sales campaign is starting from scratch and I will be implementing the usual suspects (ads in paper, business cards, mass mailers etc) as well as exploiting social media and knocking on some doors.

Since this thread went live I placed my ad on google and in my area so far there are 189 people looking for someone to do what I'm offering. Based on insider knowledge (I have associates that work for the city engineering department as well as the building inspection department) building wont slow down and this boom as a whole wont slow down. People are coming into money and the smarter ones are acquiring property or remodeling what they already own. What makes me unique is that I actually put out a quality product and wont charge what they charge for sh*t quality.

 

[Elite_ND]

Before starting a business I always test the water for sales, first.

Without ample sales you are doomed before you start. Too many people worry about tools, how to do the work, etc. and they don't even have the sales down pat.

I started about 20 businesses and the very first thing I do is test for sales before I do anything else. Then, when you are positive (can't think of the correct word) that you have sales everything else can (possibly) falls into place.

Suppose, I lay claim to a billion dollar gold mine in a very remote location and I am penniless. You can bet your booty that assistance and money will come out of the woodwork and people will beg to fund my operation.

So, if you have a gold mine of sales then it is likely that people will invest in you and you can find a way to get the work done. But, your statements and situation make me think you are doomed to fail.

For everything we do we need to consider the risk and you stated your own risk factors. I would not take a chance investing in your business without proof of sales.

If you can prove to relatives, friends, and supply houses that you have a gold mine of work then it may be possible to survive and thrive. You can ask relatives and friends if they will back you up with some cash only if you need it for a short period and prove to them that you can pay them back by showing your contracts. Rent the tools, charge the supplies, and write terrific contracts so you get quick draws as work progresses.

The sales are there. The people are there wanting someone to take their money. It sounds like I'm just talking it up but in my area thats the current situation. The only reason I haven't actively done more to get leads is because I'm still waiting on my CL #, business card design, and I have 2-3 weeks left on my current project to finalize. I'm positioning myself to be ready once this tundra thaws. I guess one could say my proof of sales arent currently tangible but all great payoffs come with risks. I appreciate your reply though!

 

[Elite_ND]

What are you bringing to the table to get your investors?

Agreed, I've been utilizing my time off to develop the story of the business, establish the legal infrastructure, research the market, and shake some hands and play friendly with certain key people.

When the time comes and I talk to that man, I'll be ready to sell him what I got to offer and how his money will make him money.

 

[Elite_ND]

Hey guys, I really appreciate all this input. Please if anybody has more to add to the pile please go ahead and do so. Its really helping me out.

 

[PoleBarnsNY]

Keep an eye on your enthusiasm clouding your judgment.

It appears you are fully stoked up about this venture which I fully understand. That tends to lead to assuming unbridled success. You have not mentioned any examination of plan B, fall back position and have not shared any projections or methodology how you came to conclude your projections.

You also mentioned that you are ill prepared financially to pull the trigger. Shoestring startups are part of the American way but be careful. You can lose a decade putting out fires and coming back from a huge set back. If you are not well prepared then what is the rush? You said yourself things won't slow down (very dangerous assumption)

I don't want to rain on your parade but I also don't want to see you hurt your future. That being said, I am not convinced you are as unique as you believe you are, even though unique isn't necessarily a requirement for success. Most contractors here believe strongly that they do not overcharge for quality. There are lots of members here so how is it that you are unique if they have the same strong beliefs?

You might also find what you intend to charge isn't adequate and those competitors whose prices and quality you don't respect are correct and it is you that is too low or the upper end of the market has an upper limit you are not considering. Why has no one else provided this hole in the market you see? Ar they all wretched tradesmen. There is no worthy competitor you admire? See my point at all?

I also don't like investors. I am way too independent. Is an investor really necessary? Very few started that way. You might find the terms choking off your growth. It's hard to say because you have mentioned what they are or what you or the investor are proposing. An investor saying I want in without mentioning any terms is odd to say the least. How would he know without any discussion of terms? As exciting as it sounds that someone is a believer in your abilities enough to back you with working capital, the enthusiasm is premature without terms and conditions since they often are totally unacceptable.

Best wishes in your success,

 

[SectorSecurity]

Don't go into this relying on what people say they will do for you, because people will say a lot of things then not hold their word. I also don't see why someone would want to lease to own a set of used tools, seems like if they are big enough they would just buy their own.

You mention Google told you there are 190 people looking to buy what you do, this is incorrect. There are 190 people searching Google for your search terms. This does not mean 190 customers.

You have to remember if you are starting out with investors you are starting out in debt, to other people.

I don't know if investors will want to spend their money to finance your advertising campaigns, and I don't know if they will buy the people will use me because I am cheap and good at what I do.

 

[Elite_ND]

Thanks guys

I'm not doing the best of jobs expressing myself on here. I have a plan B if it all tanks and I'm not blinded by hopes and dreams. I went through the Depression of 08. I saw it all go straight to hell and blow up on all of us out in California. I know how dangerous hopes and dreams are and how thinking that we have a "10 year boom" can be. I overextended myself because the work was "endless" and I paid the price along with many of us. I am not that stupid anymore.

I believe there's a lack of quality and I see it every day I walk around. There's a true lack of care for the customer too. Theres a "you get what you get and you dont throw a fit" mentality and people cant fight that and pay handsomely for it. Locally "there's only a handful of excellent builders" and thats from a source who's job is to inspect it and approve it.

I wasn't comparing myself to the members here and never was. I'm sure there's guys on here that can blow what I can do out of the water.

Lastly, I dont think I'll sell myself short for quality work but people are honestly getting ripped off up here. People are not getting what they want and when they do its not good quality and there's no one that will be held accountable. That is the truth in my area.

The message that I'm really driving into my head is the need to provide projections and start lining up sales, (what I get from google is that people are watching not a selling point) but I don't want to start on the wrong foot and have to pass up on people or fail to start when I tell them due to my current job obligations. When I start I want to be able to start without a hitch.


Thank you for the replies guys