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How much capital do you think is neccesary for a framing contractor to do five 30,000 dollar labor only jobs in one year?
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Erron,
It all depends on your overhead. If you can draw once a week from the builder and your guys can wait a day or two for the check to clear before they get paid, you may need very little. Just the cost of nails should get you by and you might get them on credit to be paid in thirty days or so.
However, if the builder won't "pay as you go" (almost all of them will and I'd be leary of those who don't) you will have to front payroll or lose your crew. That can get costly and only you know how much you'll need and for how long.
If you are not set up in business right now, I would suggest a General Liability policy to cover your company. They are not very expensive for a start-up company. Also, check into a Workers' Comp policy. These can be expensive but worthwile if you can afford it.
You will have to sit down with a piece of paper and add this all up. It's going to vary depending on your needs as opposed to someone elses situation. So there is no hard and fast dollar amount.
Good luck,
Ed. Williams
*here's your minimum......3 weeks payroll...including all payroll deductions and employer taxes....the deposits on your insurance premiums plus two months payments...one month salary for you so you can meet your personal obligations that you are in business to supporttwo months phone bills.. one month truck gas...anything else you need to keep your employees working productively....in case there is a bump in the road with your cash flow......
*Erron, You might be able to do it with less than 30,000, or might need as much as 60,000. How much will the 30,000 job cost to do? If it costs 10,000 and you will be payed promptly (30 days or less), then I'd feel safe starting with 30k. I've always though that a framing company should start with approximately twice the amount of the anticiapated job. That would be 60k in your situation. The "cushion" allows you the flexibility to make choices, rather than "settle". Those low on cash do a lot of "settling".blue
*ad, I would expect that I would have front payroll for at least three weeks before I could get my first draw. After that the bank payments should come in every week. Do you think 20% of the total gross for that year would sufficient?
*Erron, you are just kidding yourself. I've went as much as two months without receiving a check. and God forbid if that check hadn't have come in!blue
*one of my big problems was starting and running a company with NO capital...it's just like blue says... you are at the tender mercies of everyone you deal with...and you chase money instead of letting it come to youalso..... set up your credit when you don't need it... because when you do need it .. they won't give it....
*I'm cunfussed Blue, in your last post you said you thought 30,000 would be sufficient in some circumstances. I'm familiar with the way the bank pays,having run the framing for a large residential construction company for several years. It sounds as though you were not getting "paid as you go" in that situation. I realize that things don't go as planned and that is why I posted this question. What I'm saying is that I could easily cover the the payroll on the first house and even part of the second, but I don't think it would be wise to go that far with out being paid.
*You're not confused, just optimistic. I'm pessimistic based on my life's experiences.Sometimes the builders pay promptly, sometimes they experience cash shortages and you don't find out until your into them for two houses.Many builders want to pay on a 30 day schedule, like big business does. I've had some builders take eight months to pay me.If you don't have enough float, you sink!blue
*I'm with blue - been around a few years myself and learned you'll need at least two months of ALL expenses including your own salary - if you want to eat and pay personal bills. Be neither optomistic - the death bell ringing of new businesses - nor take nothing to the bank without a signed contract, and even then be cautious.Sure, you can scab it to barely get by, but is that why you're in business? Sleeping nights is one of the benefits or dilligent preparation. Create a plan "A" and a plan "B". - to fall back on.
*Gee, I've been through this a bunch and can't answer your question. But I can tell you how to get the answer. Do a cash flow chart. On a piece of paper on on your computer spreadsheet make up a cash flow chart.The columns are the weeks. There will be several rows. The first group of rows will be your cash input by week. Crosstotal that. Then the next group of rows are the cash outlays by week. Crosstotal that. Subtract Outlay from Input by week. That will give you an estimate of what your cash balances will be for each and every week. Add up all the zero and negative numbers. That gives you the first amount in your initial capital need.Since you have some experience in your area you can get by with a doubling of the initial capital need number. BUT, I would make sure that I had enough capital on hand to completely cover all my contract requirements before starting. That way I am never in a postion of powerlessness. I always have enough money in the bank to do the job and to influence the terms and conditions to my benefit.
*Mr. Mccurdy,I read $30,00.00 somewhere. You could probably get by w/ that. It's optimistic though. You will undoubtedly end up chasing YOUR money on the back end of #5. Try $60,000.00. See beyond payroll. See liability. See OSHA. See a shrink...what are thinkin'?...there's got to be an easier way to make money than framin'!The Machine
*This was a good thread, and an important question, so maybe we can take another crack at it. Undercapitalisation is for me far and away the biggest problem on my desk; like Mike, I started with peanuts for capital (10k in personal tools or so, put up 6500 to get a matching loan of 6500 for the bigger tools, and another loan of 9k, most of which went to renovate a barn on the property we bought, for a shop), and it's been a rollercoaster ever since. A commentin one of my trade mags and another on a cabinetmaking forum, both dealing with undecapitalisation, prompted me to come back here and maybe get some more comments. Also, the range of 30-60K for a framing business took me back a little, to tell the truth....I don't know that business, but I never would have guessed it would be that high. Which just goes to show you. It's probably a given that all of us started with less than we should have, really, and could use more. So, how much for other areas of the industry.In cabinetmaking, I would say realistically, you should have access to at least 100K, and more probably 200-250....that is for current panel processing and finishing equipment. Millwork may be less on the gear (but maybe not), but higher in inventories, and especially in commercial both have to be able to finance jobs for at least 60 days, in some cases up to six months. That's without getting into CNC, which is a whole other ball of string, but it's really starting to drive the whole industry, and it's disappearing the old fashioned custom shop. How about the rest of you, if you were starting over?
*Ad,Yeah, CNC is the way to go. I've seen them do some incredible things that would make hand tooling look like horse and buggy days.Big time investment though. To set up a CNC manufacturing business takes money and nerve. It's a gamble.......but if you're going to risk making it big time I guess you have to risk losing it big time. Too risky for me.Ed. Williams
*Adrian, you are talking about capitalization, but only in one aspect - the asset side of this equation of the Balance Sheet. The line(s) of the Balance Sheet that ends up being the source of demise of most small busineses is what can be grouped into just one category "working capital" - cash in hand or extremely liquid if not in hand. Working capital is what I had none of when I started. Sure, I had the tools and a vehicle, but those are not "liquid" assets. Not liquid because selling them would net me only a fraction of thier original cost. Stocks, bonds, money in checkbooks, etc. are liquid capital because I can obtain their full value in a day or two. Even real etate is not a "liquid" asset, since borrowing against their non-mortgaged value still takes time.So, working capital is what's "available" to us to pay for operating expenses as they occur, including payroll, losses due to a client dispute, screw up in an estimate, delays in expected monies due to a client dispute, or any other un-anticipated expense. Working capital is monies available for use when an interruption of our anticapted "income" does not become available for us to pay for those anticipated expenses that are nearly consistent weekly and monthly. This is why a weekly "cash flow" projection is so important. Even though Barb works full time for my sons, also pay her to do my books (has she got it made or what?). She makes a sort cass flow projection each weekend by listing my payables due over the next two weeks and comparing it to money in the checkbook and checks I expect to get the following week and the one after than. If for any reason, she "projects" a shortcome, I may change my "projected" schedule for the next two weeks to assure completion of jobs whereas I'll be paid immediately. This is another reason why I contend that project scheduling does effect our cash flow, so for that reason cash flow should be considered when creating scheduling also. My problem, no, challenge, is that since about half or more of my sales are for condo associations, most take 2-4 weeks after invoicing before the checks come in. Once, instead of waiting for a couple of large checks (over $3000 each) to hit my mail box, I called the appropriate property managemant company and asked them to call me when the checks were ready instead of mailing them so I could swing by their office and pick them up. Their offices are within 1-2 minutes of my daily travels anyway and that saved me a couple of days of waiting.So a cash flow projection doesn't have to be complicated or time consuming - just accurate, and done on a consistant and timely basis. Of course, it helps to also be consistantly profitable, but if you lose one or two, even two in a row, that's where the liquidity of working capital is important. Don't leave home without it!
*Sonny; I guess I didn't express it well, but working capital was very much a part of what I was talking about. Absolutely....that's what I was getting at when I was talking about being able to finance projects, especailly commercial ones, where it can take months to get paid (and your suppliers, a big source of working capital in the form of credit, have to get paid in 30 days). Lack therof can definitely sink you, I agree 100%, but I'll bet most people don't plan on it from the start. I saw one cabinet shop owner on another forum say they had twenty guys (something like that; small-med. shop), no debt, state of the art machines, and 250K in cash. They were wondering if they should risk commercial work, I think. When I said 250K is reasonable to go into the cabinet business (and I know tons of people go in with only a fraction of that), I'd say 40-50 should be in cash, maybe more, (and keep that level of cash current).Maybe a lot more. You can always lease machines and rent space. I'm not there, BTW.
*Adrian & Sonny:Yes I agree that cash flow projections are much more valuable than just about anything else. That is why I posted before about a simple spreadsheet to make up the estimate.Then all you have to do is match the estimate to the reality and make adjustments. At one point I was doing this daily because people wanted to get paid daily. Not the same people but I had a lot of different vendors so I ran checks every day. Most of the time though bringing the cash flow up to date on a weekly basis is enough.I never have been able to give anyone good advise though on just how much money to have on hand before starting. There are just too many factors. Among them are personal risk tolerance, what you have to lose, nature of your income, schedule reliability, etc. You can go through those as well as I can.Two contrasts: Joan is starting out with absolutely nothing in her jeans but enough cash to get her through her cash flow projections for 3 months. The job is going to bring high profits but is very risky in that the customer is touchy and demanding and in that the weather could be very poor. But Joan has essentially nothing to lose but her time, has a high risk tolerance and stands to gain a great deal. So, she takes the job.On the other hand John is an established contractor who has low risk tolerance and stands to lose a great deal if the deal goes sour. Not the least of which is the fact that he has enough assets to make him a deep-pocket in the event of a lawsuit. So, he doesn't take the job.Same job but with differing circumstances. So, this idea of how much is enough isn't strictly a mathematical calculation.
*Fred, you're right. Numbers don't make decisions. That's why it's the owner's responsibility to make good business decisions. Now it's time to take into consideration whether one has the ability to realize if the decision is at the high risk, very conservative or somewhere in between.You still can't beat good decision making abiliities. CF is only one more tool used in making those decisions, but in the end it's still up to the "risk factor gamble" the decision maker is willing to go out on a limb for. The "balance" thing again - potential rewards vs potential liabilities and one's gambling inclination. Of course then we have to add the stupidity factor, as was the case in my own 1981 catastrophy.Woe is me. Who ever said running a business was a piece of cake?
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How much capital do you think is neccesary for a framing contractor to do five 30,000 dollar labor only jobs in one year?