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Taking debt for business...good or bad move to scale?

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Rperrett2

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In the past my service businesses have been a poor model...sell the work, do the work, get paid, have a lull in work because I was doing instead of selling, sell more work, repeat. They were jobs, not businesses so I'm trying to break that mold.

I need to scale my General Contracting business, but I'm recognizing my need to implement a human resource system. I'm a one man show now who just uses sub-contractors. That isn't working. I have been in business almost a year now and I'm struggling to get things done and get to the 'next level'. Between all the administrative tasks, on site work, project management, (this list could go on forever) I'm creating a bottle neck where I don't have enough time to keep selling. I feel like my role primarily needs to be marketing, sales and strategy so that I can continue to bring in new business and hedge said business against hiring, personnel and other costs.

Here is my problem. I hate debt, it stresses me out. I have worked hard to be relatively low debt with my personal finances. However, I think I might need to take some debt on for the business to fill some gaps (slow periods or non-revenue type work) and have a backup plan for payroll which will allow me to start hiring some help. The problem with selling construction (and I'm sure other industries) right now is long material lead times and subcontractor availability. If I sell 5 jobs today that doesn't necessarily mean I can start any of them tomorrow. I take deposits but there still might be a gap before the rest of the revenue starts to flow. But if I had a couple people tackling administrative tasks, procurement, permitting, project management, etc. then I could keep selling and focus on new business and growth. I have a ton of sales and marketing experience so I'm pretty confident in my ability to fill the pipeline IF I have the time to focus on it.

I'm just curious what experiences you all have had with taking debt to hire/scale, good and bad. Am I on the right track here? Is this the next move I need to make? Also looking for any advice on where and what kind of debt to take or just general advice on executing this and if I even should be taking debt. Maybe I'm missing something and there is another way to go about this. Thanks in advance for any help :)
 
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MJ DeMarco

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Between all the administrative tasks, on site work, project management, (this list could go on forever) I'm creating a bottle neck where I don't have enough time to keep selling. I feel like my role primarily needs to be marketing, sales and strategy so that I can continue to bring in new business and hedge said business against hiring, personnel and other costs.

Sounds like you need an ADMIN, this isn't terribly expensive so we're not talking about a big $$ amount. Hard to say without knowing your cash flow, but based on what you described, it sounds like taking on a small amount of debt to open the bottleneck (and hence, generate more business) is the way to go.
 

Rperrett2

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Sounds like you need an ADMIN, this isn't terribly expensive so we're not talking about a big $$ amount. Hard to say without knowing your cash flow, but based on what you described, it sounds like taking on a small amount of debt to open the bottleneck (and hence, generate more business) is the way to go.
Yes, Admin is definitely at the top of the list. I made a list of the tasks that I would like to outsource or delegate in an ideal situation, and I basically broke those down into items that could be solved with contractors, software, or a certain type of hire. The result was an admin and a working project manager seem to be the most important needs.

I'm not talking a huge amount of debt...and I'm almost using the debt as a safety net more than anything. Piece of mind that I can keep paying employee(s) while I bring in more business. I could hire a couple people now and know I can pay them for the next 3 months, and that's if I didn't bring in a penny of extra revenue. If I opened a line of credit that would carry them for another 3 months then that clears me to the end of the year. If I had 6 months to primarily focus on sales and strategy I think I would be in really good shape for 2023. That's my current thought process around this.
 

Mavrick614

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May 13, 2022
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You need a VA. This is exactly what they're for: so you can cut all the bullshit (quoting, invoicing, emails, buying parts, etc) and focus on marketing only in the time you're not on the job.

The next move after that is hire someone to do the physical labor for you. This is going to cost much more than a VA but it will free your time to focus ONLY on sales and marketing.
 
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Mavrick614

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May 13, 2022
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Take on the debt only if it makes sense to scale faster, but if you're worried, just go debt free with an admin.

What you should be focused on is hiring GOOD workers for the actual physical labor. Most of the biz can be run by the admin, while you focus only on sales and HR. Then once you've got a solid crew (still always be hiring, you never know when they could leave you), then you're finally free of the "job" aspect.

Your time should be spent on the phones selling bigger jobs and contracts, figuring out the logistics of them, then making sure the crew does a solid job.
 

Chris Sciora

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Feb 15, 2022
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The problem with selling construction (and I'm sure other industries) right now is long material lead times and subcontractor availability. If I sell 5 jobs today that doesn't necessarily mean I can start any of them tomorrow. I take deposits but there still might be a gap before the rest of the revenue starts to flow.
I don't see that more sales necessarily fixes the problems listed above. You can't reliably deliver due to circumstances outside of your control i.e. materials and labor. Without knowing the typical project size ($1K? $5K? $25K? $100K?) and deliverable timeframe, it's hard to make suggestions but it's just as likely that more sales equals the same problems at a larger scale.

It strikes me that the real problem is customers expecting projects to start immediately after making a deposit. That's something that is under your control by setting different expectations for them. Think about ways to mitigate. It could be getting materials from a wider range of vendors, keeping more stock in inventory for shortage items, finding subs who will postpone active projects to kickstart yours, GCs who will buy out the deal for 10 - 20%, offer discounts or flexible payment terms to buyers who will accept longer than usual completion timelines, stuff like that. If it's possible to stretch a three month deliverable over a six month window without pissing off the buyer, you have greater flexibility to deal with the material and labor shortages.

Credit lines, invoice factoring and royalty financing are alternative ways to handle the cashflow shortage vs. debt.
 

Johnny boy

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Easy fix.

Would have to take a look under the hood at what's causing you to spend so much time managing contractors, it likely isn't scalable to have independent contractors for that work.

But, what's the point of that if you can just have employees.

The entire reason for contractors is because there's down time so they have other sources. If you grow the business there's enough work to keep people employed, no need to be randomly hiring people for a quick job. You can just employ people and have them always working.

You need to turn it into a business that just runs, not running around managing one project then another and it all relies on YOUR decision making all the time. If you want it to "scale" it needs to change. Do not look at it with the same eyes that every other stupid contractor does, or else you will get the same results.
 
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thechosen1

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Nothing wrong with debt if used conservatively and productively. Also wanted to add that you don’t have to be the one making sales and doing marketing either, you can hire for that too.

I would focus on the most crucial part of your business. At your current stage that might be getting all the systems in place, procedures, etc. Maybe you need a sales guy!
 

Rperrett2

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I don't see that more sales necessarily fixes the problems listed above. You can't reliably deliver due to circumstances outside of your control i.e. materials and labor. Without knowing the typical project size ($1K? $5K? $25K? $100K?) and deliverable timeframe, it's hard to make suggestions but it's just as likely that more sales equals the same problems at a larger scale.

It strikes me that the real problem is customers expecting projects to start immediately after making a deposit. That's something that is under your control by setting different expectations for them. Think about ways to mitigate. It could be getting materials from a wider range of vendors, keeping more stock in inventory for shortage items, finding subs who will postpone active projects to kickstart yours, GCs who will buy out the deal for 10 - 20%, offer discounts or flexible payment terms to buyers who will accept longer than usual completion timelines, stuff like that. If it's possible to stretch a three month deliverable over a six month window without pissing off the buyer, you have greater flexibility to deal with the material and labor shortages.

Credit lines, invoice factoring and royalty financing are alternative ways to handle the cashflow shortage vs. debt.
That's not what I meant by those problems. I'm very honest and transparent with my customers, I have no issues with scheduling expectations.

What I was eluding to is that if I sell a job today, that starts a pre-construction process of lining up subs, ordering materials, permitting, scheduling. Its not like I just go to Home Depot, get what I need and start making money. Vendors and subs are all busy too so phone tag is a common occurrence. I'm doing this all myself while trying to manage ongoing jobs and build a business. I want to scale so I need help. If I can give those tasks to others and hire employees that I can schedule, train and control then I am able to focus on other important tasks and thus grow the business.

Factoring and royalties probably don't work for what I need now, but excellent thoughts I was not considering so thank you! I think a line of credit would be the ideal for me at this phase.
 

Rperrett2

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it likely isn't scalable to have independent contractors for that work.
It's not. Kinda learning that now
You can just employ people and have them always working.
I agree. This is my next move. Gives me more leverage, it's what I need to scale. I was fighting an HR system at first but I tried the soloprenuier route and it didn't work.
Do not look at it with the same eyes that every other stupid contractor does, or else you will get the same results.
Totally agree again! I'm trying to do it different. Trying some different avenues. I definitely think hiring some employees so I can focus more on things like sales, training, quality control, process and systems, strategy, is the way to go. I can lead while getting more productivity daily and have more control over schedule and priorities not being at the mercy of subs.

I'm also looking at targeting some work that is often ignored in my area. Customers tell me small jobs are difficult to get anyone to do. Things like replacing a door or two, small carpentry or painting projects, small service contracts. Also seems to be a lack of reliable fence companies in my area. It's worth looking at, some of these things you can charge a full day price for a half day work just because they can't find anyone to do it.
 
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Rperrett2

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Mar 8, 2022
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Nothing wrong with debt if used conservatively and productively. Also wanted to add that you don’t have to be the one making sales and doing marketing either, you can hire for that too.

I would focus on the most crucial part of your business. At your current stage that might be getting all the systems in place, procedures, etc. Maybe you need a sales guy!
I have thought about that too. I like the selling part though and I'm good at it. I think I can sell and still put time into developing systems at this point. As I grow I will definitely get to a point where I need a sales guy, but I think my first hires are best spent with admin and good labor.
 

PapaGang

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In the past my service businesses have been a poor model...sell the work, do the work, get paid, have a lull in work because I was doing instead of selling, sell more work, repeat. They were jobs, not businesses so I'm trying to break that mold.

I need to scale my General Contracting business, but I'm recognizing my need to implement a human resource system. I'm a one man show now who just uses sub-contractors. That isn't working. I have been in business almost a year now and I'm struggling to get things done and get to the 'next level'. Between all the administrative tasks, on site work, project management, (this list could go on forever) I'm creating a bottle neck where I don't have enough time to keep selling. I feel like my role primarily needs to be marketing, sales and strategy so that I can continue to bring in new business and hedge said business against hiring, personnel and other costs.

Here is my problem. I hate debt, it stresses me out. I have worked hard to be relatively low debt with my personal finances. However, I think I might need to take some debt on for the business to fill some gaps (slow periods or non-revenue type work) and have a backup plan for payroll which will allow me to start hiring some help. The problem with selling construction (and I'm sure other industries) right now is long material lead times and subcontractor availability. If I sell 5 jobs today that doesn't necessarily mean I can start any of them tomorrow. I take deposits but there still might be a gap before the rest of the revenue starts to flow. But if I had a couple people tackling administrative tasks, procurement, permitting, project management, etc. then I could keep selling and focus on new business and growth. I have a ton of sales and marketing experience so I'm pretty confident in my ability to fill the pipeline IF I have the time to focus on it.

I'm just curious what experiences you all have had with taking debt to hire/scale, good and bad. Am I on the right track here? Is this the next move I need to make? Also looking for any advice on where and what kind of debt to take or just general advice on executing this and if I even should be taking debt. Maybe I'm missing something and there is another way to go about this. Thanks in advance for any help :)
Hi, just found this post. I think MJ's point about hiring an admin person (even a virtual PA for starters) would be beneficial. Also, I recently came across a startup in Cincinnati that specializes in financing GCs to keep people employed and materials on the site so you are ready to roll and don't have big lulls in your cashflow. Even though I personally hate debt, the idea of pushing out your accounts payable to 120 days by using this company could help you scale your operations and turn over jobs quicker. A quick injection of cash to free up some of your own time to sell more jobs could be the ticket. I read a brief case study somewhere featuring a client of theirs and it really seemed to help them.
Might be worth taking a look: Homepage - Struxtion
 

Rperrett2

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Mar 8, 2022
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Hi, just found this post. I think MJ's point about hiring an admin person (even a virtual PA for starters) would be beneficial. Also, I recently came across a startup in Cincinnati that specializes in financing GCs to keep people employed and materials on the site so you are ready to roll and don't have big lulls in your cashflow. Even though I personally hate debt, the idea of pushing out your accounts payable to 120 days by using this company could help you scale your operations and turn over jobs quicker. A quick injection of cash to free up some of your own time to sell more jobs could be the ticket. I read a brief case study somewhere featuring a client of theirs and it really seemed to help them.
Might be worth taking a look: Homepage - Struxtion
That company looks interesting, I'm definitely going to look more into it. Thanks for the tip!

I'm definitely thinking a little debt and a hire or two is the next step. My next move is to make a list of what I want to get off my plate and make a job description for a VA/Admin and a PM. I'm also talking to a company about doing my books and tax prep and maybe contract that out. I'm currently working 7 days per week and I don't even know how many hours per day because I just work whenever I'm not sleeping or tending to the family. I don't mind putting in the work but it just doesn't feel efficient when I'm doing tasks that I know I could hire out instead of spending my time on growth. I believe it's time to start building a team!
 
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