Contractor's journey to self-mastery requires discipline, integrity, and respect. Welcome to Hammer and Grind. Hey, welcome back to the podcast. I'm your host, Brad. On this episode, we're going to be talking specifically to people that are wanting to start a construction business or have just started it or are looking for potentially getting lines of credit in your business. So we're talking about should you... use money? Should you borrow money to start a new construction business or should you borrow money to grow your construction business? There's a lot of different things in this specific topic that we can talk about, but I want to start with those that are looking to start a construction business and should you start with borrowing money? Do you need a bunch of money to start a construction business? And the answer is no, you don't need a bunch of money. However, it can definitely be very beneficial, but there does not come without risk. So for me, if you've listened to me long enough, you've heard me say, when I started my construction business, I started, I had a thousand dollars in the bank cash. That's all I had on hand. I had a few hand tools and drills and, you know, like minimal amounts of stuff. And I had a pickup truck and that was it. And so when I started, I started with what I had available. And I started doing mostly like handyman or small job types of work, you know, cleaning gutters, installing doors, carpentry type things. Somebody wanted to have crown molding put in their living room, things like that, you know, even building decks. So it wasn't just like. hanging pictures and cleaning gutters, but it was whatever I could do with the tools that I had available and without spending any money whatsoever on marketing or anything like that, with the exception of joining like a B &I group. Now I did another podcast. Let's see if I can find it here real quick while I'm talking. I did another podcast about what I would do if I was starting a construction business. And that's a pretty good one to go back and see like the thing, the different things that I did as far as like marketing and all that stuff. The question here is like, what if I had money? What if I had access to money? What if, you know, I had a, my parents or someone, you know, were rich or I just had money through growing up, you know, a trust fund baby, whatever. If I had a bunch of money, well, here's the problem with money. I'm still looking for this episode, by the way, trying to find it. Here it is. Episode 60. what I would do if I started a contracting business tomorrow. So if you want to listen to that one, go find episode 60. I kind of lay out exactly what I would do if I was going to start a contracting business. So here's the problem. Depending on what source you go to, I went to the interwebs and I looked and searched for, you know, startups and all that. According to the Labor Bureau of Statistics. 96% of all businesses, between 96 and 98, depending on the industry, but in construction, they say it's around 96% of all businesses fail within the first 10 years. That is a staggering statistic. The year five, like around 76 to 80, let's just call it about 80% of businesses fail in the first five years. So you would think, oh, I'm over five years. I'm past that, you know, mark. Well, no. another five years, you have a greater chance of failing, right? So it's very, very, very difficult. Now look at VC backed startups. VC just means venture capital. It just means people that have a lot of money that invest in business ideas. Thanks Shark Tank. Shark Tank is a form of VC backed type of situations, right? Somebody has an idea, they have a business, they need money, they need resources, they go to them, say, I'll give you part of my business for your money, blah, blah, blah. That's like how a VC deal works. 90% of VC backed startups, meaning these are people that go to a venture capitalist and say, I have this idea for a product or service. I need your money. And the VC says, yes, we like your idea, product or service. And so we're going to give you, you know,50,000,100,000,100 million, whatever it is to make this a reality. Okay. And then those businesses fail. 90% of them fail. So the thing here is like having money does not ensure that you're going to be successful. In fact, it usually causes you to fail more often than not having money. And here's the reason why. If someone gave you like $100,000 to start a construction business. Right. I said, Hey, I'm going to give you a hundred thousand dollars to start a remodeling business. What are you going to do with that money? You're going to go buy all the tools that you need. You're probably going to go buy, you know, a nice vehicle, brand new vehicle, get payments on it. You're going to go spend a bunch of money on marketing. In other words, you're going to spend a majority of that on things that you believe you need. And you may actually need those things, but you don't need them all right now. See, when I started with $1,000, I would go sell a job and do a job. And maybe it was a $300 job and I would make $100 profit or whatever. And then I needed a new tool. I'd go to the store and buy a $30, $40 tool with that. And then ransom repeat. And so I self-funded my way through the business. As I made more and more money, I was able to buy more and more tools as I needed them. Right? Not right off the bat. So whenever someone says, here's a bunch of money, what you tend to do is overspend because you kind of think you have like an endless supply of it. And then you run out of money. There's another statistics about people who win the lottery. I forget now. I didn't look this up. I should have. But the majority of people that win the lottery are broke within like three years. Like you could win, you know, a $10 million lottery. And then within three years or so, whatever the statistics are, you're broke again. How is that possible? There's no reason whatsoever you should be broke. It's because it's not a lack of money. It's a lack of discipline with how to use money, right? And so if you don't have, let's say $100,000 that you've made prior to starting your business, then you probably don't have the financial acumen to know how to handle the money. There was a time where my ex-wife and I sold a piece of property and we had a decent cash flow. We had, we came, we walked away with about $60,000, right? Profit in our pocket after taxes and stuff. Within about a year and a half, most of that was gone. Now we put half of that down on a new house, you know, equity in a new house, but of the remaining balance, we paid off some debts. We paid off some car loans, but then we turned around and spent it all. Because in your mind, again, you don't have the discipline. You don't have the financial IQ. You end up spending it. So that's one aspect of it. You spend more than you need to in the moment. There's another reason why most restaurants fail. I heard this one time and I think it's the best marketing advice. that I ever heard, and that's for new startups. And that is, if you don't have a two-year marketing plan in place before you start your business, in other words, a plan that says, this is how we're going to spend our money. This is how much money we're going to spend. This is how we're going to get clients, blah, blah, blah, blah. And that's baked into your business plan and how much money you're going to borrow or get, then you're planning to fail right off the bat. And I can tell you like 99.9% of contractors, because it's a small business, they don't understand marketing. Most of them. They don't know about like planning for marketing, right? So restaurants go out of business because they don't do any marketing. There's this weird, weird idea that everybody, not just contractors, everybody who starts a business that somehow believes. I don't know if it's through osmosis, if it's through witchcraft or whatever, but they just believe in their mind that if you open a business, that everyone in your area knows that the business is open and that you exist and that they don't need to do any marketing. Because you have a place that's open, everyone's going to know. And that's not true at all. You know, they used to say location, location, location. And that's still true for actual brick and mortar businesses. If you open a business like a retail place in a location where there's no foot traffic, there's no traffic, then you're not getting any organic reach that way. If you open a restaurant or a retail place on the busiest street in your town where everyone's at, through proxy of location, you're going to get people coming there. You're going to get foot traffic. somebody's walking down the sidewalk. Hey, I'm hungry. Hey, here's a place here. Let's try it. Right. That's why location matters there. The problem is, is that whenever you have the more busy location it is, the more the rent is, the more it costs to be there. So the thing is like, if you have a bunch of money available to start with, you tend to overspend. before you need to spend. And then you run out of money. See, most VC-backed companies, most tech startup companies, they run out of money before they can surpass their spend rate. So in other words, if they're spending, you know, a rate of like, let's say $10 million a year. Right. And they have $50 million of BC money. If they don't add any revenue within five years, they're going to be broke. Right. $10 million a year spend rate times five, that's $50 million. They're out of money. And so what happens is they borrow the 50 million. They spend $10 million in the first year, but maybe their revenue, because they're new, they only make $2 million in revenue. Right. Now you can take this down to the contractor. He borrows, let's say, $50,000, okay? But he's only going to make, or say $500,000 or whatever, we can strap it down to whatever amount. But you're not making as much money yet. And so if you're spending more than what you're bringing in, you're going to burn through your money before you can replace it with revenue and or profit. Because it's not just revenue, it's profit, right? You might be doing... $200,000 in revenue, but your profit is what's going to pay back the loan essentially or cover your expenses. And so if you're not making, you know, if you're only making $50,000 in profit, well, and you're spending $100,000 a year in expenses, you're going to be $50,000 short, right? And so you have to increase your revenue and your profits in order to catch up to your burn rate. how much money you're burning. Hey, just a quick timeout
