A contractor's journey to self-mastery requires discipline, integrity, and respect. Welcome to Hammer and Grind. Welcome to Hammer and Grind, the podcast built for contractors. Real contractors, true stories, real solutions. My name is Brad Hebner, and I will guide you on your journey to mastery of your construction business. You can find Hammer and Grind on all the social media platforms. Just search for Hammer and Grind Podcast. Now, if you're looking for more help, you can check out our free Facebook group called The Contractor Profit Group. I do free trainings in there and it's a great community to be a part of. Now, if you're serious about making more money, saving more time, and creating a business that supports your lifestyle, check out my paid coaching group called The Profit Club. I've put together a proven system for creating a winning business. Now listen, I'm so confident that you will succeed in my program. I'm now offering a 10x ROI guarantee. That means if you don't make at least a 10x return on your investment within a 12-month period, I will refund you the full amount. You can find out more information about The Profit Club at hammerandgrind. com forward slash The Profit Club. All right, on this episode, we're going to be talking about the four C's of cash flow. This is going to be super important if you're currently struggling with maintaining money in your business. If you're always don't have enough money or you're looking for money or you're trying to collect money because you need to pay bills and all this stuff. That's what we're talking about today on the cash flow, right? It's something that I did not understand in my business for many, many, many years. And there are things that I did that we're going to talk about today that really hurt me in my business. and stunted the growth of my business for several years because I didn't understand these principles. So we're going to get into the four C's of cash flow. And I'm just going to start by naming the four different ones. We have number one is charge. Number two is carry. Number three is collect. And number four is conserve. The four C's of cash flow. So when I started my business a little over 12,13 years ago, I didn't understand cash flow. I mean, I knew you had to have, you had to obviously make money and have money coming in and you had to keep enough money. And what I didn't understand was the concept of a lot of times you, you go pick up materials and then you get a bill for it 30 days later. And then on top of that, you had to pay additional costs for like employment taxes and, you know, all these things that come in, payroll taxes and all these things that are. on the rears, meaning you pay them later on. And I always struggled with this idea of I would go do a job for, let's say, $10,000 and I would collect the money and I would pay maybe a subcontractor that I had for $2,000 and I had $8,000 in my bank account. And I'm like, oh, look, I made $8,000. But then you have your regular expenses, your insurance and all these things that come out. Maybe they come out every three months or every six months. And I would have $8,000 in my account, but really I only had about $2,500 in my account. Let's say that was my profit, was what I made after all the materials and expenses and overhead. Maybe I only really had $2,500 of that money, but there's $8,000 sitting in my account. And I go look at my bank account and it says, you have $8,000. I'm like, oh, cool. I can go buy a new tool for $1,000 or whatever it might be. Or I can take money out and pay myself a couple thousand dollars. And I just always struggled with this for a long, long time in my business until I understood how to manage cash flow. Another thing I did to get myself in trouble early on was putting things on credit card. I thought early on I hired a helper and I wanted to get him his own vehicle so we could split up and multitask. And so I bought a new vehicle on a loan and I needed to buy some tools. I put that on a credit card and I needed to get truck boxes and a ladder rack for my truck. And I put that on a different credit card and had all these three or four different credit cards and loans where I'm only making minimum payments. And I had a truck loan at the time. So I had two vehicle loans, two credit cards. And, you know, they're like the one vehicle is 300 bucks a month. The other vehicle is 180 bucks a month. And the credit cards are like, you know, $80 a month one. And the other one is $150 a month to continue to make the minimum payments. And I didn't understand that it was killing my cash flow, meaning how much money I had each month coming in. And so maybe I was only making two grand a month, but I had 1500 going out. You know, between all those things and utilities and stuff, I had $1,500 going out in payments and, you know, maybe only making $500 a month. I'm just using these numbers. I don't honestly, I don't even remember what numbers I had back then. I kind of blocked that out of my memory because it was a time in my life and my business where I literally was clueless as to what I was doing. But you understand the point of using up all your money, right? So this is what I learned. and what I implemented. And when I implemented these four things, it totally changed my business. It removed a ton of stress in my life. It made things so much easier for managing my business based on my money and cash flow. And there's one little bonus I'll throw in at the end. It does help with the cash flow, but it's really kind of a separate thing. So charge, what does that mean? What does charge mean? Charge is the hidden... component of the cash flow problem, which really has nothing to do with how you manage your money. Charge is that you're simply not charging enough. You're not charging enough for your business, for your jobs that you're doing. The more money that you make, the more options you have. I know this is like earth shattering, mind blowing, you know, scientific stuff that you probably never thought of. But when you literally charge more money for your work, you make more money. That in and of itself will solve most of your cash flow problems. When you have more money, you have options. That's pretty self-explanatory. Now, I always tell my clients, you need to be getting a 50% gross profit or the same as 100% markup. A lot of people get markup and margin confused. Markup is how much you apply to your materials and labor. Margin is what you have after that stuff's paid for. It's what's left over, essentially. So a markup is you want to have a hundred percent markup. Some of you listening to this is going to be like, holy crap, there's no way I can ever do that. You know, everyone around here only charges 20% markup on materials, blah, blah, blah. All the head trash is now coming to mind. I'm telling you, if you want a healthy business, you need a hundred percent markup on your labor, a hundred percent markup on your subs, a hundred percent markup on your materials. That means if you do a project and there's $50,000 in material costs, you're going to charge $100,000 for that material. And then you're going to add 100% to your labor and 100% to your sub. So jobs that you may be selling for $80,000 right now, let's say a 50% markup or something, you may be selling that same job for $100,000, $120,000, $140,000, the exact same job. And you're probably like, again, crapping yourself saying that no one's ever going to pay that much. I'm telling you, people do it all the time. My clients do it all the time. They have great success. You're just simply not doing things correctly in your business. But that's the first thing is charge enough. If you charge enough, that will solve probably 80% of your problems. Because when you have more money, like when you're like laying in beds of money, money's all over the bed and you're just rolling around in it. When you have that much money. It really doesn't really become a problem with cash flow unless you're just an idiot and you spend it all, right? That's a spending problem. That's not a cash flow problem. But when you're not making enough money, it makes everything else much more difficult because now you have very thin margins and you have very thin profits. And if one thing goes wrong, it can screw everything up. If one customer doesn't pay you, it can screw up everything. Okay. So. That's charge. You simply need to charge more. That's number one. Uno, most important, charge more. Number two, carry. You don't carry enough in your business. And what does carry mean? You don't keep enough money in reserves in your bank accounts. Now, this is something that will take time to build up, especially if you don't have high profit margins. But you need to be keeping money in the bank as reserves because you never have, it's never a one-for-one exchange where you collect money and then you pay it out or you pay money and then collect money and it's an equal amount. There's always money floating in the air, if you will, in transactions that are either waiting for a bill to come in from your material supplier or a subcontractor that hasn't paid or charged you or sent you an invoice for a month. I remember I had an electrician. it would take him a month or so to send me an invoice. And I'd get so frustrated with him because he would have like a $1,500 invoice and that invoice was holding up like $3,000 or $4,000 of my money because I couldn't send the final invoice until I had his invoice. And I'd get so frustrated with him, I finally quit using him for that very reason. He simply wasn't invoicing me fast enough. So things like that happen. And if you don't have extra money in your bank account to float, Then you get in trouble because you're waiting for this last final payment from your customer of $20,000 and you need to pay out a $15,000 bill and you only have $5,000 in your bank. And it's like, holy crap, what am I going to do? I need this money so I can pay this vendor. And you get in a situation where you don't have enough money to cover it. So some guidelines that I like to give out is you need to have a minimum. These are minimums, guys. best practices. These are just minimums. You should have a minimum of one month's worth of payroll in your bank. One month. So if your payroll is 10 grand a month, you should have an extra $10,000 sitting in there that you don't even touch. So you're essentially spending 10,000 while there's an extra 10,000 sitting there. Why? Because if you run short on cash flow, you can dip into that money. and then pay payroll and not have any issues. If you want to put it in some kind of interest-bearing account, that's fine. But $10,000 or not $10,000, but a month's worth of payroll sitting in the bank account somewhere just for emergencies. And then as far as your operating expenses, you should have a minimum of three months worth of operating expenses, not your payroll, your operating expenses. So if you're... electricity and rent and all that stuff ends up being three grand a month, then you need an extra $9,000 sitting in your bank account just to cover unforeseens. Because if you have a slow time where money's not coming in or someone doesn't pay you or you have a lawsuit or something's going on where you're not able to have money coming in, you get hurt, people get hurt, there's an accident, you're down a vehicle, whatever it might be, that three months worth of operating expenses will cover you. while you're able to come up with other solutions. So you need to keep money in the bank to help you cover always unforeseen. If you collect $10,000 and then turn around and spend $10,000 and you never have more than $500 or $1,000 in the bank at one time, you're waiting to have an accident. You're basically waiting to get in trouble, right? Murphy's around the corner, peeking around the corner, looking. Is he not looking? All right, here I come. you know, I got to get a new motor. I had to put two new motors in my vehicles a year apart. My truck motor blew up and then my van motor blew up within a year span. I ended up spending almost $20,000 in repairs on, on vehicles in a, in a 12 month period. I had to put most of that on credit card because I didn't have the money available. I wasn't saving money. Again, I didn't know what I was doing. Right. You have the opportunity to do this right. So start saving money. If you have the ability to go drop, you know, three months worth of money in the bank right now, do that. Do that immediately. If you don't have that money, start saving a little bit at a time. You know, save 20% each month until you can get to that minimum three months of operating expenses. If you want to have a healthy, healthy, super recession-proof business, you should have about six months worth of operating expenses or more. Same goes for your payroll. Two months would be better than one. Okay. So keep the money in the bank so that you don't have this waiting on the customer to pay you so you can pay a bill situation. Okay. You always have that money in there. So the third thing is going to be collect. Now, this is what a lot of contractors do wrong in terms of their projects when they're actually selling jobs. I can't tell you how many times I see people make some of the most asinine, idiotic, stupid comments in groups on TikTok, Facebook groups that say something like this. If you don't have enough money to carry the cost of a project from start to finish without asking for a deposit, then you don't have a healthy business. And that is, like I said, that is so freaking stupid. Why would you ever want to assume all of the risk anyways? Even if you had the capability of doing that, why would you assume that risk? If someone's telling you that, if you believe that to be true, smack yourself or smack them in the face or stop listening to them because that is the worst advice you could possibly ever get or receive or think. Okay, stop it. Stop spreading stupid nonsense like that. You should never... ever, ever be over the barrel on your finances from your jobs that you do. So you should be collecting or receiving a deposit for the job that's going to cover all of your expenses up until the next draw. Now, I would always collect a 40% deposit. If it was a $100,000 job, I'm collecting $40,000 before I start. If it's a... $10,000 job, I'm collecting $4,000 before I start. That money allows me the ability to cover all of my expenses. It allows me to cover any permitting or requirements for that. It covers materials that have to be ordered in the beginning to get started. It covers the initial payroll labor, my labor to get started on the project. It covers subcontractor labor. It covers all the stuff that I need. till I get to the next milestone payment. Now, the one that I like to use when we were doing remodeling was 40,30,20,10. I'd click 40% down,30% after the first milestone, whatever that was,20% after the second milestone, and then 10% on the final invoice. Now, you can set this up however you want. It's your business. Whether you take 10% down,50% down,80% down,20% does not matter. It's totally up to you. It depends on what you're doing. Now, obviously for me, if I was doing a custom thing where I had to order something custom, I would collect 100% of that. So if there was some weird situation where the majority of the cost of the project was in materials, then I would collect more. If I was ordering a custom cabinets and the cabinets were going to be $25,000. I would make sure that I was collecting the $25,000 up front plus any additional. So maybe instead of 40%, maybe I need to collect 55%. Whatever that is, you should never be out one penny more than what you receive. So if you do that and you always stay in front, meaning you're always collecting more than you're spending, you'll never have a cash flow problem with that project while you're working on it. because you're always collecting the money up front. So if I know that I'm going to get a really big, like say I'm doing a bathroom model, I know I'm going to have a plumbing, you know, rough end plumbing bill. It's going to be $1,500, $2,000, whatever. I'm probably going to have a electrical, you know, rough end bill. You know, I may have some material costs for the framing or whatever. I'm going to make sure that I have enough money to cover all of that on the first deposit. Now, some of you are like, hey, that sounds great, but I'm not starting the job for a year. Like we're a year out and I don't want to collect 40,50, $60,000 right now. That's fine. What I would do in that case is collect a $10,000, essentially a retainer to get them on the schedule. And then whenever I got to the point to where I needed to order materials, maybe it was three months out, four months out, whatever the lead time is, then I would go and collect the remaining. 30% or whatever it was. That way I wasn't holding all of their money the entire time, but I had something from them as a commitment. And then I collected the remaining deposit before we started. If you do this, it removes all of the stress of not having enough money because you're collecting the money first and then paying it out second. You're collecting, let's say $10,000 first, and then you're paying out $8,000 for labor, material, subs, all that stuff. Okay. Then you collect the next milestone payment and that's maybe that's $5,000. And then you're paying out $3,000 and you do it like that until the end. Now, here's another important thing. Your last invoice should never be more than 10% of the total project costs. Why? Because if you do that and you've priced it right, The 10% is pure profit. In other words, that's all profit for you. So you've already collected all of the money you need to pay all your vendors and all your labor and all your subs and all that stuff. You've already collected that money. So at that point, it's just profit. You've already collected enough money to pay your overhead. So in the rare event where someone's like, you know what? I don't like how you did this. We're not going to pay you the last $10,000. You have the ability, the option. to walk away from it. Now, I'm not suggesting that you just walk away from 10 grand, but let's say it's a smaller dollar amount. Let's say it's a thousand dollars they owe you and they're being ridiculous. And they're like, well, you need to come back and fix this, this, this, and this, or we're not going to pay you. And they're holding you over a barrel or they're keeping that money to get more what they want. Or maybe they're trying to get extras. You can simply walk away from that and say, keep it. I don't care. But if they owe you. $10,000 and that's like 30% of your total project costs, then you have, you know, part of that 10,000 is paying for vendors, paying for subs, all that stuff. And then you're going to be in trouble because now they have you where they want you. And now you have to go back and finish because you need that money. And so they have you like a dog and pony. Well, while you're here, fix this and redo this and redo that. And we don't like that. And you go back three or four times and you keep trying to make them happy. and you're doing all this stuff, and they got you by the balls the entire time, and then you have no control over the situation. So make sure you collect enough money during the process and you don't have that issue. Now, one last thing about collecting money. You need to have a separate bank account just for customer deposits. Do not collect a 40% deposit. Don't collect $20,000 from a client of yours. and then put it into your main operating expenses account, your main account where you pay all your bills, and then use that money to pay your bills and then pay the vendors from the last job. Don't do that. Have a separate bank account titled customer deposits. And when you collect $20,000 for the deposit, you go put that $20,000 into the customer deposit and you don't get to touch it. It is not your money. You do not own it. If your bank account goes down to zero and you need to pay a thousand dollar bill, you do not get to go into that customer deposit account and take a thousand dollars out of that. You're not allowed to do that. You cannot do that. You have to have discipline. If you simply do that and put the money into a customer deposit account, that single thing that I implemented in my business literally changed everything for me. If you don't listen to anything else I say on this podcast. Having a separate bank account just for customer deposits will save your ass a hundred times, I promise you. And then whenever it's time to order the cabinets, the special cabinets, or you need to pay a vendor, you simply go to the bank or transfer however you want to do it. If you got to pay a $2,500 bill, you go, you take $2,500 out of the deposit, the deposit account, and you put it into your other account and then you pay the bill. That's how you do that. That way you'll never spend the money for a job that you haven't even started yet. Collecting money is the single most important C of the four C's in cash flow because that's where a lot of contractors get in trouble. They're robbing from Peter to pay Paul and most of the time they're not even aware they're doing it. And the last C that we're going to talk about is conserving money. What does that mean? You need to stop spending all your damn money. Just because you have some success in business does not mean you need to go out and buy that $100,000 pickup truck, have a $1,500 a month payment, and then spend all your cash flow. If you're making $3,000 a month of net cash flow, meaning your business is earning $3,000 a month of net income, at the end of the year, you're going to have $36,000 net, right? That doesn't mean that you go out and you go, oh, I got $3,000 positive net income. I'll just go out and get a $1,500 a month truck payment because I can afford it. You just split your cash in half. You just split your monthly cash flow in half by doing that. And then if something happens and your cash flow drops below $1,500 a month, now you're in a negative situation because your truck payment of $1,500 is now... costing you more than you're actually bringing in. So don't go out and spend all of your stupid money because you think you got a bunch of it and now you want to go buy a new toy or something. Okay. So conserve your cashflow. I'm not talking about money in the bank. I'm talking about how much money you have coming in each month. Don't go out and get payments like I did. Like I was stupid and I maxed out my cashflow. And then it took me an extra year and a half to really even make any progress because I was essentially breaking even each month because I had too much money going out and not enough coming in. And if you put yourself in that situation, it will stunt your growth of your business. So if you got a $3,000 positive net cash flow, don't go out and start adding monthly bills or monthly expenses to your business just because you want to go waste it on something stupid. You got to be smart with your money, guys. So that's the four C's of cash flow. The last thing I want to talk about, which is the bonus, is profit first accounting. I've had Alicia on. She was a bookkeeper, profit first certified bookkeeper. If you guys aren't familiar with profit first accounting, go buy the book by Mike Michalowicz called Profit First. There's two different books. There's one that's profit first and there's one that's profit first for contractors. I actually recommend the profit first book. Not the one for contractors. I know that seems counterintuitive. But if you want to read both of them, that would be the best. But if you can only read one, just read the profit first and start implementing this in your business. And that will help you with your cash flow as well. Because now you know exactly where your money's at, where to put it each month. And you no longer have to stress and worry about where your money's at. Stop using bank balance accounting, where you look at, you open your bank account and say, oh, I got $25,000 in my account. I can go buy stuff. Stop doing that. That's bank balance accounting. That means you really don't know what you're doing because you may have $25,000 sitting in there, but you got $15,000 worth of bills coming in in 30 days that you're not even aware of. Okay. So the four C's, charge, make sure you charge enough. Carry, make sure you're carrying your liabilities by having more money in the bank, your one month of payroll, your three to six months of expenses. Make sure you collect enough. The third C, collect. Always collect more money than you're paying out during the progress of your jobs. And the last 10% or the last invoice should never be more than 10%. And the final C is conserve. Don't go out and start wasting your cash flow each month because you think you're killing it. You have to prepare for the unknowns. All right, guys. So hopefully this podcast was helpful. If you have any questions, comments, let me know. Share this so that other contractors can have a more healthy business with their money. And you know where to find me on all the social medias is search for Hammer and Grind Podcast. I'm on TikTok, Instagram, Facebook. I've got my free Facebook group, the Contract to Profit group. Lots of great information that's being passed on all of these platforms. I also have Discord. Just search for Hammer and Grind Podcast. And you'll be able to find me everywhere. Until next time, you guys know what to do. Be the best version of you.
