What to do when loans are eating up your bottom line profits

In this video, I’m going to share with you the number one secret to protecting your project budget even when you have to take out a loan.

1. Types of loans you might get to fund your project

• Friends
• Family
• Banks
• Other contracting companies
• Factoring companies

2. When to use outside funding

• After the award
• Otherwise, don’t need the loan

3. How to account for fees

• To avoid fees taking away from bottom line profits
• Account for fees during buyout phase of project

Here’s an example of the numbers during the buyout phase:

Loan for $10,000 to float project until receive first payment on the project.

Contractors you have bidding out the project work:

1. Cement company – bid $25,000
2. Electrical company – bid $37,000
3. Drywall company – bid $21,500

Your bid on the project for the same work:

1. Cement – $27,000
2. Electrical – $42,000
3. Drywall – $23,500

Your bid – $102,500

Contractors initial bid – $92,500

Difference / profit margin – $10,000

Profit – $10,000

Loan – $10,000

Difference / profit margin – $0

(You have no profit and no wiggle room)

Now it’s time to negotiate with your subcontractors and try to get their numbers down:

Cement guy down from $27,000 to $25,000 = $2,000 back to bottom line profits

Electrical guy down from $42,000 to $38,000 = $4,000 back to bottom line profits

Drywall guy down from $23,500 to $22,000 = $1,500 back to bottom line profits

So now you have a total of ($2,000 + $4,000 + $1,500) $7,500 back to your bottom line profits.

Now your new profit is contractors cost ($25,000 + $38,000 + $22,000) = $85,000. Your bid of $102,500 – $85,000 = your new profit margin $17,500.

After the loan you have a profit of $7,500:

$102,500 – $85,000 = 17,500 (your bid – contractor’s bid = profit)

$17,500 – $10,000 – $7,500 (profit – loan = new profit)

The buyout phase of a project can make all the difference in what your profit margin looks like whether you’ve taken out a loan or not.