Avoid This When Investing in Your Business
A.K.A. How much do I have available to spend on assets?
As a general rule, construction contractors like equipment. And why not? It builds the Balance Sheet, should increase profit and gives you an asset for the future. Now, sure, some like equipment purchases more than others. The needs of a heavy highway contractor compared to a HVAC service company vary greatly. However, the question of “how much money do I invest?” is a common one in our industry.
In fact, one of the top mistakes construction contractors make on the Balance Sheet side of their business is overly aggressive investment in fixed assets.
What?
Yep, I said it. Too many assets can be a bad thing. It can kill your working capital, overload your debt, and create cash flow problems if you get the wrong timing, finance the wrong amount, or purchase the wrong asset.
How much and when do we buy the next asset?
How can you determine how much to invest and when? This was the same question we constantly had to ask ourselves as we reviewed repair bills, rental equipment invoices, and requests for new assets.
We struggled to know the same thing when we were contractors, so we created a calculator. Our calculator takes into account taxes, goals around equity, and how much we have left over to invest in assets. This calculator and how to use it are in the All Access membership platform so you can answer questions, like
- How much should I invest in assets?
- How much should I pay in bonuses and how do I communicate it (where does all the cash from the business go)?
- Are there excess funds for distribution to owners?
- Do I have anything left over to cover next year’s expenses if the year starts off slower than expected?
Once you see the calculation and complete it with your information you’ll have the details you need to make the best investment in your business.
If you’re interested in learning more about the financial side of your construction business, we’ve got training on becoming a construction CFO! It’s called Build Your Own CFO and you can go through it yourself, or you can run someone in your company through it. Click here to learn more.