You did it. You made money in your contracting business!
Nice job. Hopefully, you know how you did it so you can repeat the process (more on that another time).
What’s your plan for your profits? Most contractors don’t have a clue what to do with profits so I want to weigh in on the topic now.
The first thing to do with your profit
There are many things you can do, such as:
- Spend it on a boat
- Start a profit sharing plan or a 401k
- Throw a huge party for the company
- Give to a charity
- Pay down debt
You have many options in front of you.
My advice is create your own line of credit
There will be many things that are thrown your way as a business owner. Equipment breaks, the phone stops ringing, you need to honor the warranty, etc.
These things can all hit your wallet hard. I’ve seen (and personally did this) too many contractors borrow money on their credit cards or take out loans and begin a cycle that is really hard to escape. Pretty soon you’ll be up to your eyeballs in debt and running on the hamster wheel.
Make it your goal to bank 6-12 months of operating expenses so you don’t need to borrow money. Operating expenses are the things that you need to pay even if you don’t have work coming in. It’s your Overhead. These expenses are things like:
- Your salary
- Employee salaries (not hourly field peeps)
- Shop rent
- Vehicle & equipment payments
- Phones & internet
- Association and chamber of commerce dues
- Anything that ‘keeps the lights on’
My BIG Profit Promise
Create your own line of credit and you will be a happy and profitable contractor.