The 5 biggest financial mistakes I made as a construction solopreneur

Would I be better off if someone had explained this to me years ago? I guess we’ll never know…

Mistakes, tips, hacks… some might say ineptitudes? Read on for a few (of the many) discoveries we have made along the journey. Take what works and leave the rest.

Use a cashback (or rewards) credit card for materials purchases.

o?? Pros: Consistent use can add up to thousands of dollars in additional funds over the course of the year. One of my subs takes his family of 6 to Disney World every year on cash back rewards.

o?? Cons: Discipline. Make sure your monthly cash flow is consistent or you’ll end up in a negative arbitrage situation. 2% on purchases vs. 18% APR can tank your profitability very quickly.

o?? Tips: Start small with materials purchases (framing package, shingle package, etc.), focusing on items specific to each project. Gradually add in overhead items (gas, tools, small tools, etc.) as you build consistency.

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Separate accounts for profit and taxes.

o?? Pros: Clear picture of where your money is going each period. Plus, seeing funded tax accounts reduces anxiety, massively.

o?? Cons: The first couple of months are tough… like really tough. Like a financial diet, you are doing the hard work now for future results. Stay strong!

o?? Tips: Check out Profit First by Mike Michalowicz. Set up your profit and tax accounts in a separate bank ASAP. Start small (with profit… taxes are non-negotiable) and adjust up each month, quarter, etc. until you find your sweet spot.

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Everything is not a write off (Yes, this includes your boat and those Eras Tour ?tickets)

o?? Pros: One of the largest benefits of being a business owner is that you can work with your CPA, or tax specialist, to find a number of expenses that can be paid through your business, resulting in an overall savings in lifestyle cost and reduction in taxable income.

o?? Cons: Overhead (lifestyle) creep is real. I have seen a number of new entrepreneurs, friends and business associates (“me”) try to add new expenses to their business and destroy profitability via unnecessary increases in overhead, using the false ideology: “it’s a write off” (see financial guru George Costanza).

o?? Tips: Don’t add any new expenses until you are consistently profitable. Once you have become consistent with your profitability, taxes, and owner’s pay (below) you can explore adding new overhead expenses. To keep yourself honest, use your bookkeeper, CPA, or partner as a sounding board prior to adding any new expenses.

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Owner’s pay as a percentage of project overhead

o?? Pros: Building your salary into each bid combines a consistent pay rate with an “eat what you kill” sales mentality, resulting in a production driven, lean overhead model.

o?? Cons: This can be a difficult transition, particularly if you came from a high paying management or sales job in construction.

o?? Tips: Find a minimum salary number to allow you to live and build that number into your bids as a weekly overhead expense (overall weekly salary divided by number of projects). Keep this number consistent, and only give yourself “raises” via profit distributions.

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Hire a bookkeeping service

o?? Pros: One sweet word… Reconciliation. Spend your time increasing sales, profitability, systems, etc. vs. struggling with Quickbooks several hours a week.

o?? Cons: You may have to kiss some frogs to find someone specific to your industry, needs, budget, etc. but trust me, it’s worth it.

o?? Tips: Many CPA’s do not have the bandwidth to offer weekly bookkeeping services, however, they can be an excellent referral source, as can Quickbooks Online. Additionally, many companies like Rooferbooks specialize in industry specific bookkeeping services.

Is most of this common sense? Yes. But I recently built a mini-bike for my kids and maxed it out to top speed before I thought about testing the brakes, so… maybe try one or two of these in your own business.