New Business Cash Flow

Howdy S_Canyon
You can count your present client list and that will probably be your 1st quarter
I've always heard that it takes 30mos to answer all your questions.....
good luck 😉

Wait a minute. New companies are allowed to send out bills? Really? I thought the first six months were spent begging clients to let us prove we could deliver the goods they need.

I could kick out those kinds of numbers any month I chose to do so after years of being in business. The goal is to have your net income be the highest possible fraction of total income. Gross billings are meaningless. Doing a million dollars a year in billing but netting $5000 will give you ulcers and heart attacks. Net is where it's at.

It has been a rollercoaster ride for me. The key is to be a tightwad!

S_Canyon, post: 378349, member: 11850 wrote: ...A question for you experienced business owners who began as a one-man operation -- does projecting $15K - $20K in monthly billing sound reasonable based on your experience?..

It is all relative. The monies you mention don't reflect anything in the way of costs that should be weighed against gross fees.

Many years ago I was guilty of operating with a business plan that focused merely on gross fees. I was fortunate enough to have the clients and workload that allowed me to perform "as much work as I could take in". I worked my ass off. I hired warm bodies, I cranked out surveys, I worked 80 hours a week minimum. I thought I was getting rich.

At the end of a year I looked at the numbers. I had grossed over 600K in fees and I fancied myself a successful businessman. Then my accountant opened my eyes. My profits were less than 3%. I had worked my fingers to the bone for a profit margin about half of what banks were giving on savings accounts. Not a good business model. I had hired 3 or 4 crews to make sure my gross fees were lofty and never paid any attention to a profit margin. A man won't live long in that environment. I was merely "squeaking by"...and it didn't matter how much I brought in, the return on my time and investment was miserable.

The trick is to create a business environment that can provide a good profit return on your fees. To do this you are going to have to have a firm grip on exactly what it will cost to operate. Salary, labor, vehicles, insurance, rent, taxes, equipment, etc. If all that adds up to less than 15 to 20K, you might have a profit margin.

Bottom line, if you can't make a profit on operating 1 crew, you'll do twice as bad with two crews. Volume and lofty numbers are not the goal. Operating the business at a cost that is well below the fees is the goal. Whether your fees are $500 a month or $50K a month. If you can't profit from 1 job, you won't be able to profit from 10. If all you're going to do is provide yourself an income, go to work for somebody else.

Remember if you want to work twice as much and earn half as much, start your own business..;-)

When determining how much net income is acceptable compared to working for some business somewhere keep in mind that all of the perquisites you have received as an employee are out the window. You must build your own nest egg to cover all of those things. Yes, they are deductible, but they separate the gross from the net in a big way. Hope to retire someday? Nobody but you cares. Want to make donations to your favorite non-profits,etc. then one hundred percent of what you donate comes out of your pocket. In the old days with the big oil companies a newby engineer could donate $1000 to their alma mater and their employer would match it by a factor of four, meaning your $1000 turned into a total of $5000 going to the hallowed halls. There are dozens of little things like that you can't match on your own as a self-employed business. Lofty goals are nice targets.

There is a very old story in ag country relating to a couple bachelor brothers of a specific ethnic origin who thought they could make it big in the hay selling business. They were buying it for $1.00 per little square bale, trucking it a couple hundred miles and selling it there for $1.00 per bale. Lots of volume though. When one discovered they weren't making any money he suggested to his brother that they buy a bigger truck so they could haul twice as many bales on each trip.

Obviously I don't know your market but I think you better figure on these three things:

1. Your billings will start smaller and increase over time;
2. A percentage of your money will take 60-90 days to reach you after it's billed, you have to determine what that percentage is;
3. There will likely be some surprise startup costs that will affect your cash flow some.

The more time you spend trying to assign the impact of all of the variables the more realistic your cash flow projection will be. Naturally, being conservative in your projections allows for more of the surprises to be pleasant.

Best of luck with your new endeavor.

I'm still in be entrepreneurial infancy so please don't take what I say too seriously. I'm starting out solo. I like being solo, so I may stay solo. But I ready posts from guys like Paden and I know that it's likely at some point I'll be tired of being responsible for e-v-e-r-y-t-h-i-n-g. But for now, I'm loving it. The benefits to me have been that my fixed costs are much lower while I wait on my work load to build. I may have to occasionally make two trips to the truck that I could have sent a helper to do, but I didn't have to pay the helper while I was running errands before I got to the job either.

I expect that I will probably need a robot at some point. I'm hoping in the next six months, but it would be a waste for me to have one right now. I've been doing fine with RTK and a prismless total station. It could be that you're in the exact opposite position and a robot would be the ticket mated with an inexpensive static system that can be upgraded to RTK. I don't really want to pay for equipment that is sitting in my floor. I know what Adam was saying about being miserly, but I don't think he intended to say he's cheap or that you should be either. You have to make sure every purchase is accountable to the business. If you spend a dollar on something it better be bringing back $1.50. You also have to figure how long is it going to take for the investment to pay dividends.

I'm blessed. I have crazy low overhead, so if I had a month making $20k by myself (which is a goal of mine) I'd be living large. I have a dependable vehicle that looks okay on the curb. It's got almost a trip to moon on the odometer and it's old enough to start asking me why it can't wear make up, short shorts and go out on Friday night while listening to Ariana Grande, but every time I think about a new truck, I have to ask myself if a new $30k truck would make me any more money than my dependable teenager. I haven't been able to answer that affirmatively. I work out of my home, so I have no office rent. I'm pretty sure it wouldn't improve my workflow to have a downtown office space.

I'm putting money into things that help to build my brand - the reputation I want to have. If it helps to improve quality, I'll spend extra. If it helps me get the job done more quickly, I'll spend the extra money, as long as those expenditures can be shown to help improve profits in the long run.

I'm a neophyte. Guys like Holy Cow and Paden and Bruce Small know what they are doing, having each graduated Summa Cum Laude from the esteemed Hard Knock University with Doctorates degrees.

S_Canyon, post: 378349, member: 11850 wrote: does projecting $15K - $20K in monthly billing sound reasonable based on your experience?

It sure didn't sound reasonable when I first started out, even adjusting down for inflation. It took me at least 5 years to get there. 20+ years on, that's generally the range in which I operate. Sometimes more, sometimes a little less, but that's the ballpark.

As others have mentioned, profit margin is critical. I just looked back at the last 8 years (which captures the Great Recession as it affected me), and mine has ranged roughly between 55% and 85%, but that's sole proprietor net profit. Out of that comes self-employment tax, health care (a very big expense!) and retirement contributions. Plus probably a few other things that aren't coming to mind at the moment.

Shawn Billings, post: 378375, member: 6521 wrote: ..I'm a neophyte. Guys like Holy Cow and Paden and Bruce Small know what they are doing, having each graduated Summa Cum Laude from the esteemed Hard Knock University with Doctorates degrees.

I appreciate being elevated to some lofty laurel drenched position.

I tell folks the only reason I can do something right is because I've previously done it wrong every way possible. And every once in a while I still go ahead and do it wrong again...just to remind myself I still know how. And running a survey outfit is no different. I've done it wrong so many times it's not funny.

But what people need to know and remember is that there is no special "this is the way you do it" formula. As a matter of fact, several times I attempted to copy other surveyors that became successful. I failed. I realized what works for one person may not work for someone else. So mapping a strategy from others' successful experiences may not guarantee repeated success. The real trick is to be happy with what you're doing and what you've got. People do good work when they're relaxed and it's an infectious thing. If you're happy, your client can sense that and it has a calming effect. Clients will become repeat clients because they feel "comfortable" with someone that is comfortable in their own skin.

There was a large engineering consulting firm that had no in-house surveying department and made a point to NOT make any one surveyor their go-to. On any given day at their office it was almost a "who's who" of the local surveying scene. 9 or 10 engineers would have 9 or 10 different surveyors in their office to discuss projects. And I got my share. I had to ask this one engineer why he gave me so much work when there were "bigger dogs" around gobbling up the work. He told me that most survey companies were pretty much the same. And we all did fairly good work for about the same amount of money. But some of the guys that came around were always "business" and never seemed to slow down. The reason he always called me was because I always showed up quick and he liked me and my jokes.

I was comfortable around him and visa-verse. Lesson learned about Clients 101. B-)

I would think your starting billing would be more like $6,000 to $9,000 a month. I took me three years to reach $20,000 a month.

My best advice: Figure your lump sum fees based upon an hourly rate that is at least as high as the big firms, then deliver a quality finished product in a fraction of the time. It is easy competing with the big boys on time because you can start an hour from now and have it done before they get the paperwork processed and a crew lined up. Time is money, and clients understand this.

As Paden made quite clear, doing things poorly teaches how to do them better. Sometimes it will be a long time before you recognize your own mistakes, but, when you do, you will learn from them.

The key to success is learning what motivates you. Power? Total dollars passing through your hands? Recognition? Security? Comfort? Flexibility? Prestige? Respect? Are you a team player or a lone wolf?

A square peg does not fit in a round hole. Some jobs require you to be a team player. Some people never do well in that environment. Especially whiners who want glory for providing minimal support. Some jobs can be better handled by talented, aggressive lone wolves. A pre-existing condition of self-confidence is essential. Those who need frequent reassurance of their performance being outstanding won't survive in a lone wolf world. But, it is true that many who started out on a course without that builtin self-confidence discovered later that they had far more of it than they realized at the time.

I have worked around people who must display what they see as proof of their success in every way possible. I have seen the opposite as well. Picture an office with the walls nearly covered with certificates framed in attractive fashion. Picture another office with maybe one or two such wall hangings. Which office has the superior worker? Who knows?

S_Canyon, post: 378349, member: 11850 wrote: I am new to this site and for specific reasons need to post anonymous. I am building a business plan and focusing on my cash flow analysis at the moment.

A question for you experienced business owners who began as a one-man operation -- does projecting $15K - $20K in monthly billing sound reasonable based on your experience?

$20,000 a month is about $1000 per work day.

That's about $250,000 a year.

I don't think that's a reasonable expectation for a new business.

Cash flow? What's that?
Cash extraction... That's what we have here.
We have to extract money from our clients!
🙂
N