The line of credit has no rules on it

A line with no rules stops being a backstop and becomes the operating account. A line of credit is there for one job: the weeks between paying for the work and getting paid for it. Crews are paid every week, suppliers want their money in 30 days, and the GC pays in 45, 60 or 90 days and holds back 5 to 10 percent as retention. You draw on the line to make payroll while a pay application is out, and you pay it back the day that pay application is paid. A healthy line goes up when you spend and comes back down when you collect. A line can't fix a job that loses money, because no pay application ever comes in to pay that draw back, so the balance goes up and stays up. The tell is an owner who can't say what any given draw was for.

The step is number 07, monthly cadence. Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month. It's drawn from chapter 7 of CONTROL.

Across the 48 trades that publish a figure, net profit at $1M to $5M averages 7% before taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.

Do the 10 minute test before you draw again. Pull the line balance on the last day of each of the past 12 months and write the 12 numbers in a row. If the balance came back down after your biggest collection months, the line is covering timing, and if it only went up or hasn't been near $0 in a year, it's covering losses.

It means the line is covering losses, and a loss doesn't pay itself back. It isn't the end of the company, and it's a reason to stop and look before you draw another dollar. Find which jobs lose money and why, starting with job costing and then the overhead rate in your bids, which are the job cost structure and overhead calculation steps in CONTROL.

Banks approve lines on revenue and backlog. Demand isn't profit, and a full backlog doesn't prove the business can pay a loan back. Josh Luebker's view is that a bank shouldn't issue a line until the business proves it's profitable, and since most banks don't wait for that, the owner has to be the one who checks.

A roofing company at $5 million in revenue had $10 million of backlog lined up for the next year, and the owners hadn't paid themselves in 3 weeks. Their lines of credit had been covering for a lack of accounting standards. Pushing collections on money already earned and billing for the work as early as the contract allowed caught the owners up on their back pay within 2 weeks. They had bid every job at a flat 35 percent markup, and now each job is priced from what it will cost, so the price covers overhead and leaves a profit. They paid the lines back, kept them open, and now use them for growth they plan.

You can try, and it doesn't hold. Step 07 depends on step 03, overhead calculation and step 04, estimating system and step 05, software and bookkeeping alignment and step 06, project management. Install it ahead of those and it produces numbers the field won't trust, which is worse than the problem you started with.