The line of credit has no rules on it
A line with no rules stops being a backstop and becomes the operating account.
A revolver is meant to bridge a known timing difference, drawn against a receivable you can point at and repaid when that receivable lands. Used without rules it turns into working capital you are renting permanently, and the balance never comes back to zero. The tell is an owner who cannot say what any given draw was for.
Three moves, in order
Step 07: Monthly cadence
Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month.
Other problems step 07 solves
Other things that go wrong
What owners ask
When should a contractor draw on a line of credit?
A line with no rules stops being a backstop and becomes the operating account. A revolver is meant to bridge a known timing difference, drawn against a receivable you can point at and repaid when that receivable lands. Used without rules it turns into working capital you are renting permanently, and the balance never comes back to zero. The tell is an owner who cannot say what any given draw was for.
Which part of the system fixes this?
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: The Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M–$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 sits, and your own job costing tells you where you sit, which is the number that pays payroll.
Where do I start?
Draw only against a specific invoice or pay application, and write down which one on the day you draw.
Can I fix this without touching anything else?
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 nobody trusts, which is worse than the problem you started with.
Wrote CONTROL, the 8 step system these figures sit inside. More about the author.