5 Effective Strategies for General Contractors to Cut Costs

StrategyDriven Managing Your Finances Article | 5 Effective Strategies for General Contractors to Cut CostsContractors need to devise ways to cut costs in order to remain profitable. With increased competition, the need to cut costs has become important now more than ever.

Eliminating people is not the right way to cut costs. This will only stifle the ability of your firm to make a profit. Instead, you should look for other ways to cut costs and boost profitability.

1. Cost Audit

The first step in cutting costs should begin with a complete audit of the existing expenses. You should consider ways to reduce operational expenses.

You can relocate the office to a location where the rent is lower. Also, you can consider the shift from in-house to cloud operations to cut overheads.

A lot of contractors subscribe to different software services yet don’t use most of them. Consider whether the services really add value to your business by saving time or improving efficiency. If not, it’s better to cancel the subscription.

2. Time and Contract Clause

Instead of Under-the-contract-price, you should consider adding the add-to-exceed clause. In the former case, the owner of the project only has to pay a fixed cost that includes overhead and profit. This is not necessarily the most cost-effective approach.

Instead, you should consider the time and materials contract. This is a type of contract consist of the following three terms.

  • Actual material costs
  • Actual direct labor costs at a specific hourly rate
  • Agree on add-on to cover profit and overhead

The main benefit of this type of contracting is flexibility. This cost structure allows you to adjust requirements, replace features, and cater to changed user requirements without taking a hit on the bottom-line.

3. Seek Multiple Bids

When working with a sub-contractor, you should consider multiple bids. This may take additional time, but the effort will be worth it in the end.

You may have to send lots of emails and hammer the phones. But this will allow you to lock in on subcontractors that offer services at the least costs. This extra work will help in significantly reduce the internal expenses.

4. Inspect Your Schedule

You should keep an eye on your schedule for any potential stacking or acceleration of activities. Compressing the schedule will allow you to squeeze cost advantages. Time is money and any time that is saved will have a positive impact on the company’s bottom-line.

5. Financial Prequalification

You should prequalify all subcontractors to reduce the risk in case of cost escalation. This is particularly important if the subcontractor will bear most of the risks. It will help in absorbing any deviances in a project that result in increased cost.

By financial prequalification, you can get assurance that the subcontractors will be able to absorb any costs overruns. Some of the criteria that you should consider include pipeline, days of cash, and work in progress.

The above tips can help in greatly reducing the contracting costs. Consider adding an escalation clause in all your projects as well. This will pass on the risk of cost increase to the project owners.

Understanding Hard Money Business Purpose Use Loan and The Benefits for Investors

StrategyDriven Managing Your Finances Article |Hard Money Lending|Understanding Hard Money Business Purpose Use Loan and The Benefits for Investors Contrary to what the name suggests, hard money does not involve questionable lenders who conduct their business under the table and charge inflated interest rates. In fact, that is not even close to how one would define hard money loans.

So, what are these loans then? They are short-term, interest-only mortgages that buyers use to purchase and rehabilitate damaged properties. Typically, the loan repayment time is 12 months. However, there are some situations where the loan term can be stretched to two to five years. The payments need to be made monthly and they must comprise of only interest or interest with some principal repayment.

The value of the subject property at the time of applying for the loan determines how much loan amount buyers are eligible for. The property for which a person gets a hard money loan does not necessarily need to be a property that they wish to acquire. It can also be a property they already own and want to use as collateral. Specific to small business financing, hard money loans are available to both consumer and business owners.

What Is Needed to Qualify for Hard Money Business Purpose Use Loans

Who is eligible for hard money business loans? New businesses and businesses with low credit scores. These are businesses that find it incredibly hard to secure a loan from a traditional bank. Therefore, the only viable option they are left with to get the funding they need is hard money loans. These loans are backed by the commercial real estate of the business.

A hard money lender will provide you the business purpose use loan if you can prove you have enough equity in real estate. Hard money lender can look beyond your financial or credit shortfalls which is what makes them different from a bank. Regardless of your creditworthiness or time in business, you can get easy access to capital with the hard money loans backed by collateral.

A hard money business purpose use loan will cover you whether you want to buy a new property or want to renovate an existing building. The collateral that you can offer to the lender will determine how much loan amount you qualify for.

In most cases, the entire value of the collateral isn’t calculated for this purpose. Instead, a loan-to-value ration is used to calculate the loan. What does this value represent? It represents a percentage of the property’s value.

Generally, the loan-to-value ratio is quite high. This is because most of the collateral’s value is used to back the loan. Also, hard money lenders are primarily concerned with the value of the property. In most cases, the loan amount is about 70% of the value of the property.

What Situations are Best for Hard Money Loans?

Following are the ideal situations for hard money loans:

  • Construction loans
  • Fix and flip investments
  • When a real estate investor has to act quickly
  • Land loans
  • Why a buyer has credit issues

What Makes Hard Money Business Purpose Use Loans Useful

What is the main reason for anyone, which includes businesses, to get hard money loans? It is to get funding for the purchase of the real estate, capital equipment, or other capital assets. In the real estate industry, hard money loans are growing in popularity.

What is the reason for this? New businesses or businesses with low credit scores are highly likely to get approved for the loan. However, they must own some sort of real estate. It could be residential, commercial, or land property.

Provided by non-traditional lenders, hard money loans are typically offered by private individuals and private funding groups. Unlike traditional lenders such as banks, lenders of hard money loans have lenient policies and flexible rates and criteria. This makes the approval process quicker and easier.

If you’re prospective borrower, then there are many reasons why you’d want to get a hard money business purpose use loan. The first and foremost benefit is the ease of qualifying for the loan. Unlike traditional lenders, hard money lenders do not give too much importance to a credit score when qualifying applicants. Another benefit is the easy application process. The only thing that lenders want to check is the collateral.

The lenders will not ask you to provide any information and documentation that are typically required for conventional loans. However, the best thing about applying for this loan is that you get fast access to financing. While hard money lenders are more lenient than conventional lenders in qualifying people, they do look for certain qualities in borrowers.

While most of them will not mind funding a newer business, they will prefer a business that has been around for at least a few years for the loan. What is the reason for this? Because businesses that have been operating for a while are more reliable than newer businesses. Additionally, they have a stable cash flow that will allow them to meet the loan’s terms.

A business risks losing its collateral if it is unable to repay the loan according to the terms of the loan. Therefore, you must determine if a hard money loan makes senses for your business before committing to it. By doing this, you will avoid a lot of unnecessary financial problems going forward.

Before you apply for the loan, consider how long you have been in business. Apply for and get the hard money loan if you believe you have enough experience to deal with any challenges that may come up during the repayment of the loan. If you lack the needed experience, then develop a back-up plan that involves financially feasible ways of repaying the loan according to the agreed terms. All this benefit you in the long run.

A hard money business purpose use loan is a great option if you want financing but have a low credit score. However, before committing to a hard money loan, make sure to consider the things mentioned above. By doing this, you will ensure that you are able to repay the loan on time and within the agreed terms!

Is Taking a Small Business Loan Worth It?

StrategyDriven Managing Your Finances Article |Small Business Financing| Is Taking a Small Business Loan Worth ItThe word ‘loan’ doesn’t have a nice ring to it in any sense. Whenever we talk and hear about loans, it usually points towards difficult times and thorny situations. However, business loans can’t be seen through a singular point of view. One has to apply context to commercial loans because oftentimes they are actually tied with business opportunities.

Whenever any entrepreneur starts mulling over the idea of taking a small business loan, he/she has to deal with a wide range of different opinions and suggestions. Some people strongly advocate against loans. By sharing gloomy and sometimes scary anecdotes, they try their best to deter a person from taking business loans.

Then there are people who act as the cheerleaders of loan companies. They only know the benefits of business loans and how they have turned around the fate of many ventures. Lastly, there is a group that takes a cautionary approach. They give an objective overview of taking business loans.

We will recommend you to listen to the last group. It is important to get a precautious take when you are thinking about getting a small business loan i.e. factor in all the upsides and downsides before making the final decision.
Here, we are going to discuss the instances when business loans can be beneficial or detrimental. Go through them and make a decision that suits best your unique business needs.

Instances When It’s Profitable to Take a Business Loan

There are certainly many valid reasons where getting a loan actually helps in growing the business further. Let’s look at all such instances.

Physical Expansion Becomes Imminent

When you don’t have any further space to set up any new cubicle or when you have don’t enough area to accommodate all your customers— these instances actually indicate two things:

  • Your business is booming
  • You need more physical space

However, experiencing business growth doesn’t mean you have enough capital to take on physical expansion. We all know that the commercial real estate market always remains bullish and it’s not easy to get the required space at the desired location with your existing purchasing power.

In such cases, where a business is growing and requires more physical space for streamlined commercials operations, it is better to go for business loans. Persisting with the same congested business premises amid continuous business growth can prove to be counterproductive. You will certainly pay back the loaned money in a few months or years. However, the business growth that you are going to accommodate through physical expansion will pay you dividends for decades.

For Better Credit Prospects

If you have the vision to turn your SME into a large-scale commercial operation, then you are definitely aware of the line of credits and how important they are for the sustenance of big companies. However, it should be kept in mind that financial institutions don’t just dole out lines of credit to everyone.

A business with no lending and credit history can’t apply for a line of credit. There should be an impressive credit record to your business’s name. This can be built by taking smaller business loans and then making on-time regular payments. Besides building a good credit profile, taking small business loans on a regular basis also ensures that you don’t find yourself in a capital drought at any given moment.

Lastly, constantly working through smaller loans also results in building a good affiliation with any specific lender or lending company. This again helps when you apply for bigger loans and line of credits.

For Buying Equipment and Inventory

It’s a no brainer to file for a small business loan when you have to get any equipment or any other business inventory. These tangible items run your business and you can’t ignore them just because you don’t have the required capital at the moment. Let’s try to understand the profitability of a business loan in this context through an example.

Let’s suppose that you need two workstations worth $2,000 for a project that can bring in $3,000 in profits. But at the moment, you don’t have enough money to allocate $2,000 for this purchase. So, what you should do? Pass on the opportunity or take a small business loan to get the required equipment? We would recommend you to go to the latter option.

In the above-mentioned example, even securing a loan on a high interest rate (e.g. 25%) will generate a profit of $500. Moreover, the addition of two workstations to your business assets is a permanent gain that you are going to get. In short, it’s a win-win situation. This is the reason why taking loans for primary equipment and inventory rarely go wrong.

Instances When It’s Risky to Take a Business Loan

There are some instances where you should give a second thought on taking business loans.

If Cash Inflow Is Already Really Thin

Going in debt when your cash inflow is already flickering might not be a good option. Making debt repayments is not easy when you have very limited cash to play with. Any aggravated scenario can also lead to collateral, which is the worst possible thing that can happen to your business. In any tricky situation, it is better to first consult business loan experts. The advice of experts working at this company can come in really handy when you are in two minds regarding applying for a loan amid receding cash inflow.

With a Low Credit Score

For whatever reason, if your business now stands with low credit score, this it might not be a good idea to make things by acquiring a high-interest loan. Low credit score makes it less lucrative for lenders to offer loan offers. So, they compensate for it by increasing the interest rate. Before applying for a small business loan, it would be better if you first work on your business reputation and credit score.

The above discussion makes it clear that applying for small business loans for the right reasons pay dividends. Moreover, it is important to have good business reputations if you are going to incorporate borrowing in your business model.

Working Out Your New Business on a Shoestring Budget

StrategyDriven Managing Your Finances Article |Starting a New Business| Working Out Your New Business on a Shoestring BudgetThe internet has streamlined everything in our life—this is a clichéd statement that gets repeated in what we read, hear and see. We often quote this statement ourselves. However, is it absolutely true? For instance, many people believe that starting out a new business is as difficult as it was, say, 20 years ago. They maintain that working out on a shoestring budget is still a tricky rope to tread no matter if you are online or offline.

We can’t deny that steering through the formative phase of a business with limited monetary resources is no mean feat irrespective of the day and age. However, it is also true that the internet helps in any such endeavor. Even if doesn’t ease it out completely, it surely reduces the difficulty level of starting out a business from scratch and on a shoestring budget.

In this article, we are going to discuss how one can work out their business dream with limited resources and how the internet can come in handy in this regard.

Making and Pitching Business Plan Online

If you are on to capital collection for your startup, then you definitely need to create a business plan to reach out to investors. Taking a conventional route with the creation and pitching a business plan is itself a costly affair. You might have to hire a specialist to make you a business plan. After that, you have to bring that plan to the tables of people that matter. It’s obvious that this approach needs both your time and money.

You can do both planning and pitching online without spending a buck. And if you don’t sure about the free business templates, you can get fully professional business plan services at a minimal cost. Similarly, you can pitch your idea through the internet. The business plans you will find on the internet are so self-explanatory that the investors will know if they need to call you to have a one-on-one meeting.

In short, you can save a considerable amount of resources on making and proposing your business plan if you are using the internet rightly.

Start out as an LLC

There are different business categories in the legal framework that are assigned to every new business. We would recommend you to choose the LLC (Limited Liability Company) categorization for your business. To begin with, being LLC is the most advantageous option for any new and small business from many legal and operational aspects.

Moreover, you don’t need to allocate a big chunk of money to complete the registration of your business as an LLC. You can do it yourself online without spending more than $100 dollars for registering anywhere in the US. Lastly, you don’t need any legal aid while filing the online LLC forms, which means you are saving yet another cost.

Even if you have the dream to make your business a C-corporation, we would suggest you start out as LLC. You can shift to your preferred classification anytime you want. Forming LLC will not just save you cost, but it also involves fewer risks.

Secure Intellectual Property

Today, when startups are mushrooming at a very quick rate, it has become really important for any new entrepreneur to secure its intellectual property at the earliest. Amidst all the informational proliferation all the time, you can’t keep your business plan and trademark under the cover for long. It’s also possible that someone else will come up with the same plan as you and have it formally patented while you are still mulling over it.

In short, the better business sense suggests that one should register their intellectual property at the onset. If you don’t have enough money at the start to hire costly experts to do this on your behalf, don’t just sleep on it for any other time. The US Patent and Trademark Office now offers its services online. From trademarks to patents and copyrights, you can register every piece of intellectual property online for a few hundred bucks.

Arrangement of Office Space

No matter how virtualized our lifestyle gets, we still need to operate through physical spaces. Even if you are planning on to start out an online business, you will need to have some physical space to operate from. Getting a full-fledged office in commercial zones seems like an insurmountable task when you don’t have enough money to work with.

One way to steer out of this tricky spot is to go for virtual office space services where you and your team can remotely work without needing any physical space or desk. However, this idea can’t work for all business plans, particularly not for the ones where you have to meet clients in person and call meetings. In such cases, the need for physical office spaces becomes inevitable. The internet can also come in handy to find physical office spaces.

There are entrepreneur outreach programs and incubators that offer physical office spaces, conference rooms and other business amenities at the fraction of the price of the main real estate market. You can start your journey to find office space from here.

Make the Most of Cloud Computing and Pay-as-you-go Software Subscriptions

This is where the internet helps budding businesses like a guardian. With Google providing so much free online storage and Amazon providing web services at exceedingly marked down prices, you don’t need to invest heavily on you digital and software infrastructure initially.

Make the Most of Social Media

This is another domain where the internet provides some unmatched benefits. For instance, you can save the entire cost of your marketing if you are using social media the way it should be. With search engine optimized curation of content for platforms like Facebook, Instagram, and Twitter, you can reach out to your target market without spending a single cent.
Obviously, not every business plan can execute in the same manner. It has its own peculiarities. Nevertheless, the points that we have discussed here will surely help in working on any business idea with strained budgets.

Reducing Your Small Business Costs in 3 Steps

StrategyDriven Managing Your Finances Article | Reducing Your Small Business Costs in 3 Steps | Reduce Costs | Entrepreneurship | Managing Your BusinessTo take your small business to the lofty heights of being a market leader in the foreseeable future, you’re going to have to start turning over a major profit sooner rather than later. To do this, you have to treat solidifying the money that you do make just as seriously as actually making it. It’s quite simple – if you continue to waste your profit, you won’t be able to invest it into further growth going forward.

One way you can solidify the revenue that you earn is to cut down on your overall expenditure. To find out how you can reduce your small business costs in only three steps, be sure to read on.

Rent equipment for short-term projects… don’t buy it

If you have a short-term project on the horizon, don’t squander the potential profit that you stand to make from it by buying tools specifically for it. It may be tempting to invest in a shiny piece of brand new equipment, but buying something that you aren’t realistically going to use going forward isn’t good business practice whatsoever – it’ll just be a waste of money. Instead, what you should do is rent the equipment that is essential to your work for the duration of the project only. Doing so will see you spend far less in the long run without having to sacrifice the tools that you need to do a good job.

There are plenty of ways for you to rent the equipment that you need to optimize your next project, not just complete it. If you’re in need of I.T. tools, for instance, you could turn to Smart. As stated at Smart.uk.com, this leasing company can offer your business everything, from short-term laptop rental to website hosting to a complete I.T. infrastructure that can be loaned for 12 months plus. Whatever tech you need to complete your next job, this rental service will be able to provide you with it.

Ditch your traditional landline

The days of the landline being the be-all-and-end-all of business communication are well and truly over. Today, using this kind of communicative tool will do nothing but see you pay out unnecessarily expensive annual costs. If you do anything to cut your business expenses, then, let it be to ditch your office’s traditional landline.

There are plenty of alternative ways to keep communication alive within your business, some of which include:

Go paperless

The amount of money that you spend on paper, ink, toner, and all of your other printer accessories may seem minimal at the time, but it will soon add up. Before you know it, you’re spending way more than you should be spending on printing… and way more than you need to be spending, as well. There is something that you can do to cut this kind of cost right down, and that is to go paperless. Whether you decide to get rid of your printer completely, or whether you resolve to only print when necessary, transitioning to, say, a digital invoice service will no doubt see you save a lot of money going forward.