Show Me the Money: Financing Bids for Quick Cash

summary

In this conversation, Jonathan Fodera and Keith Gause discuss the importance of incorporating financing costs into bids for B2B and B2G projects. They explore project financing and invoice factoring as effective solutions for managing cash flow and scaling businesses. The discussion highlights the misconceptions around credit requirements and the benefits of these financing options for contractors and business owners. The conversation emphasizes the ease of setting up these financing solutions and their potential to significantly enhance business growth.

takeaways

• You can build the cost of financing into your bids.
• Project financing allows for larger projects without upfront costs.
• Invoice factoring helps manage cash flow effectively.
• Credit requirements for financing are minimal.
• Clients are usually unaware of the financing process.
• Factoring is a common practice among larger companies.
• Understanding financing options can prevent cash flow issues.
• Setting up financing solutions is straightforward and quick.
• These financing methods can lead to rapid business growth.
• Utilizing financing can help avoid reliance on traditional bank loans.

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Transcript

Jonathan Fodera (00:00)
Hey, what's going on everybody? We are live for the integrated entrepreneur today. Keith and I are going to talk about building in the cost of financing into your bids, There's so many people in the B2B and B2G space that come to me for financing after the fact, And there's so many people that don't understand that you can actually build the cost of financing into your bids.

and it's really simple, So by doing that, what's that going to do? It's going to allow you to one, take on larger projects, take on more work and not worrying about financing. And if you do it the right way, it can actually increase your margin substantially. So Keith, you just started a HVAC company, correct? How's that process? Yeah, in the process. You're doing commercial, residential or mix?

Keith Gause (00:38)
Yep, in the process of anyway.

Starting with residential.

Jonathan Fodera (00:45)
Okay, so this really wouldn't apply to you, but it's good to learn it now. So you can ask a ton of questions. So basically, the way project financing works, is it finances the contract. And you can draw up to 20 % of the contract value. So if you have a million dollar contract, you can draw up to 200,000 off of that.

And then the way it works and Keith, stop me when you have questions. The way it works is the finance company and the your company open up a joint account, They let you draw the two hundred thousand. And then when you get your first draw, it goes into that account.

they take out what you drew minus their fee and their fee is only 5 % on what's drawn for 30 days. So if that money's only out for 30 days, it's only gonna cost you 10,000. Well, if you know it's gonna cost you 10,000, why wouldn't you build that cost into your bid? You should.

And I'd actually tack on a little bit just in case they pay you a little bit slower. So that 10 turns a 20. So instead of bidding the job at a million, you bid it at a million 20. And now your finance costs are covered, More than covered. Plus you have profit. And by doing this, there's no cap on how many contracts you can finance.

So you can go ahead and work on multiple jobs at once, knowing that all the upfront costs, the mobilization, the materials, the team is all covered. Think about how fast you grow your business.

Keith Gause (02:10)
this is only geared towards commercial, obviously the bigger commercial type project.

Jonathan Fodera (02:14)
correct. So it's commercial and any government work or municipality work. here's the differentiator, Keith. Anytime you're doing factoring or project financing, if there's a business entity attached to it, or a government or municipality and any entity attached to it, you can factor it or you could do project financing. If it's an individual, you can't, HOA you can, individual homeowner, no.

Keith Gause (02:36)
Got it. What are the, let's talk, most people, I'm gonna ask questions as if I'm like a brand new business owner, never been in business, like, people that are listening, hopefully. What does my credit need to look like in the business, or does this go off of my personal credit?

Jonathan Fodera (02:50)
That's a great question. It actually doesn't go off either. It goes off of your client's credit and your ability to quote unquote, realistically get the job done. OK, so they're to go off your work history and they're going to go off the credit worthiness of your clients. So here's the deal. There are no credit requirements. You just can't be in bankruptcy. So this is one of those programs. This and invoice factoring that works for almost any credit score. As long as you're above 500, it still works.

Keith Gause (03:17)
And on the commercial side of things, what do I need to talk to my client about so they understand that this is the route I'm taking? Or does that not have to happen? Because I would think that that may run a client off if they know you have to go get financing for a job.

Jonathan Fodera (03:29)
That's an amazing question. It actually doesn't. OK, that's one of the biggest questions or concerns that I have with project financing and with factoring. So here's the deal. When you're doing this, they wouldn't know the difference because they're just paying an account that's jointly owned by you and the firm. So they don't know they might have to sign a couple of things to direct payment into that account. But that's And by the way, most of the time with factoring.

or this, are clients aware? Yeah, they'll be made aware when they get a funds directive letter saying, hey, pay invoice 123 to account 456.

But here's the reality of it. Most large companies factor or deal with factoring companies. They're used to it. And the reason I say that is because most of my clients that are factoring are larger companies. seven or eight figure companies and they know how important it is to have cash flow. And by the way, factoring is usually a big step in what got them there because they're not having to borrow to do work. They're using their own profits to do the work. And it's not cutting into your profit margin.

Keith Gause (04:30)
So let's break this down for some people because there's a lot of people on here that are using factoring and have no clue that they're currently using it. So let's break this into a much easier understanding. Credit cards. If you run someone's credit card and you pass the fee on to that person, you're basically factoring and financing your ability to collect cards.

Jonathan Fodera (04:50)
I know you're not that's you're just passing the fee. So factoring factoring is you're buying receivables at a discount. So you're factoring you're submitting the invoice getting paid anywhere between 80 and 95 percent of that invoice. And then that invoice is being paid to the factoring company. That's the only time factoring applies. Now, the fact that you're talking about is the merchant cash advance bullshit that has daily payments that for every dollar you

Keith Gause (04:56)
Understood?

Yeah, but where I was going with that

was like the same thing that is leveraging your credit cards to buy materials for job A and floating that money for 45 days and factoring in that cost to the job. Most people are doing that and they don't even realize they're doing it. Now they're doing it this way. Hey, Billy, you think it's gonna cost us about $800 to carry the cost of that material for 60 days? Yep, put it on the invoice. Okay.

Same concept in a much smaller, easier to understand concept, but most people are doing the credit card side first, because that's where they start. The correlation I'm trying to make is that these are bigger words with bigger dollar amounts, but it's the same concept that we're using in a couple different variations in business on a daily basis. This just allows you to run faster.

Jonathan Fodera (05:58)
So basically what you're saying is

Yes and and automatically so basically what you're saying is these guys are buying this stuff no matter what and They don't realize it, but they're carrying the cost of whatever it is. However, they're put placing it so Yes

Keith Gause (06:11)
Yeah, supply house is charging you a fee to front you

the load and you're passing that to the client. You're factoring that into the job cost. And that's the same concept you're explaining, but on a, capability scale is much higher with the commercial side and the bigger jobs like that. And a lot of guys run from those because they don't understand that they have this ability. Their supply house is only going to give them a hundred grand.

Jonathan Fodera (06:28)
Absolutely.

Keith Gause (06:35)
Well, when you need 200, 300, 400 K of materials in the first 30 days, you're going to pass that job off or you're going to refer it out to someone else and hope to get a cut. But this allows you to literally go out and put your stamp in the world and pony up the table.

Jonathan Fodera (06:52)
Yeah, it may it allows you to play at a higher and bigger level where there potentially is more profit and better clients because you want clients that are going to be larger because there's more ability to make money

Keith Gause (07:03)
Yeah,

I only want to do two big jobs a year, not 712 little ones.

Jonathan Fodera (07:07)
Yeah.

And so this is the thing most people these two programs the first time they hear it they disregard it and they see they have the same exact concerns you did with don't want my clients going well guess what once you grow around to it and realize a line of credit isn't the right program and here's why line of credit isn't the right program it doesn't actually fix you waiting to get paid you draw on that money and then you hope to pay it back as quick as possible but sometimes you can't so what happens is if you're using a line of credit to float jobs

Keith Gause (07:13)
100 %

Sure.

Jonathan Fodera (07:36)
That line of credit gets tapped out and now you have a weekly or monthly payment in addition to the same cash flow problems that now you have to find a way to get that paid down or paid off and now your credit is going to start taking a hit where if you set up project financing or an invoice factoring

you are you are solving the problem and that allows you to grow much faster and more profitably because you're not borrowing when you're giving up two percent of an invoice versus paying 15 on the line of credit that might not be getting paid down one is going to impact your profitability the other one is going to allow you to scale at at mass because the problems are resolved

Keith Gause (08:16)
Yeah, it's forced budgeting and forced paying off. And it will negate beginning business owners from making the ultimate sin decision, which you've already said twice. If I got a line of credit and I have the decision to pay it off or make a small payment, human nature goes to the small payment, Human nature says, I don't want to get rid of the big nut in my checking account. Let me just send a little one.

Jonathan Fodera (08:27)
Yeah.

Keith Gause (08:38)
And then you end up paying out the wazoo for financing carrying costs forever and ever and ever, Or until you get into a pinch and have to pay it off. Whereas the disciplines that are involved along with the ability for people to run at a bigger level coexist together to avoid you getting yourself into that shitty situation financially.

Jonathan Fodera (08:57)
100 % here's what people don't realize when you make the wrong mistake wrong step that person that took the line of credit as that line of credits getting maxed out, you know, what's happening? Their credit is going down because they're putting more balances on their credit card They're putting balances. They're putting money wherever they can So now they get to a point where they're kind of capped or tapped out and then they go looking for financing Okay, and because their credit isn't strong and because they have all that debt they're

options are limited. And so what happens is it usually snowballs and they take a cash advance and then they take two cash advances. And then next thing you know, they come to me and saying, hey, save my business. Well, had you had this these things set up early, you would have been golden. You know, this is this is really high level finance made simple. This is the stuff that we're not taught in school.

And these are the things that I see. These are the problems that most contractors, most B2B companies run into. And it's simple. If you are B2B and you feel like you are growing, but you don't have cash.

The solution is invoice factoring. If you are B2B or B2G and you have large projects that you're about to take on and you don't know how you're financing them, you have to do project financing. And by the way, these two programs work hand in hand. So when you set up one, it's easy to set up the other. And then guess what? The only thing you ever need to contact me about is, hey, I need to get this piece of equipment financed. And that works outside of those two programs.

and is fine. And so that those three programs are all somebody needs that are in B2B. or B2G. And almost nobody has that set up because banks don't carry them. And there's no education anywhere outside of I guess this show, letting people know that hey, this is how you handle it. This is what you can do. And by the way, it takes about a week or two to get both of these things set up. So it doesn't take a lot. And once you're used to it,

It's just a part of doing business. You're used to setting up a new project financing cashflow sheet for your new job.

Keith Gause (10:55)
Yeah,

and then let's face it too, just because you do it now doesn't mean you have to do it forever. Utilize this to build the sack, build your bag, and then you won't have to mess with this if you don't want to unless you can always factor in the payments and it's not costing you additional capital. I'm a huge proponent of leverage. And so anytime that I can spend someone else's money where it doesn't cost me anything and I can have an asset on the other side of that or

money, which we'll call them both assets, It's a no-brainer, like absolutely no-brainer. So let's talk a little bit about how these are set up. What are the requirements on the business owner's side to be able to set this account up?

Jonathan Fodera (11:33)
So for project financing, it's typically two years in business, but you could do it after a year. You have to have good financials and you have to have a work contract that is, I would say, within two to five weeks of starting to get this set up. And then you just go through the application, send in your tax returns, financials, the cash flow model of the job, which is simple. And by the way, there's an explainer step by step guide you how to do it. And then for invoice factoring, that's easy.

you need is good paying commercial AR, As long as you have, let's say $50,000 plus in accounts receivable.

you could get a term sheet with inside of 24 hours and then set up not too long after that. So these are very easy programs once they're up and going to use. And by the way, people don't leave them. You know why? Because it's just so easy to run your entire business with them. And here's one of the cool things. Most programs, if I get somebody an SBA love, I have no idea if they're growing, if they're stagnant or if they're failing afterwards until they reach out to me.

In factoring, I can see the before and after. Okay, so when I tell you I see the increase in revenue, and these companies growing, I'm not kidding. And it's not one or two, it's the majority of them have rapid growth after setting it up. Like my buddy Austin went from doing graphics and science, he was in about 100,000 a month. He fought me on factoring and after six months, he finally agreed to try it. And he grew 300 % in the two years.

Keith Gause (13:00)
small numbers. Yeah, no one likes that number.

Jonathan Fodera (13:01)
Yeah, no, It might have been a fluke, might have been from doing 100,000 a month

to 300,000, you know, and by the way, he's more profitable now when it was set up, when he has it set up and going than he was before. Because he was, because he was always calling me to borrow money to fund the next job or to float the next thing. It's not sustainable. You know.

Keith Gause (13:14)
Sure, flood-deserved goods.

I like that.

Jonathan Fodera (13:25)
And so

Keith Gause (13:25)
Cool.

Jonathan Fodera (13:26)
like this is this is a sweet spot for companies that are B2B and B2G and nobody knows about it. It's like this best kept secret. You know, it's like when I tell people, hey, pay your credit cards off on the statement date or day before the statement date because it's going to increase your score because that's when it reports. It doesn't report on the due date.

You know, like these are things we don't learn in school, but having a trusted source where you can go out and actually find this stuff and actually implement it is a game changer.

Keith Gause (13:54)
You were the man for that.

Jonathan Fodera (13:55)
so guys, project financing invoice factoring. This is how you should be looking to fund your B2B B2G businesses. It's the quickest, easiest way. It doesn't cut into margins, either one of them. And it will really, really help you grow without having to borrow and having to deal with going to the bank. If you guys have questions on this or anything that we covered, please reach out. mean, these are really easy to set up. These are really easy. There's I've answered the same questions over and over and

on them and I'm happy to help you but if you have that type of company this is what you should be doing because it'll make your life a lot easier and you will have a lot a lot more peace of mind knowing that you're not waiting for invoices to be paid not you won't be worried about what's in the bank account because you'll know and by the way you'll be able to take on so much extra work

that you'd be shocked at how fast you can grow once you're not waiting to get paid. so I hope this helped you. We'll catch you on the next one. Please share this with a couple of people that need to hear it. I see the numbers. Keith sees the numbers. We're growing and we need your help to do that. So keep it coming.

Keith Gause (14:59)
We want to grow faster,

so put some leverage on that button, push it.

Jonathan Fodera (15:02)
Yeah, hit the leverage button.