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The Subcontractor’s Guide to Exceeding $10M in Annual Revenue: Part 1 – Build Your Financial Game Plan

Published: April 27, 2022
Last updated: November 04, 2022
Read time: 10 minutes

If you’re growing a subcontracting company, it’s only natural that you have your sights set on hitting 8 figures in revenue. To grow beyond $10M in revenue, subcontractors need to be ambitious, methodical, and above all, consistent about pursuing business growth. 

In this 3-part series from Billd, we’ll explore how to approach the nuanced decisions you’ll make on your way to $10 million or more. We’ll provide actionable advice for subcontractors in the realms of finances, internal business processes, and external processes. In Part 1 of this series, we’ll hone in on the most important facet of growth — your financial strategy.

Understand Your Financing Options to Position Your Company For Future Growth

The most successful construction entrepreneurs aren’t just good at delivering quality work in their trade, executing business development activity, or driving sales — they’re also smart about addressing cash flow challenges early on. At Billd, we understand that growing your subcontracting business is no small feat and that you’ll eventually need to establish large lines of credit to run, and grow, your business. But how do you get there?

While there are several financing options to bridge the cash flow gap, whether or not each one is a smart move (or even an option) for your business depends on your current stage of growth. Subcontractors have various options at their disposal, but depending on your annual revenue it can be tough to get the financing you need to succeed. The question becomes: how do you access the construction financing options available to the major players and utilize them to scale your business?

Let’s take a look at five common types of construction financing — cash, credit cards, banks, supplier terms, and material financing — and how to most effectively approach each option when you are making under $1 million in annual revenue, earning between $1-5 million in annual revenue, or bringing in $5-10 million in annual revenue. We recommend that you skip to your revenue segment section in order to get the best advice for your business. 

  • Financial game plan for under $1 million in annual revenue
  • Financial game plan for $1-5 million in annual revenue
  • Financial game plan for $5-10 million in annual revenue

loans for construction companies

Financing options to help you grow when you earn under $1 million in annual revenue

Cash: Most common option, but suboptimal

To finance your business early on, you’re likely using your own personal savings, equity dollars that you’ve raised from investors (less likely), or cash that’s generated from sales. While using cash to grow, and run your business, is likely the only option early on, it’s suboptimal, primarily for three reasons: 

  1. When cash is being used to finance your business, you forgo the opportunity to use that cash to take on larger projects, more projects, or invest in marketing and sales initiatives.
  2. The construction payment cycle can be unpredictable and leaves subcontractors fronting large project expenses prior to getting paid. This imbalance of cash flow causes major working capital challenges that make running the business difficult.
  3. Taking on investors early on means giving away a large chunk of your business that could become very valuable down the line.  

Credit cards: Important to build business credit – start using

At this stage, you’re most likely relying on personal credit cards to purchase materials and pay for everyday expenses. But by the time you reach the $1 million mark, it’s critical to get a business credit card and use it. Pay for recurring expenses like utilities and contractor management software, and then pay it off each month. This will help you build a positive history with the (business) credit bureaus in order to secure additional credit and better terms down the road. 

One important factor to consider are credit card fees. Some merchants will build in a 2-3% additional fee to the cost of their products or services for credit card payments, so understand that you are paying those fees when you use credit cards.

Bank lines of credit: Not an option at this stage

You’re very unlikely to get a line of credit at the sub-million stage. However, there are steps you can take today that will lay the groundwork for future access.

  1. Choose the right bank

Find a community or regional bank with a reputation for providing strong line-of-credit options for business owners in the construction industry. Open up a depository account as a customer and use it for a checking or savings account.

  1. Develop a long-term relationship with your banker

Introduce yourself and give your banker a full picture of where your business is now and where you hope to be. Share information about the projects you’ve done, what you’re bidding on, customers you work with, your business projections, and financials. Transparency is key!

Do not ask for a line of credit yet. This is just about setting the stage so that, later on when you do apply for a line of credit, you will have a history of working together.

  1. Start a conversation about a future line of credit

Let your banker know you’re working towards a line of credit one day, though you realize your business doesn’t command it yet. Ask them what it would take to secure a line of credit in two years… and, guess what? They will tell you. Then you’ll know exactly what you need to do to build their trust and gain access.

Remember: As much as credit and risk are driven by algorithms, people run your company’s credit evaluations. Building a relationship with your banker early on will help position your business for success. And, as a depository customer for a year or more, you’ll have an advantage over if you walked in one day to the bank asking for a line of credit.

Supplier terms: Likely not an option

Many subcontractors jump the gun in trying to obtain supplier terms by pitting suppliers against each other or trying to strong-arm a supplier on price. At the early stage of growing a construction business, your relationship with good suppliers comes first. Sacrifice the short-term margin for the long game. Supplier terms are normally not available at this stage, and that’s ok — but by developing a solid relationship with a supplier, you can eventually secure terms when your business is ready.  

Pro tip: Start with one supplier. There’s no need to be developing relationships with multiple suppliers yet. You’ll introduce new relationships as the business grows. Establish one, and begin building the relationship.

How to Approach Suppliers You Haven’t Worked With

Introduce yourself to a new supplier just as you would with a banker: be transparent, let them get to know your business, and whatever you do, don’t ask for a credit line (terms), yet. First, build your purchase history with them. Start with small orders you can purchase with cash or credit cards. If you don’t have the cash flow or credit to accomplish this, working with Billd will enable you to pay cash upfront for materials while repaying for the materials on more flexible terms. 

Once you’ve established a relationship, start the conversation about securing terms through your supplier. If you’re working with Billd, let the supplier know you’re leveraging another financing option to purchase materials, but that you would also like to get to the point of having 30-day terms with them. Don’t be afraid to simply ask what it would take to secure terms.

However, don’t rush into a supplier relationship — because you may not be ready for it

As the owner of a sub-million dollar construction business, one missed payout can catastrophically disrupt your cash flow. When a supplier does extend a line of credit to you at 30-day terms, they’ll be watching closely to see how you pay. If a cash flow problem, or slow payment, causes you to be late on your supplier payment, it could ruin that relationship.

Billd is an option

If your revenue is above $500k, Billd is an option for you. At this early stage, in particular, Billd doesn’t just make sense — it’s the best option because Billd products are built with the unique needs of subcontractors in mind. When you start a relationship with us early on, we’ll help you quickly build a purchase history with your supplier so you can achieve a stronger relationship with that supplier. Additionally, Billd reports to credit bureaus to help you establish your business’s credit history. This is critical as you’re looking to build supplier and bank relationships. We give you a jump start on that.

Here’s how it works: we pay your material supplier upfront in cash and you pay us back when you’re paid for your work, or in up to 120 days (whichever comes first). You get your materials when you need them, and you never miss out on new or bigger projects due to cash flow bottlenecks, so your business can continue growing. 

How Billd Improves Upon Supplier Terms
  1. Reporting to the credit bureaus

We report to the credit bureaus, while suppliers usually do not. Why is this significant? You need a good credit history to get a company credit card and bank financing as your business grows. If you’re purchasing materials through supplier terms, that’s doing nothing to improve your business credit score. With Billd, we strengthen your financial position from day one.

Think of a relationship with Billd as planting a small seed for the success of your business — do it early and watch it continue to grow.

  1. Cost savings

Most suppliers offer a 1-4% discount for upfront, cash payments. What this really does is removes a baked in surcharge for using supplier terms. So when you use supplier terms, you’re actually paying more for materials.

For example, if you’re purchasing $100k worth of materials per month on supplier terms, and that supplier offers a 2% discount on cash payments, it’s actually costing you an extra $24k (24%) annually to use supplier terms. Here’s the math – $100k x 2% = $2,000 cost for buying on terms. 2% for 30 days means if you annualize that, it comes to 24% (2% x 12 months).

  1. Greater flexibility

Why pay through suppliers on fixed 30-day terms, when Billd offers comparable rates at 120-day terms? Plus, we provide a much higher credit limit than suppliers are able to offer. 

Financing options to help you grow when you earn $1-5 million in annual revenue

Cash: Suboptimal, but still an option

Cash is an option at any stage, but in the construction industry, relying on cash flow is dangerous as payments are inevitably unpredictable, and expenses tend to be due far before revenue is realized. Additionally, raising equity and using equity dollars can be very expensive as your business is primed to continue growing. 

Credit Cards: Important to build business credit – Increase usage

You should be ramping up your business credit card, spending a significant amount and paying it off every month. While you could get a second card, splitting up your spend might make you less attractive to your primary credit card company, negatively impacting your strategy to build up to larger lines of credit. The great thing about Billd is that if you are using it in conjunction with a credit card you will be increasing your available line of credit and increasing your ability to get another credit card. This is called “credit utilization,” which banks look at, which shows how much credit you have available versus how much credit you’ve used. The lower the ratio, the stronger your credit utilization. By increasing your available line (with Billd or with a credit card), you decrease your credit utilization.

One thing to note: When you’re under $25 million, your debt is going to be collateralized by a personal guarantee, which means you’re putting your personal finances on the line. Get to know your business credit card account representative and make sure they know your story. When your business reaches that $25 million mark, inquire about options for removing the personal guarantee.

Bank lines of credit may or may not be an option 

While you’re likely still not eligible for a line of credit, check-in with your banker every six months to continue building your history together. If you are able to secure a line of credit, it’s likely going to be fairly small and probably not enough to leverage the power of debt to start growing your business. However, there are steps you can take today that will lay the groundwork for future access like choosing the right bank, developing a relationship with your banker, and starting a conversation about future lines of credit.

Supplier terms are an option

At this point in your business, you’ve likely developed a solid relationship with at least one supplier, but now it’s time to start diversifying. Approach additional suppliers the same way you approached the first — by starting an open dialogue about your business and future goals. Tell them the other supplier has been great, but you’re looking to expand your options. Start with small purchases and build up. Once you’ve secured terms, find out how they might change in a few years when your business has grown. 

Billd is an option 

If your revenue is between $1-$5 million and above, Billd is an option for you. Billd products are built with the unique needs of subcontractors in mind. When you start a relationship with us early on, we’ll help you quickly build a purchase history with your supplier so you can achieve a more sustainable approach with that supplier. Additionally, Billd reports to credit bureaus to help you establish your business’s credit history.

Here’s how Material Financing from Billd works: we pay your material supplier upfront in cash and you pay us back when you’re paid for your work, or on flexible 120-day terms (whichever comes first). You get your materials when you need them, and you never miss out on new or bigger projects due to cash flow bottlenecks, so your business can continue growing. 

If you’re not paying cash upfront for materials, you’re likely paying an extra 24% annually for materials. That means that if you were to spend $100k on materials you’d be spending an extra $24k of hidden supplier fees for not paying upfront for materials. Billd enables you to save money on materials, bridge the cash flow gap from construction payment cycles, and strengthen your credit score, all while still building relationships with suppliers. 

Financing options to help you grow when you earn between $5-10 million in annual revenue

Cash is an option

You might want to look at raising capital at this stage if you’re growing fast but consider debt options as well. Your most likely investors at this stage will be angel investors (a single person or people not affiliated with an investment company, usually high net worth individuals). Taking on an investor might be the right option for you if they can also provide strategic value, but it is important to understand the implications of selling equity in your business to an investor. Selling a percentage of your business as your company is quickly growing will force you to give up more and more profits as your company grows. That’s why debt options might be better suited for the long-term success of your company.

Credit Cards are an option

You should still have one or two credit cards and really know your account rep well by now. Your credit lines should be consistently growing as you continue to repay balances monthly. 

Bank lines of credit may or may not be an option 

This is when your relationship with your banker kicks into high gear and you can have a real conversation about getting a line of credit. You’ll need sound financial statements and credit history, which you’ll have if you’ve been paying off those credit cards and purchasing materials through Billd. A personal guarantee is still required until you break that $25 million barrier.

Supplier terms are an option

You probably have at least three to five vendors now, including a primary with 60% of your business, another with 20% of your business (perhaps specialty items), and the rest you either spread out evenly or don’t use at all. Make them work for your business! Fill out credit applications, get on their radar and let the sales reps call on you. Start having conversations about pricing with your suppliers to ensure you’re paying a comparable rate to your competitors. 

Billd is an option 

At this stage, it’s critical to keep diversifying your financing options. If a project payment doesn’t come through for 90 days but your supplier bill for $500k is due in 30 days, you’ll be stuck in a major bind. In addition, if you’re relying on supplier terms for materials, you’re still paying an extra 24% annually and the payment cycle still requires you to pay for materials before getting paid for the work.

Having only one financing option could leave you high and dry, but utilizing a mix of supplier terms and Billd will help mitigate those cash flow problems. At the very least, get pre-qualified and on our platform so you have the option when you need it. 

Take a careful, honest look at each of the financial options available to you. Choosing the right avenue will prime you to one day hit that $10M marker. Unsure of how to proceed? The construction financing experts at Billd are your ally, ready to field your questions as you grow. Feel free to give us a call or send us an email. Next week, we’ll explore another critical component of growth — the art of your internal operations. 

About Billd: At Billd, we provide a payment solution that enables commercial construction contractors to free up cash for material purchases while enjoying the flexibility of 120-day payment terms. You get financing for commercial materials upfront with the freedom to pay it back at your own pace. Learn more about how we can help eliminate your company’s cash-flow problems so you can win more bids and grow your business.

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Hayden AbrevayaProduct Marketer

Hayden has worked in the heavy civil construction industry in estimating, project management, and concrete production. He is an avid learner and lean construction proponent who believes that the construction industry is ready for technological advancements in all aspects of the construction process. At Billd he uses his skills to help contractors grow their companies by providing them the information they need to win more bids, and take on more projects.

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