Cash Flow and the 5Cs of Credit - Capital

The 5Cs of Credit consist of Character, Capital, Capacity, Collateral, and Conditions.

D. Brown Management Profile Picture
Share

The 2nd of the 5Cs of Credit is how much capital you are putting at risk, along with your financial partner.  

Cash Flow: 5Cs of Credit. Capital.

Regardless of whether you are looking at:

  • Operating Line-of-Credit (LOC)
  • Financing for Equipment or Vehicle Purchases
  • Real Estate or Construction Financing
  • Surety (Bonding)
  • Insurance With Some Form of Shared Risk

Your financial partner will want you to put some of your own capital into the deal and that will come in the form of:

  • Letter-of-Credit from your bank tying up a portion of your LOC.
  • Actual cash put in as a down payment for real estate or equipment financing.  
  • Minimum levels of equity or, more specifically, Tangible Net Worth (TNW) from the perspective of your financial partner. This TNW calculation will typically exclude things like intangible assets (goodwill, etc.), related party transactions, and doubtful accounts.  
  • Minimum ratios such as Total Liabilities / TNW 

These are negotiable with the other 5Cs taken into consideration. Our recommendation is that contractors design and follow their own very strict capital management policies appropriate for their business.  


Cash Flow
Great cash flow is a key driver of valuation and successful successions. Running out of cash is is the #1 reason contractors fail. Improving cash flow improves your Return on Equity. Protect yourself and never let cash flow be the limitation to your profitable growth....

Cash Flow
Great cash flow is a key driver of valuation and successful successions. Running out of cash is is the #1 reason contractors fail. Improving cash flow improves your Return on Equity. Protect yourself and never let cash flow be the limitation to your profitable growth....

Lessons from the 9th Grade
At the beginning our our lives, careers and businesses we can get into an extremely comfortable position with someone else taking nearly 100% of the responsibility. Someone else tells us what to do, how to do it and when it needs to be done by.
Accelerated Development - Closing the Gap
The shortage of critical talent in the construction industry will be 3X worse by 2020 and will continue to worsen through 2030. The only way that we will be able to close this gap is if we focus on accelerating the development of people.
Accelerating The Pace of Learning
Closing the gap between where we are and where we want to be starts with learning new things and accelerating the pace of our learning.