Tag Archives: striping

Estimating Your Funding Needs – Intro

Once you have formed your company and gotten your permits and licenses, you are going to need to establish how much money you will need in the bank to fund operations.

Having adequate financial resources to fund your business can make a difference in your companies success or failure. Few mistakes are more devastating to a new business than making unrealistic assumptions about finances and the capital needs of a growing company. Simply planning ahead can help you avoid these problems.

Before funding your striping business you will need to identify all potential start-up costs. Some of these expenses will be one-time “start-up” costs such as equipment acquisition, incorporation fees, deposits, permits and licenses, etc.. These are generally non recurring costs. Some will be ongoing such as the cost of utilities, inventory, accounting fees, etc.. These expenses will be recurring and will initially need to be paid from start-up capital until the business has a positive cash flow. The goal is to establish how much money you are going to need in a checking account to fund start-up costs until business profits can take over.

Your ongoing expenses will fall into two categories, fixed and variable. Simply put, fixed costs stay the same regardless of the number of striping jobs you have going. Your telephone, power, or accounting bill is an example of this. If you were to have no striping jobs for a year you would still pay these bills. Variable costs will vary according to job volume. Paint, gas, and labor costs would be examples of this. As your job volume increases so do these costs. Keeping this in mind will assist you in setting aside enough money to accommodate growth.

As stated above, as your company grows, so does the need for working capital. Working capital is simply the amount of money that is needed in inventory and in the bank to pay bills. For example, a small striping company may need $5,000 in the bank and $1,000 in paint inventory. As that company grows it would need to increase both of these items. If a company shrinks it would require less. Oftentimes business owners are confused because they expand sales only to find that their profit is being absorbed into working capital to support the growth. Additional capital expenses, such as equipment, will also absorb profits. The thing to remember is that as growth levels out cash-flow will return to normal.

A simple way to understand how profit can go up and cash can go down is to look at a typical series of jobs. Let’s say you start a $5,000 job. You purchase paint, spend money on gas and pay your helpers. You finish the job and send then invoice to the customer. At this point you have made a profit but you actually have less cash. Let’s say that in the meantime you start three more jobs. A week goes by and the check for the first job comes in the mail. However, you have already invested the profit from the first job into the three new jobs so there is nothing left for you. After three weeks the new jobs are done and you have plenty of cash in the bank. Then you get more jobs and you have to purchase an extra striper. Also, you need to leave more cash in the bank to cover growing inventory demand. Cash goes down and you still have not taken a paycheck. This seems alarming, but it is actually a good thing. Business will eventually level out and since you have reinvested your profit back into the business you now have the capacity to take on several jobs with no need for additional capital. Finally, you can start taking a salary and draws. Think of it as walking up steps. Each step takes an effort but leaves you higher than before.

After you have considered all these things, simply make a list of your equipment needs and costs and add a few months of operational bills to that. Put together the funds necessary to cover all of these expenses and deposit them into your commercial bank account. This money is for your business and not for you to live on. You should have money for that somewhere else.

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Obtaining Licenses & Permits

Almost all businesses are required to obtain a business license or permit to do business in the county they are in. Some businesses and occupations are required to be licensed by the state as well. Begin by checking with your county business license office to see what licenses you will need. If you are within the boundaries of a city your will most likely need a city and county license. You will sometimes need a license for each county or city that you will be doing business in. Begin with your own county and as you get jobs out of your area obtain the proper licenses. If you know you will be doing jobs in an adjacent city or county it is a good idea to go ahead and get the proper licenses ahead of time. A license will usually run about $25 per year and once you get one you will receive a renewal form annually so you won’t have to remember to renew each year.

In some states and counties an additional contractors license is required. This is rare but you will run across this in a few places. If you are required to get this additional license it is not the end of the world. Look at it this way. A lot of your competition will not want to study for a test and pay an extra fee for the contractors license. That leaves you with less competition and the ability to demand higher prices for your work. In the end it can actually work to your advantage.

When you get your license, you should probably go ahead and apply with the state for your Tax ID number if your state requires that. If services are taxed in your state you will need that number to file a return each quarter or each month. If you are a Sub S Corporation or an LLC doing business under S Corp regulations then you will definitely need a Federal Employee Identification Number or FEIN. This is basically a social security number for your business. Easy to get and used when you pay yourself and once a year during taxes.

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