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 and the 5Cs of Credit - Capital
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 and the 5Cs of Credit - Capital
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....

Competency and Compensation
A large part of sustainable growth for contractors is being able to effectively leverage people with a narrower set of skills to still deliver the same level of value-add to the customer.
The Knowledge Management Pyramid (DIKW)
Knowledge Management is a complex topic and the contractors who learn to manage it the best will have an edge in the market. There are several models that can help you visualize the differences between different types of “knowledge” in your organization.
Building Your Target Talent Model
Talent is the most constrained resource in the construction industry through at least 2030. With the industry's growth outlook, the contractors with the best Talent Value Streams (TVS) will dramatically outperform. Sadly, there will also be failures.