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....

Talent Shortage and Investing in Talent Development
Construction reached “Peak Talent” levels in 2015 and the problem will get 3X worse by 2020 continuing to worsen through 2030.
Talent Shortage 2.0
Contractors will face a 25% gap in the critical talent layer that keeps their companies growing profitably and sustainably.
Preconstruction Questions & Answers
Raymond and David tackle a variety of audience questions about preconstruction services. Integrated project delivery, getting started with precon services, searching for a conceptual estimating and much more.