Finance
Finance questions, answered.
Cash, debt, profit, and the numbers that tell you the truth.
How much cash should I keep in the bank?
Three to six months of operating expenses, separated from the operating account, untouchable except for emergencies.
How should I pay myself as the owner?
A real W-2 salary at market rate for what you actually do, plus owner distributions from profit. Not random transfers when the account looks fat.
What numbers should I watch every week?
Revenue, gross margin, cash on hand, and AR over 30 days. Four numbers, 10 minutes, every Monday.
How do I get my customers to pay me faster?
Invoice the same day. Make it easy to pay online. Charge a late fee. Follow up at day 7, 14, and 21 by phone, not email.
Should I take out a business loan?
Only for an asset that will generate more cash than the payment. Never for payroll or operating shortfalls.
How do I survive a slow month?
Cut variable costs fast, talk to vendors before you miss payments, and call every quote from the last 90 days. Don't panic-discount.
Do I need a bookkeeper?
Yes, the moment revenue passes $250-500K, or sooner if you hate the books. The hours you save will be worth more than the fee.
How much should I save for taxes?
25 to 35 percent of net profit, in a separate account, touched only on tax day. Don't trust yourself with it.
What profit margin should I target?
Net 10 to 20 percent for service trades after a real owner salary. If you're under, prices, costs, or both are wrong.
Should I form an LLC or an S-corp?
LLC the day you start. S-corp election once net profit is consistently over $50K. Both done with a CPA, not a $99 web form.
How do I actually read a P&L?
Top is revenue. Subtract direct costs to get gross profit. Subtract overhead to get net profit. Three numbers, not 30. Look at them monthly.
What's the difference between cash flow and profit?
Profit is what you earned. Cash flow is what's actually in the bank. Profitable shops die of cash flow problems all the time.
What insurance do I actually need?
General liability from day one. Workers comp the day you have one employee. Commercial auto if you drive for work. Umbrella when revenue gets serious.
What do I do about a customer who won't pay?
One polite call. One firm letter. Then small claims or collections. Don't let it drag past 90 days, the recovery rate falls off a cliff.
Should I track profit on each job?
Yes, by job type at minimum. The shops that don't can't tell you which work makes money. They guess, and their guesses are usually wrong.
How do I legally pay less in taxes?
Hire a CPA who specializes in small trades. The right S-corp election, retirement plan, and vehicle deductions usually pay their fee five times over.
How do I build business credit?
EIN, business bank account, business credit card, vendor accounts that report to Dun and Bradstreet. Two years of consistency and you have real business credit.
How do I calculate my shop's effective labor rate?
Total labor dollars collected divided by total hours actually worked by techs. If it's below your posted door rate by more than 20 percent, you're bleeding time somewhere.
How do I know if a job actually made money for the shop?
Track gross profit per bay hour on every job, not just whether the invoice looked big. A big invoice with a huge parts markup and low labor can still be a bad use of the bay.
Is it okay if my best tech makes more money than I do?
Yes, and if you're the owner still turning wrenches, it should happen more often than it scares you. Your job is to make money on the shop, not out-earn your best employee at the bench.
Should I take on fleet accounts that pay net 60?
Only if the volume and margin are worth financing them for two months, and only with a credit application and a hard cap on how much unpaid balance you'll carry at once.
How should I structure progress billing on a build that takes months?
Bill on defined milestones tied to work actually completed, not on a calendar schedule, and never let more than a few weeks of unbilled labor pile up. A build that runs four months with one invoice at the end is a build where you're financing the customer's project with your own payroll.
Should I charge myself shop rate for time spent on my own project or demo car?
Yes, track it at your real shop rate even if no money changes hands, because untracked owner time on a demo build is the easiest way to quietly lose money without noticing. If it's not on the books, it's not real to your numbers.
How do I get customers to pay the final invoice on an install without chasing them for weeks?
Collect a deposit up front, get final payment due at completion in writing before you start, and don't leave the job site until the final payment is handled.
Is it worth taking home warranty company work?
It can fill slow days and build volume, but the low payout rates and slow claims process mean it should never be your main revenue source. Treat it as filler, not a strategy.
How do I know if I actually made money on a job before the month closes?
Track job cost against loaded labor, materials, and truck time at the invoice stage, not at month-end. Waiting for the P&L to tell you means you find out too late to fix anything.
How do I set a draw schedule that keeps me from financing the customer?
Draws should always run slightly ahead of your actual cost curve, never behind it. If you're ever more into a job than you've been paid, you're the bank.
How much deposit can I take, and what does my state allow?
There is no national number. Many states cap deposits by percentage or a flat dollar amount, so check your state's rules before you write it into a contract.
The job went over budget. How do I tell the customer?
Tell them as soon as you know, not at the final invoice. Bring the number and the reason, not an apology tour.
What do I need to know about final payment and mechanics liens?
Get the punch list signed off and the final payment collected before you release lien rights. Your state's lien process has specific deadlines, check them before you need them.
What do I do when material prices move mid-job?
Put a price escalation clause in every contract before you need it, and if you didn't, absorb small moves and talk through big ones honestly and early.
How do I track job cost while the job is running instead of after it's done?
Check cost against percent complete weekly, not at the final invoice. Finding out you're over on the last day means you can't do anything about it.
How do I pay myself a real wage instead of whatever's left over?
Set a fixed weekly or biweekly owner paycheck based on a market wage for your role, and pay it on payroll like everyone else. Profit distributions come later and separately, not instead of it.
How do I collect from a customer who refuses to pay?
Escalate in stages, in writing, with dates, before you call a lawyer or small claims court. Most non-payers cave once they see you're organized and not going away.
What numbers should I actually look at every week to run the business?
Pick five to seven numbers you can pull in fifteen minutes every Monday, not a forty-tab spreadsheet nobody keeps updated. Cash, sales booked, jobs completed, and one leading indicator of trouble beat a dozen vanity metrics.
How do I manage cash flow when customers are stretching out how long they take to pay?
Tighten terms going forward, chase the aging receivables aggressively, and build a cash buffer sized to your actual collection lag, not your best-case assumption. You can be profitable on paper and still run out of cash if collections slip.
Should I buy or lease my next big piece of equipment?
Buy what holds its value and you'll run for years past the loan term. Lease what changes fast, gets used seasonally, or you'd want to upgrade in three years anyway.
Should I take on debt to grow the business?
Only if the debt funds something that generates more cash than it costs, on a timeline you can survive even if growth is slower than planned. Debt to cover a cash shortfall from an already-struggling operation is a different and much riskier decision.
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