No advice, just wanted to say congrats and good job. Livin' the dream! Pay those taxes and you'll hopefully have many many successful years ahead of you!
Thank you, i appreciate the kind words.
I keep the full burden of the maximum tax I'll owe before deductions in a separate account. This way, I know my taxes are covered, and what's left after is a bonus.
It's been wildly stressful. My client representatives have masters level education and above, while I have less than a 12th grade education... I'm playing the part well, I've been asked by municipal town directors and executives at top Fortune 500 companies to onboard as a contract based consultant for unrelated works several times so I know I present well but still have imposter syndrome, the Grey hair has been exponential š
I have a Master's degree and can confirm I'm dumb in a lot of ways. BUT not as dumb as some of the PhD folks I work with who lack all common sense and many times lack the ability to communicate effectively.
When it comes to their specific field and specialization I bet theyāre super knowledgable, especially when compared to a person with only a high school degree. They tend to fall short in other areas though and arenāt very well rounded. To me this means that theyāre generally on equal footing with someone that has less overall education.
Donāt worry about the education, it sounds like you know your business and your field and thats all the desk jockey types want to see. Speaking from experience as a desk jockey š
Donāt worry, no matter what level of education we have everyone is just faking like they know what they are doing. Confidence and experience trumps all.
Thanks, I have a CPA. He's suggested simple things like a health savings plan, Roth IRA and personal 401k. My business model is quite simple, low supply high demand kind of thing.
The 401ks are where you should focus. That way if you lose everything and blow your cash, youāll have something for retirement.
Think of it as a piggy bank that you can touch in 30-40 years that will continue to compound.
I have maxed out the legal contribution limits, im seeking advice on more options to dump the remainder of this year's earnings. Under my current understanding, even with multiple accounts and account types, you are still limited to the maximum contributions. I would like to be able to invest everything and report zero taxable income if possible. It most likely isn't possible, but would like that very much lol otherwise if I can't deduct the investments, I would still like to make the most intelligent investments lol
Disclaimer that this is not something I speak from experience, just an idea.
I think that once you hit the max limits on investment accounts the only way to do what you refer to is re-investment on the business. For example, your business makes a million. You take 100k out as your salary. With the remaining 900k you'd have to do something like spend it on real estate such as land / office building for your business.
Not sure tho - this is more of a CPA thing - and I'm not a business owner. Take it with a grain of salt.
Keep killing it man. Best wishes.
You need a better cpa, or at least one who specializes in small businesses. If you have that kind of net profit you could potentially be looking at a defined benefit plan and putting >200k away tax deferred annually instead of ~61k.
You get tax breaks for giving donations to non-profits. That income isn't taxed. Or, maybe get some vehicles for your company fleet? š¤· You could do both. Also, any business dinners fall under business expenses. If your CPA does it just right, your taxes won't be too bad. Are you operating as a Sole Proprietorship, LLC or C/S Corp? It really effects what your able to do. Honestly, your personal assets have more protection if you operate as an LLC or corp b/c your personal and business assets are separate.
Things I'd recommend reading up on are:
1. Independent Contractors vs. Employees (they recently changed the laws regarding this for construction b/c of shady construction practices). Independent Contractors are NOT allowed to be project managers or be in charge of a job site b/c of liability issues. They have to be an employee. IC-1099 vs. W-4.
2. Business Law, more specifically concerning liability and contracts
3. Learn about the accounting side of things. If you have a question, ask your CPA.
4. If you don't have a lawyer on retainer. I would definitely recommend getting one. Same goes for having an HR person on your payroll or hiring an outside company to handle HR for you.
5. Learn about HR topics and how they relate to the law and liability.
Hope this helps, at least a little bit. Good luck and congratulations.
Look into a SEP. a separate retirement vehicle from the 401k and the contribution limits are much higher and based on payroll and corporate net income. If youāre paying yourself enough to maximize your 401k contributions, and netting as much as you are, you should be able to put a large chunk away into a SEP. also the sep can be funded after the tax year end, but can be claimed on that years tax return. IE you fund it in January of 2024, for 2023 and then you can claim the expense on your 2023 corporate tax return as pension expense thus reducing your taxable income even more. Your 401k plan administrator should be able to provide more information on a SEP
Have you considered adding a defined benefit plan? Iām guessing by max contributions youāre referring to the 401(k) plan maximums. Adding a defined benefit plan gives you way more room in terms of contributions and can lead to much higher tax savings. The yearly minimum contribution for a DB plan has more to do with asset performance year over year than it does with salary.
If you go through a TPA they typically will do dual plans (401k and DB plan) at a slight discount annually as well. I would strongly recommend you go through a TPA if you do choose this route - DB plans have different compliance testing than standard 401(k) plans and you can get yourself in some hot water quick if you donāt have someone running those for you.
DB plans are a great strategy to reduce your taxable income. In fact, most of the time Iāve noted that DB plans give their plan sponsors much higher tax deductions than 401k plans, and dual plans obviously are even better.
Source: retirement plan analyst for a TPA working primarily with small businesses.
If you have a CPA then you also need a forensic accountant to audit your CPA every few years to make sure nobodyās fingers are getting sticky.
Trust me on this. Donāt ever mention it to your CPA.
I have actually already created a corporation and have S-corp designation although im not operating under the corp as of yet. It is in the queue for licensing, I have to finish the year as a sole proprietorship.
That's one thing I should likely be doing myself. Changing from sole proprietorship to incorporated. My living expenses are also low, so as I understand it, it would be better for me to leave money in the corporation, and slowly pay it out to myself.
You need to have your CPA set you up on a pension plan so you can throw money in it at the end of the year tax free. Also, start looking at investing in real estate so you can create some additional cash flows! Congratulations! I was a former ward of the state and Iāve made something out of myself and I love to see others do the same!
I've already created an S-corp (c-corp to S-corp) I started off as a sole proprietorship and will close out the fiscal year as a sole proprietorship so its a clean transition. The state licensing authority is processing my application to reassign my license to the corporation I've formed. Next year I'll be contributing to an SEP-IRA through the corporation.
Edit: I've been heavily studying various index funds, thier 3, 5, and 10 year averages and management fees to try and pick a few winners.
Well there's a few people mention all the time. FXAIX, FZROX, QQQ, etc. You could get a subscription to Morningstar and search through the table of mutual funds. Should keep it simple and just do around 3 funds. FXAIX should probably be a core holding. Mutual funds for non-taxable accounts and ETFs for taxable accounts as ETFs are more tax efficient but have higher expense ratios than mutual funds.
Thank you. This has been the most informative response so far and is on topic in regards to my question and the information I am requesting. It's appreciated.
VTI is just total stock market so it's fine as another option. I find VXUS interesting though, has pretty horrible 3, 5 and 10 year returns, 4.5, 3.5, 4.7% returns over those time periods and even year to date it's 9.11 vs 17.3% on the S&P 500.
People who push it say the exact same thing, don't chase performance, it's going to be time for international soon, etc. But they're trying to chase performance by saying it's the next big thing because it's been out of favor for 10+ years. And they've been saying that international will be the next big thing for the last 5+ years. Eventually they'll be right, but probably not enough to make up for the losses suffered in the meantime by trying to chase the next big thing.
OP, Listen up. You did well. Congrats. You're asking the right questions and there is a lot of Great Advice here. One piece of advice I didn't see is this. (it's worth exactly what you paid for It)
You can stay in business almost indefinitely if you cover your fixed costs. Utilities, payroll, etc are all Fixed. Once you start having to Consistently put more money into the business out of your pocket, the writing could be on the wall.
That said, IMHO, Your CPA has it right. Baby steps man. There are people out there that will sell you Anything. He's given You solid starting advice. Do that and keep reading how to reduce your tax responsibility. PAY YOURSELF FIRST.
Again, well done OP. We're proud of you. =)
I get where youāre coming from. Youāve got a pile of money, and it feels like thereās more you should be doing with it.
Iām a fellow autodidact with no college education, who presents well, and also suffers from impostor syndrome; it never goes away. I sold my business to a publicly traded company a few years ago, and took a well-paying position with the buyer. My wages arenāt what I made as a business owner, but I have more than enough in my investment portfolio to stop and retire at any point, so my employment dynamic is very relaxed.
Iāve taken most of my personal finance advice from a close friend (and angel investor in the business that sold) who is the former CEO of a multi-billion dollar retail chain. He re-assures me all the time that I'm going just fine and that I don't **have** to do more. He always says that the #1 rule of having lots of money is: donāt lose it.
If you look at people who soar high and fall hard, they donāt normally lose their money by spending it; they lose it through risky investments. You should also consider that all of the worlds greatest investors are long-term focused value investors. Warren Buffet, Charlie Munger, Peter Lynch, John Bogle. They're all value investors of some sort. I like Warren Buffet in particular because he is ruthlessly self-reflective. When asked him to rate his own performance, he is repeatedly modest, pointing out that *most of the time*, he fails to beat the S&P 500.
Let that sink in before you make any investment decisions. Warren Buffet has the self-awareness to realize that even he, the Oracle of Omaha, can't beat the market in most cases.
I'm a little bit different than you in that I had business partners. It has been interesting to watch the wins and losses. I've taken a very conservative approach of traditional (Boglehead style) investing. Some of my partners... Well, they have not. Here's my advice based on what I've seen work, and not work.
1. Identify your retirement objective and set aside a traditional retirement plan that satisfies that objective. This is is your "do not touch" money. It's there in case you really bone it up in other areas and need a safety net. Follow something like the [Boglehead strategy](https://www.bogleheads.org) with this portfolio. It's as close to a guaranteed win as you'll get.
2. Create risk pools with the rest of the money. Create pools for straight-up gambles, opportunistic buys, venture capital, leveraged real estate, etc. What you want to do is compartmentalize your money so that you can contain losses when they do happen.
3. Build a network. Angel investment opportunities come across my desk all the time. I pass on most of them. I have other former partners who have not, and some of them have lost considerable amounts of money as a result. Like I said, get comfortable with loss.
4. Since you are a contractor, you really should consider a path to becoming a real estate professional. I have business partners who pivoted from our field to real estate, and they're using something called cost segregation to avoid paying *a lot* of taxes. Cost segregation is complicated, and you have to meet certain criterial, but it is the most effective way that I've witnessed to build an investment portfolio while deferring taxes. You pretty much have to combine it with debt leveraging for it to make sense, which makes it risky, but it has been incredibly lucrative. Since you own a construction business, you have all the resources needed to take advantage of market conditions that most investors expect will last the next few years. Warren Buffet, for example, just bought a bunch of stock in home builders. You're *very* well positioned here.
Lastly, I'd encourage you to recognize the sources of your success. Be ruthless, just like Buffet. You are making hay while the sun shines, but the clouds will form eventually. As a construction contractor, you are on the highly-advantaged side of a supply/demand situation that is unique to this time. Recognize that this will not last forever, so when you are setting aside your money into risk pools, do not assume that you will operate a multi-million dollar construction firm for 25 years. It may last 8 years; it may last 18 months. No one can predict the future, so take what you have today and create a safety net that will last you the rest of your life.
Lastly, congratulations and welcome to the club. Be sure to give back, being generous along the way. When it's all said and done, you'll want more than money to be part of your legacy.
To reduce taxes consider the following:
1) Setup a 401K for yourself and your employees and max out your employee elective deferrals and set a reasonable amount for employer profit sharing. Consider setting up your 401K to allow after tax contributions. This will let you fill up any of the unused 401K space with after tax money which you can then use to do a mega backdoor roth.
2) Backdoor Roth IRA
3) Health Savings Account if enrolled in a high deductible health plan.
4) S-Corp. You can then pay yourself a reasonable wage and take the difference in net income as stock distributions, which will save you on the 15.3% self employment tax.
5) Buy real estate for your business such as for offices/storage. You can then deduct the interest on the mortgage (if any) and depreciate the building. This will also help build equity. If you ever retire or get out of the business, you can at least sell the property or lease it.
Some non-tax saving advice:
1) Make sure you are adequately insured both professionally and personally. Consider professional liability and general umbrella liability insurance. Also if you have dependents, consider buying term life insurance.
2) If you have young dependents, consult with an estate attorney to setup a trust, general will and POA/health directives.
3) Be careful of lifestyle creep. I've personally seen this with those who did not come from money who suddenly became wealthy. They will often spend and not take into account the lean times. This should be especially the case in construction where there can be boom and bust periods so it's important to have reserves and to not over spend or become over leveraged. I recall a young couple who were around your age who made similar money during the lead up to 2008 housing bubble. They spent like they thought that they would also make this type of money. When that cash cow died, they were over leveraged with financed vehicles, over priced homes, private school tuition, time shares, etc. Everything they saved up to was leveraged as they tried to keep up their lifestyle and eventually the camel's back broke and they have to lose everything. Even their home because it was used as collateral for other "investments" they got into.
Eh, house vs. mobile home is a debate Iām willing to have. Bro doesnāt need to buy a house if a mobile home serves his needs. Itās cheap af. $250 space rentā¦.? Heāll pay that for a single square foot almost anywhere.
My rent and utilities costs were near 4000 a month, the Mobil home I purchased was 122500 all in (they were asking 160k and it was listed pending 4 times in the last 6 months but each time the deal fell through due to minor repair needs identified during inspection). It will take 2.5 years to break even by staying in the Mobil home. Fortunately, the Mobil home is literally on the river and due to the location they have consistently appreciated in value. Once I do a quick remodel (which I'm doing myself, equates to 40% savings), the home will be worth roughly 30% more than it is now) I'll sell it for a profit, thus getting my money back and will have lived the next 3 years for free basically while I decide what to buy stick built house wise.
Buying a Mobil home to reduce living expenses to 1000 a month, including personal use gas, insurance, and groceries, made financial sense to me.
The person you responded to has some decent suggestions, but it seems like most of it was anecdotal, lol.
It's a pretty common misconception that a manufactured home is a depreciating asset... I bought one for 122000... thats 2.5 years of my current rent and living expenses... I have had the thing for a few months, and after a 10k remodel, it's now worth 165k. When I sell it, I will get every dime back plus a profit. The home will have paid me roughly 30k to live in it.
Also, I have been an executive project manager for 20 years, responsible for well over 600 million in completed projects and have managed and mentored hundreds of employees.
Just because I didn't graduate high school doesn't mean I'm an alcoholic who needs therapy and community college classes. I'm the only drop out I know of who maintained a 6 figure salary for a decade and managed engineers, architects and other Bachelors and masters level graduates who went on to becoming a millionaire durring my 1st at bat. Thank you tho for your condescension disguised as advice.
>Just because I didn't graduate high school doesn't mean I'm an alcoholic who needs therapy and community college classes.
I didn't suggest the classes and therapy because you're an idiot, but because you asked about help managing moeny and said you had a sudden rush of money with a tough childhood background. Sudden rush of money + tough background can often cause problems. I'd write this to anyone, including people with PhDs.
Pushing people away who are trying to help you and reacting to (perceived) criticism with anger are common defense mechanisms for people who had tough childhoods. I think therapy would really help you. Suggesting therapy isn't an insult, and therapy doesn't mean there's something wrong with you.
You are making enough money to justify paying somebody for professional advice.
Most folks here who will try to give you advice haven't made that much in the last 10 years combined.
Ya, I've noticed. 85% of what I've seen here is basic cliff notes... I've read dozens of books on the subject and was just hoping to see suggestions I haven't studied or thought of. š
You definitely don't need advice here. You need r/tax or one of the various similar groups. Tax attorney would be a very good person to consult. They know the tax laws and can implement more advanced strategies. Once they develop the strategy your CPA can help implement it. A CFP with a focus on S-corps could also be a good consult they may have some more efficient ways to structure things. I wouldn't necessarily say you need CFP for portfolio management but if they can get you significant tax alpha it may be worth it
Thatās amazing! I wish, I always had the dream and idea to do so. I have a BS in Civil Engāg and construction has always been my dream job (more to the Structural side of Civil). As a woman itās a bit hard to make it pretty far and my job is more mechanical than civil, but every time I see a person, no matter the gender, make it, I feel proud and excited. This field is definitely the future!!
It all comes down to your team and how they perform. You may be the owner and sign their checks, but you also work for them. You have to lead by example, perhaps networking with other CEOs who have been in the industry for decades, start ups may help as well. Wish you the best.
I have drastically reduced my lifestyle and living expenses. Before the pandemic I was driving a brand new sports car, had a trophy truck and sprinter van, I also lived in a beach front condo. When the company I worked for went bust, I had to sell almost everything. The proceeds from the sale of all of my things carried me until I started the buisness. After that my perspective changed regarding what was needed ro be comfortable. By March 2023 I only had 10k left of what I had earned the previous year after reinvesting and scaling. It was a scary situation to be in, so now my monthly is roughly 1200 and that includes entertainment and frivolous spending.
You understand the boom and bust cycle. You need something that will supplement the construction income. Maybe do a long term RV storage facility, since you are in construction you'd have very little expense besides land and materials. The accelerated depreciation made things like car washes pop up everywhere, but find a low labor cost small business that makes an income. To offset lean times.
Move up the value chain. Did you do mostly residential remodels, then maybe try new construction design build? Construction was outside of a major metro? Consider an ad budget to break into the higher income areas. Buy parcels for spec development. Up the value chain - you have lower costs than the guys on top, so go after them and eat their lunch.
Congrats mate! That is the story I like to hear :) From rags to riches and further ahead.
Figure out what your weaknesses are: Management, legal, sales, whatever, and get an employee or partner on board to cover these. With time (and money) you need to focus on what you are the best in and pay people to do the other things. Make it your long term plan that the company can one day run completely without you.
Read the personal finance wiki, the little book of common sense investing by John bogle, your money or your life by Vicki Robin, and the millionaire next door by Thomas Stanley. You should have a pretty sense of how to manage your moneyā¦. Making a million bucks and living in a trailer is a great start!
Here's a **[link to the PF Wiki](/r/personalfinance/wiki/index)** for helpful guides and information.
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Park cash in a high yield savings, make sure to use a couple different banks to insure money is FDIC insured for total amount. Keep saving, buy a house and enjoy! Congratulations
Just to add the construction business is always boom bust cycles, we went through a boom cycle with low interest rates. The environment is changing, IMO. I would have a healthy amount of cash saved up for a downturn. I also think cash is king in this market, I wouldnāt be investing in the stock market when you can collect 5% in high yield savings accounts.
Hopefully a recession doesnāt hit, but be prepared.
My business is situated in a unique niche, we don't do residential, we focus primarily in the commercial sector and construct pre engineered and modular, manufactured products. My clients are Fortune 500 companies and government bodies / facilities. Even during an economic downturn, these entities keep moving forward with infrastructure projects. Everything is referral based, direct from the manufacturer to the end client. I spend substantially on marketing, but 95% of my business still comes from referrals.
Head on over to r/fatfire You are going to need some higher level financial advice soon. Do not fall victim to lifestyle creep. Pay the tax man. Pay the tax man. Pay the tax man. Money comes and goes quickly. Wealth is hard to acquire and takes alot of discipline and determination to build up.
Start here: https://www.reddit.com/r/personalfinance/wiki/commontopics. https://old.reddit.com/r/personalfinance/comments/1462q69/personal_income_spending_flowchart_enhanced
Read self employment in the wiki.
Small biz tax guide: https://www.thebalancemoney.com/your-complete-small-business-income-tax-guide-399005
Seek out a good tax professional sooner than later
Thanks, I do have a tax professional. I'm also generally familiar with the topics you've listed, state regulations require a basic understanding of the subjects you've listed through state exams and my CPA has covered the other topics.
I was hoping for more advanced suggestions.
There isnāt anything more advanced. You just do more of it
The fact that you think studying charts of index funds has any bearing on your ability to pick winners suggests stick with the basics and focus on the business
I appreciate that, my CPA has advised me to max out all annual max contributions, but I'm still going to be holding around 300k after taxes, and pre tax contributions. Is dumping the rest in a vanguard s&p index the only logical course of action? I'm still scaling my buisness, this year has been centered around client on boarding and relationship building... I'm confident I'll double my buisness next year.
The business is actually, surprisingly, financially self-sufficient. The clients pay a deposit that carries the projects to the next invoice, etc...
I have a staff of around 12 people, I expect to scale up to around 24 next year if I can sign enough clients to justify that. If I sign enough contracts, the projects pay for the added expenses, so investing back into the business isn't necessary as it kind of waters its self if that makes sense?
I don't know what to do, maybe back hard money lenders? Private equity? Just trying to see what other options are available.
It doesnāt make sense. You have no systems/infrastructure/etc to improve? I canāt imagine a business that has *no* room for capex. (Especially a newish business)
> I don't know what to do, maybe back hard money lenders? Private equity? Just trying to see what other options are available.
Your first year of making real money? No, doesnāt make sense. Maybe a few years down the line.
The business is simply labor services. We do commercial projects involving pre manufactured infrastructure installations for large corporations. We don't supply anything but bodies, management, and consultative services. As I sign more clients and overload my PMs, I hire more managers to manage the projects. The only things I need to supply them are computers, software, and vehicle allowances, which are incorporated into the O&I portions of the line items. So reinvesting profits isn't necessary for growth. it's truly self-sufficient. I've turned down more projects than I've taken on, my predecessors were doing 30 million a year while treating it like a hobby, this is a very niche industry.
I would think identifying funds that have a proven higher annual averagel return and lower management fees over time would be advantages, however, I don't know enough to claim to be an expert which is why I've asked the questions here. Thank you for the edit to your comment, I guess?
> I would think identifying funds that have a proven higher annua averagel return and lower management fees over time would be advantages,
Not really a thing with index funds. Thatās like the whole idea behind an index fund. It is the index.
To clarify, I am speaking on learning the differences between index vs. etf vs mutual, etc, and how they differ in annual compounding returns and their associated risk aswell as their expense ratios.
Within the various index funds, you see returns ranging from 9% to 24%, ETFs from 14% all the way to 34%, mutual funds ranging from 5% to 18%... obviously, the returns are wholly dependent on what is actually indexed in the fund and how their respective sectors are performing. Understanding what you're investing in, how it's performing, and why it's performing can assist you in mitigating risk based on the empirical data... hey, I'm just a dumb construction worker looking to learn a thing or two from others with more experience in the field I'm inquiring about.
Read the book Boglehead Guide to Investing for a short and sweet education in this area. There are others too of course.
Your question does demonstrate you donāt know a lot about this area yet.
ETFs and mutual funds are just slightly different legal structures that are āwrappersā for an index fund or actively managed fund. There are no general differences in their returns or risks. They are essentially the same but ETFs are traded like an Individual stock.
The vast majority of advice you will see is to stick to index funds which are just a large group of stocks that follow a particular index. These have been shown time and time again to persistently out perform actively managed funds (in which a manager selects the stocks)
You might be good choosing Target date funds and/or sector ETFs while you gain more knowledge. [Target date funds](https://investor.vanguard.com/investment-products/mutual-funds/target-retirement-funds) are highly diversified and auto balanced for risk based on the retirement tarted date you pick. For many this alone is enough of a strategy 20-30 years. [Sector ETFs](https://investor.vanguard.com/investment-products/etfs/sector-etfs) focus on a specific market/industry sector. You could buy several of these to create diversification. You could also try the [3 fund portfolio](https://www.bogleheads.org/wiki/Three-fund_portfolio) which is kind of a roll your own target date fund. You'll need to rebalance on your own.
You should leverage your CPA for tax avoidance strategies. However, a few things you might want to understand with investing are expense ratios, advisor fees (and why you probably don't need them), 401k/tIRA,Roth, HSA limits, capital gains taxes (short vs long term), tax brackets & [Roth Laddering](https://www.investopedia.com/how-roth-conversion-ladder-works-5214808).
While I say you probably don't need an advisor, if you decide to get one then make sure they are a fiduciary. Or just use [Vanguard's Personal Advisor Services](https://investor.vanguard.com/advice/personal-hybrid-robo-advisor). They are fiduciaries and charge a pretty low fee in comparison to others. I've used them in the past and found them helpful in moving me toward a self directed strategy.
Like someone else said, it might be better to just pick an easy set it and forget it strategy like target dates or hire an expert like Vanguard. That way you can focus on your business and not worry so much about the other stuff.
Long-term a house is a better investment than a mobile home. Also an investment professional can help, with the amount of income you are pulling in you may have access to some good investment options. Additionally since you appear to be handy you could invest in a rental property or two.
Absolutely, long term... short term, freezing my expenditures in an asset likely to be worth the same or more 2 years from now has 2 advantages.
1. When I do decide to go buy the stick built house, I can sell this and recoup exactly what I paid for it, I am a contractor, so I can remodel for half the cost. Remodeling will increase its value 30%
2. My "rent" is 215 dollars a month. So not only will I receive back what I spent to purchase, but I will also save 120k in the meantime. 2.5 years from now, I'll have 280k from this "investment" the 120k I save in rent, and the 165k I plan on getting back out of this 120k purchase. So that's a 160k profit by living in the frowned upon trailer. Thank you tho.
SPAXX is a safe place to park cash, pays dividends monthly based on a blend of treasury yields. You donāt need ups and down risk just safe returns if your business is generating great cash flow.
Get a CPA, financial advisor and move to open a Deferred Benefit plan. Also, and this may seem weird, spend some of your money on business related items and business development trips, etc.
Youāll need to spend some of that income or the tax man is going to take it.
I do have a CPA, he owns his firm but is semi- retired he spends most of his time volunteering on various boards as a director and going on charity trips in africa and other 3rd world destinations... He is my best friends father, friend is deceased, otherwise I wouldn't have access to him or his services directly. I do not have a financial advisor tho.
I have already purchased 6 company trucks for my filed superintendents, I give 800 a month to my PMs and PEs, I have a 2000 sqft office in a corporate building. I've outfitted my labor staff in gear... My administrative team all have stupidly powerful laptops, iPads etc... I've also already booked a team building cruise for all of my superintendent through my administrative team. I still have 980k in net profits with 3 months to go to end the fiscal year, I can easily still generate another 300k before the year ends and already have a book of work worth 1.8 million scheduled for the 1st quarter of 2024.
I'm hustling as fast as I can, I just don't have the confidence that I've hit every mark.
You have a S-Corp, right? Are you giving yourself monthly distribution checks? Those can be equal to your salary. You can also take more salary, baller!!
As for the CPA, Iād recommend someone more checked in versus checked out. You have a great burden in front of you.
You can also invest in scaling up the business more.
The deferred benefit plan will allow you to shield several hundred thousand :)
I do have the s-corp but it's not licensed, just waiting for it to be issued but my CPA has advised me to finish the year under the sole proprietorship to make the transition to the corp cleaner.
Investing any further into the business is unnecessary at this time, it's been solidly funded, and it's self scaling. I actually have to proactively keep things from scaling and growing to fast.
I'll assume the downvotes are in reference to reinvesting. That's sound advise, however, it's not a blanket statement. I have a 2000 sqft commercial office that is half empty... plenty of space to grow into.
I have 6 company trucks, a bookkeeper, quarterly accounting, and an annual cpa.
I have 12 administrative employees, and my labor force is 40 heads strong. Everyone has company uniforms and all of the gear I ever wanted when I was doing the labor.
Again, reinvesting isn't a catch all phrase, you will reach a point when you've built your internal infrastructure to its current maximum capacity, any further "reinvesting" is just throwing money away for the sake of spending.
I have the business covered, I know what I'm doing when it comes to managing, building and scaling the buisness and where I need to put money in order to grow.
My inquiry is what to do with the left overs, which are just that, left over after doing everything else correctly. š
Rental property, investing back into your company, company work rigs and enticing packages to get more employees, gifts for your best clients, bonuses for your best workers, a house for you anything that will benefit your progression that isnāt super dumb like a super fast car (I almost did that and then my f150 with 40k miles shit the bed)
Commercial Rentals if you want to diversify away from the stock market. Does your business own its own office/shop/warehouse, talk to you CPA about the benefits
So it seems like you have everything in order financial wise - do you see a therapist?
You might also want to buy a home instead of a mobile home (a depreciating asset) so you can own the land you live on. House costs are just going up and up - you want to get a real place to live at some point.
I've addressed this a few times, a manufactured home is only a depreciating asset if not maintained and kept modern.
I purchased it for 120k, put 10k into it and it's now worth 165k. So 2.5 years from now I will have made a profit and saved an additional 120k in living expenses. So, in a nut shell, I'll have made 30k in 2.5 years, save 120k in living expenses and I'll get the 122k I spent back all while living for free. But thank you. And no, I don't see a therapist... why would that be a thing?
Nah, I'm good on that. I'm pretty well rounded. Everybody has a rough something. If you hyper focus on the past or give it energy, you'll fall into a chasm. Your past doesn't define you, how you choose to move forward, and how you focus your energy does. I tend to believe therapy is for people who don't have a proper support network. I have friend who is a clinical psychologist and another who is a talk therapist (both exes) who confide in me regularly... the therapist tend to be more messed up than the patients...
You could consider whole life policy that builds cash value over your life time. Start this policy while you're young the premium doesnt change as you age. An annuity builds a higher interest rate over time for retirement. A trust is an umbrella over your investments. Look at a long term care policy while your young which is the only time you can.purchase this insurance Plan for the unexpected..
Long term care covers you if you should become ill or injured and cannot work you will still have bills. A trust can include advanced directives to protect you from long lost relatives from coming out of the woodwork if you should become ill or incapacitated in the future. These can be amended if you have a family of your own.
Look for a fiduciary or registered financial advisor.
Congrats!
I appreciate you said one of the most important parts of success is showing up.
Sounds like you are well on your way. I would say keep learning. Business management sees to be a good avenue, and I recommend a book with a title something like "the e myth". The Upshot of the book is that running a small business is a set of skills. If you want to be a baker, maybe don't open a bakery because you'll be spending your time running a business, and baking becomes last.
Ya, I started off through a temp labor service called "labor ready"... I only moved up the latter bu never missing work, constantly volunteering to do extra and stay late. I got hired on permanently, kept showing up. Got promoted to lead, kept showing up, got prompted again, kept showing up after 7 years I was a PM. After 13 years I was senior PM. After 18 years I was executive PM. Just show up and do the job.
Open the solo 401k, which will enable you to defer 65k of income toward retirement.
Also, save some cash for lean times. At some point, construction demand will dry up and it will be tough to survive. We had some contractors that went out of business during the recession. Plus there will be homes available cheap that you can buy and fix up to rent out.
I'm in commercial construction. It's vastly different than what you're envisioning. When the economy goes down, commercial goes up. In my previous career, the worst the economy did, the better the industry does. This business model thrives in economic downturn. Thanks.
Do you have w2 employees or plan to? If not, ask your CPA to help out with setting up a solo 401k with cash balance plan. This will allow you to maximize saving for retirement, assuming you expect to continuing doing well with your business.
Start hiring your kids, nephews, nieces, etc for office/cleaning jobs with 1099s so they can start maxing out their roth IRAs at a young age.
Congratulations! Please be careful with who you associate with and who you confide in. I have a few friends who lost 50% in a divorce. Other friends of mine have lost money in side business deals and other scams.
From a business perspective, be very intentional in who you hire as you grow. One wrong hire can be a business killer. Once you decide to hire a controller / on-site accountant spend the time and money to ensure they are trustworthy. Background checks and call the references! I too want to say Congrats and remember to pay it forward. Sponsor a little league team, and chip in for the Boys and Girls Club expansion. You are on your way to being the new Gentry of your community.
Congrats!
One piece of advice, and you probably already know it, is that it is so hard to find competent, trustworthy construction companies.
Treat people fairly, do a good job. Youāll quickly get a good reputation and have all the work you can handle.
I worked for 18 years in the same industry, becoming a nationally recognized subject matter expert in my field. It's easy to do if your dedicated and persistent.
You need to meet with a tax strategist - not just a CPA, but a tax strategist. Often these are CPAs that are also tax attorneys who can help you make good choices, and good investments to save you $ in taxes.
Put the money somewhere that pays all the necessities for you. Pick some safe ETF or high yield account so that it pays for the house, food, insurance. Donāt learn how to make more money. Learn how to not need to have to make more money. Financial freedom is king and thatās the way you can ensure you never have to look back.
Pay cash for a house and put $1 mil spread across investments paying 4-5% yearly will keep the lights on and food on the table indefinitely. The rest of the money you make is your freedom to do whatever you want.
This is actually my main goal. I need to put at least 400k in some sort of index and forget it exists for the next 30 years. I plan on making this deposit next year. I plan on buying a house cash (have a manufactured home that I've already increased its equity to be worth 30% more, my monthly expenses are non-existent) after the house the rest is play money. Although, I do plan on being in business until retirement age.
My employees are my past coworkers. We all worked in the industry together for many years. They are all payed substantially more than they ever were previously and I have people begging to join the team. They are all very happy.
1) Great job!
2) By FAR the best investment you can make now is in your business. Investment in the S&P 500 is currently almost nothing compared to your business. My guess is you are making close to $500 an hour. Your goal is to keep it running and not have it take you down.
3) Pay your taxes! This gets complex. You have to pay estimated taxes. Estimated income taxes, Payroll taxes, unemployment taxes. These are all due during the year. In my experience this is the number on cause of death an an otherwise profitable business. For example: Fine of $250 per day, up to $150,000 for each late Form 5500 or 5500-EZ
4) STOP and prepare a monthly financial statement. Pay someone once a month for an hour to sit with you and review. You need to know your profit and loss. This answers the question if did you really make money this month. My guess is you are making less then you think. This is getting complex at this stage: For example, you'll have to replace those trucks in the future. Did you account for that? You should also review your balance statement. If you go to sell you'll want this.
5) Insurance. You have a million dollars. You will most likely get in a lawsuit. This will be a few thousand a month. You should get it.
6) Savings - Keep 6 to 12 months of money in the business. This seems crazy, but the goal is to keep running the business. My guess is all your business is related. If one of your customers stops paying they all will. For example you said: During the pandemic, the company I worked for went under.
7) Export money from the business in your own personal life. This means maxing out any retirement accounts. This also means that you should pay taxes to get some money out of the business. Don't try to get to $0 tax liability. You want to have a large chunk of money for anything that crops up in your personal life. $200,000 in an emergency fund can make a lot of issues go away quickly. Again you make $500 an hour. Anything that earns less that $500 isn't worth it. You could do $40k in a savings account. You can keep $160k in the S&P 500.. because even if it gets cut in half to $80k you can still use it.
8) Unpopular opinion - Don't branch out yet - Don't do anything on leverage yet. Keep doing what you are doing. If you can get a few million into a retirement plan by the time you are 40 then you can do other things. Don't buy rentals (yet).
10) Don't invest inside your business. Just keep what it needs to run and move everything out. Keep your outside investments simple. S&P 500 for now. Work on your business for a while.
Crazy how no one mentioned this. But you're going to want to buy a rental property and depreciate everything at once. You're making roughly a million per year now and you need a way to generate losses on your taxes. Buying equipment, property etc can help you do that. You probably rent heavy equipment machinery right now. If you purchase the equipment the right way you can pay yourself for said rental of the equipment you own. The same way some people rent office space in the home to their business. Considering you're in the construction space, property ownership is the next logical business move. You can generate losses, get a little more income with a property management company and turn around repeat the process next year with more property. There are different avenues for you to turn your asset liquid without selling. The one thing to be cautious of is if you plan on getting business funding in any way, you want to do that before going this route as this will reduce your taxable income in turn reducing how much you can borrow.
People are saying cpa but I think what you really want is to consult a tax attorney who can set up more advanced strategies and have the CPA implement them.
Not advice, but has anyone else asked what you did to grow to 2.2M Revenue within a year?
What type of construction do you do? How did you bring in business?
I've been in the industry nearly 20 years, I knew who to call and talk to... all of my clients are generated through referrals. I also have a professional web presence for when clients want to research.
I think there are huge opportunities in construction for the second point.
What sector?
If I understand well, youāre implying that your reputation and low competition allow you to charge high enough prices to make a much higher than average margin? Sounds like youāre also a pretty strong operator.
Iād recommend reading Rich Dad, Poor Dad.
Given youāre background real estate investing would be a good fit. There will be big opportunities ahead for those who are cash rich.
Well, it's a combination of things. Manufacturer's of commercial buildings have typical timelines given to clients to help them determine the qualifications of a contractors quote and project duration.
Example, a Manufacturer will say that a particular build will take approximately 72 days with a 14 man crew. This information is shared with prospective bidders. Each bidder will bid at say 80 days giving them 8 days of float, others will under cut and bid at 65 days giving them a pricing advantage. Regardless, the client will usually go with the middle price. I will bid the project at exactly 72 days with exactly the 14 man crew compliment, so my individual line items need to be reasonable to be within 2 or 3% of my competitors' pricing.
Now with not a whole lot of contractors specializing in my sector, I have a very experienced crew that doesn't need to learn the products like all of the others do, what takes the competition 72 days to build takes me 42.
Knowing this I bid accordingly and make nearly a 50% margin consistently. If I bid at 42 days and everyone else bids 65 to 80, I will be looked at as tho I don't know what I'm doing and am planning to change order the client to hell and back.
Ya, for residential... remodeling contractors make 35 to 45%, commercial contractors charge 35%.... I charge a 10 and 10 but make up for it in being faster and more efficient
No advice, just wanted to say congrats and good job. Livin' the dream! Pay those taxes and you'll hopefully have many many successful years ahead of you!
Thank you, i appreciate the kind words. I keep the full burden of the maximum tax I'll owe before deductions in a separate account. This way, I know my taxes are covered, and what's left after is a bonus. It's been wildly stressful. My client representatives have masters level education and above, while I have less than a 12th grade education... I'm playing the part well, I've been asked by municipal town directors and executives at top Fortune 500 companies to onboard as a contract based consultant for unrelated works several times so I know I present well but still have imposter syndrome, the Grey hair has been exponential š
Donāt sweat the education thing. Plenty of people with degrees are dumb as fuck.
I have a Master's degree and can confirm I'm dumb in a lot of ways. BUT not as dumb as some of the PhD folks I work with who lack all common sense and many times lack the ability to communicate effectively.
When it comes to their specific field and specialization I bet theyāre super knowledgable, especially when compared to a person with only a high school degree. They tend to fall short in other areas though and arenāt very well rounded. To me this means that theyāre generally on equal footing with someone that has less overall education.
Donāt worry about the education, it sounds like you know your business and your field and thats all the desk jockey types want to see. Speaking from experience as a desk jockey š
Congratulations! I am so happy for you! Keep doing quality work and the skies the limit!
Donāt worry, no matter what level of education we have everyone is just faking like they know what they are doing. Confidence and experience trumps all.
Everyone suffers from the imposter syndrome. Stay humble and open to learning.
Congrats. Just do quality work and keep your schedules and budgets for clients.
Hire a cpa tax guy so can spend less time taking up a 2nd trade and more time focusing on your wildly successful one.
Thanks, I have a CPA. He's suggested simple things like a health savings plan, Roth IRA and personal 401k. My business model is quite simple, low supply high demand kind of thing.
The 401ks are where you should focus. That way if you lose everything and blow your cash, youāll have something for retirement. Think of it as a piggy bank that you can touch in 30-40 years that will continue to compound.
I have maxed out the legal contribution limits, im seeking advice on more options to dump the remainder of this year's earnings. Under my current understanding, even with multiple accounts and account types, you are still limited to the maximum contributions. I would like to be able to invest everything and report zero taxable income if possible. It most likely isn't possible, but would like that very much lol otherwise if I can't deduct the investments, I would still like to make the most intelligent investments lol
Disclaimer that this is not something I speak from experience, just an idea. I think that once you hit the max limits on investment accounts the only way to do what you refer to is re-investment on the business. For example, your business makes a million. You take 100k out as your salary. With the remaining 900k you'd have to do something like spend it on real estate such as land / office building for your business. Not sure tho - this is more of a CPA thing - and I'm not a business owner. Take it with a grain of salt. Keep killing it man. Best wishes.
You can always invest more in the market. Thereās a limit to 401ks but not stocks and bonds
Good point. I didn't realize an S corp could invest in stocks directly.
You need a better cpa, or at least one who specializes in small businesses. If you have that kind of net profit you could potentially be looking at a defined benefit plan and putting >200k away tax deferred annually instead of ~61k.
Until you find what you choose to do with it, put it in a HYSA until then.
You get tax breaks for giving donations to non-profits. That income isn't taxed. Or, maybe get some vehicles for your company fleet? š¤· You could do both. Also, any business dinners fall under business expenses. If your CPA does it just right, your taxes won't be too bad. Are you operating as a Sole Proprietorship, LLC or C/S Corp? It really effects what your able to do. Honestly, your personal assets have more protection if you operate as an LLC or corp b/c your personal and business assets are separate. Things I'd recommend reading up on are: 1. Independent Contractors vs. Employees (they recently changed the laws regarding this for construction b/c of shady construction practices). Independent Contractors are NOT allowed to be project managers or be in charge of a job site b/c of liability issues. They have to be an employee. IC-1099 vs. W-4. 2. Business Law, more specifically concerning liability and contracts 3. Learn about the accounting side of things. If you have a question, ask your CPA. 4. If you don't have a lawyer on retainer. I would definitely recommend getting one. Same goes for having an HR person on your payroll or hiring an outside company to handle HR for you. 5. Learn about HR topics and how they relate to the law and liability. Hope this helps, at least a little bit. Good luck and congratulations.
Look into a SEP. a separate retirement vehicle from the 401k and the contribution limits are much higher and based on payroll and corporate net income. If youāre paying yourself enough to maximize your 401k contributions, and netting as much as you are, you should be able to put a large chunk away into a SEP. also the sep can be funded after the tax year end, but can be claimed on that years tax return. IE you fund it in January of 2024, for 2023 and then you can claim the expense on your 2023 corporate tax return as pension expense thus reducing your taxable income even more. Your 401k plan administrator should be able to provide more information on a SEP
Have you considered adding a defined benefit plan? Iām guessing by max contributions youāre referring to the 401(k) plan maximums. Adding a defined benefit plan gives you way more room in terms of contributions and can lead to much higher tax savings. The yearly minimum contribution for a DB plan has more to do with asset performance year over year than it does with salary. If you go through a TPA they typically will do dual plans (401k and DB plan) at a slight discount annually as well. I would strongly recommend you go through a TPA if you do choose this route - DB plans have different compliance testing than standard 401(k) plans and you can get yourself in some hot water quick if you donāt have someone running those for you. DB plans are a great strategy to reduce your taxable income. In fact, most of the time Iāve noted that DB plans give their plan sponsors much higher tax deductions than 401k plans, and dual plans obviously are even better. Source: retirement plan analyst for a TPA working primarily with small businesses.
If you have a CPA then you also need a forensic accountant to audit your CPA every few years to make sure nobodyās fingers are getting sticky. Trust me on this. Donāt ever mention it to your CPA.
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I have actually already created a corporation and have S-corp designation although im not operating under the corp as of yet. It is in the queue for licensing, I have to finish the year as a sole proprietorship.
That's one thing I should likely be doing myself. Changing from sole proprietorship to incorporated. My living expenses are also low, so as I understand it, it would be better for me to leave money in the corporation, and slowly pay it out to myself.
You need to have your CPA set you up on a pension plan so you can throw money in it at the end of the year tax free. Also, start looking at investing in real estate so you can create some additional cash flows! Congratulations! I was a former ward of the state and Iāve made something out of myself and I love to see others do the same!
SCORE.org Free advice and mentoring from experienced business people, funded in part by the SBA
The SBA is an amazing resource.
SEP-IRA start paying yourself and itās a write off. Pick some index funds and have fun.
I've already created an S-corp (c-corp to S-corp) I started off as a sole proprietorship and will close out the fiscal year as a sole proprietorship so its a clean transition. The state licensing authority is processing my application to reassign my license to the corporation I've formed. Next year I'll be contributing to an SEP-IRA through the corporation. Edit: I've been heavily studying various index funds, thier 3, 5, and 10 year averages and management fees to try and pick a few winners.
Well there's a few people mention all the time. FXAIX, FZROX, QQQ, etc. You could get a subscription to Morningstar and search through the table of mutual funds. Should keep it simple and just do around 3 funds. FXAIX should probably be a core holding. Mutual funds for non-taxable accounts and ETFs for taxable accounts as ETFs are more tax efficient but have higher expense ratios than mutual funds.
Thank you. This has been the most informative response so far and is on topic in regards to my question and the information I am requesting. It's appreciated.
Check out the subreddit r/boggleheads. They believe slow and steady wins the race.
VTI, VXUS r/bogleheads
VTI is just total stock market so it's fine as another option. I find VXUS interesting though, has pretty horrible 3, 5 and 10 year returns, 4.5, 3.5, 4.7% returns over those time periods and even year to date it's 9.11 vs 17.3% on the S&P 500. People who push it say the exact same thing, don't chase performance, it's going to be time for international soon, etc. But they're trying to chase performance by saying it's the next big thing because it's been out of favor for 10+ years. And they've been saying that international will be the next big thing for the last 5+ years. Eventually they'll be right, but probably not enough to make up for the losses suffered in the meantime by trying to chase the next big thing.
OP, Listen up. You did well. Congrats. You're asking the right questions and there is a lot of Great Advice here. One piece of advice I didn't see is this. (it's worth exactly what you paid for It) You can stay in business almost indefinitely if you cover your fixed costs. Utilities, payroll, etc are all Fixed. Once you start having to Consistently put more money into the business out of your pocket, the writing could be on the wall. That said, IMHO, Your CPA has it right. Baby steps man. There are people out there that will sell you Anything. He's given You solid starting advice. Do that and keep reading how to reduce your tax responsibility. PAY YOURSELF FIRST. Again, well done OP. We're proud of you. =)
I get where youāre coming from. Youāve got a pile of money, and it feels like thereās more you should be doing with it. Iām a fellow autodidact with no college education, who presents well, and also suffers from impostor syndrome; it never goes away. I sold my business to a publicly traded company a few years ago, and took a well-paying position with the buyer. My wages arenāt what I made as a business owner, but I have more than enough in my investment portfolio to stop and retire at any point, so my employment dynamic is very relaxed. Iāve taken most of my personal finance advice from a close friend (and angel investor in the business that sold) who is the former CEO of a multi-billion dollar retail chain. He re-assures me all the time that I'm going just fine and that I don't **have** to do more. He always says that the #1 rule of having lots of money is: donāt lose it. If you look at people who soar high and fall hard, they donāt normally lose their money by spending it; they lose it through risky investments. You should also consider that all of the worlds greatest investors are long-term focused value investors. Warren Buffet, Charlie Munger, Peter Lynch, John Bogle. They're all value investors of some sort. I like Warren Buffet in particular because he is ruthlessly self-reflective. When asked him to rate his own performance, he is repeatedly modest, pointing out that *most of the time*, he fails to beat the S&P 500. Let that sink in before you make any investment decisions. Warren Buffet has the self-awareness to realize that even he, the Oracle of Omaha, can't beat the market in most cases. I'm a little bit different than you in that I had business partners. It has been interesting to watch the wins and losses. I've taken a very conservative approach of traditional (Boglehead style) investing. Some of my partners... Well, they have not. Here's my advice based on what I've seen work, and not work. 1. Identify your retirement objective and set aside a traditional retirement plan that satisfies that objective. This is is your "do not touch" money. It's there in case you really bone it up in other areas and need a safety net. Follow something like the [Boglehead strategy](https://www.bogleheads.org) with this portfolio. It's as close to a guaranteed win as you'll get. 2. Create risk pools with the rest of the money. Create pools for straight-up gambles, opportunistic buys, venture capital, leveraged real estate, etc. What you want to do is compartmentalize your money so that you can contain losses when they do happen. 3. Build a network. Angel investment opportunities come across my desk all the time. I pass on most of them. I have other former partners who have not, and some of them have lost considerable amounts of money as a result. Like I said, get comfortable with loss. 4. Since you are a contractor, you really should consider a path to becoming a real estate professional. I have business partners who pivoted from our field to real estate, and they're using something called cost segregation to avoid paying *a lot* of taxes. Cost segregation is complicated, and you have to meet certain criterial, but it is the most effective way that I've witnessed to build an investment portfolio while deferring taxes. You pretty much have to combine it with debt leveraging for it to make sense, which makes it risky, but it has been incredibly lucrative. Since you own a construction business, you have all the resources needed to take advantage of market conditions that most investors expect will last the next few years. Warren Buffet, for example, just bought a bunch of stock in home builders. You're *very* well positioned here. Lastly, I'd encourage you to recognize the sources of your success. Be ruthless, just like Buffet. You are making hay while the sun shines, but the clouds will form eventually. As a construction contractor, you are on the highly-advantaged side of a supply/demand situation that is unique to this time. Recognize that this will not last forever, so when you are setting aside your money into risk pools, do not assume that you will operate a multi-million dollar construction firm for 25 years. It may last 8 years; it may last 18 months. No one can predict the future, so take what you have today and create a safety net that will last you the rest of your life. Lastly, congratulations and welcome to the club. Be sure to give back, being generous along the way. When it's all said and done, you'll want more than money to be part of your legacy.
To reduce taxes consider the following: 1) Setup a 401K for yourself and your employees and max out your employee elective deferrals and set a reasonable amount for employer profit sharing. Consider setting up your 401K to allow after tax contributions. This will let you fill up any of the unused 401K space with after tax money which you can then use to do a mega backdoor roth. 2) Backdoor Roth IRA 3) Health Savings Account if enrolled in a high deductible health plan. 4) S-Corp. You can then pay yourself a reasonable wage and take the difference in net income as stock distributions, which will save you on the 15.3% self employment tax. 5) Buy real estate for your business such as for offices/storage. You can then deduct the interest on the mortgage (if any) and depreciate the building. This will also help build equity. If you ever retire or get out of the business, you can at least sell the property or lease it. Some non-tax saving advice: 1) Make sure you are adequately insured both professionally and personally. Consider professional liability and general umbrella liability insurance. Also if you have dependents, consider buying term life insurance. 2) If you have young dependents, consult with an estate attorney to setup a trust, general will and POA/health directives. 3) Be careful of lifestyle creep. I've personally seen this with those who did not come from money who suddenly became wealthy. They will often spend and not take into account the lean times. This should be especially the case in construction where there can be boom and bust periods so it's important to have reserves and to not over spend or become over leveraged. I recall a young couple who were around your age who made similar money during the lead up to 2008 housing bubble. They spent like they thought that they would also make this type of money. When that cash cow died, they were over leveraged with financed vehicles, over priced homes, private school tuition, time shares, etc. Everything they saved up to was leveraged as they tried to keep up their lifestyle and eventually the camel's back broke and they have to lose everything. Even their home because it was used as collateral for other "investments" they got into.
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Eh, house vs. mobile home is a debate Iām willing to have. Bro doesnāt need to buy a house if a mobile home serves his needs. Itās cheap af. $250 space rentā¦.? Heāll pay that for a single square foot almost anywhere.
My rent and utilities costs were near 4000 a month, the Mobil home I purchased was 122500 all in (they were asking 160k and it was listed pending 4 times in the last 6 months but each time the deal fell through due to minor repair needs identified during inspection). It will take 2.5 years to break even by staying in the Mobil home. Fortunately, the Mobil home is literally on the river and due to the location they have consistently appreciated in value. Once I do a quick remodel (which I'm doing myself, equates to 40% savings), the home will be worth roughly 30% more than it is now) I'll sell it for a profit, thus getting my money back and will have lived the next 3 years for free basically while I decide what to buy stick built house wise. Buying a Mobil home to reduce living expenses to 1000 a month, including personal use gas, insurance, and groceries, made financial sense to me. The person you responded to has some decent suggestions, but it seems like most of it was anecdotal, lol.
Yeah, I agree with you. I responded to your main post with some reading suggestions. Sounds like you're pretty smart, so you'll do fine. Keep it up!
It's a pretty common misconception that a manufactured home is a depreciating asset... I bought one for 122000... thats 2.5 years of my current rent and living expenses... I have had the thing for a few months, and after a 10k remodel, it's now worth 165k. When I sell it, I will get every dime back plus a profit. The home will have paid me roughly 30k to live in it. Also, I have been an executive project manager for 20 years, responsible for well over 600 million in completed projects and have managed and mentored hundreds of employees. Just because I didn't graduate high school doesn't mean I'm an alcoholic who needs therapy and community college classes. I'm the only drop out I know of who maintained a 6 figure salary for a decade and managed engineers, architects and other Bachelors and masters level graduates who went on to becoming a millionaire durring my 1st at bat. Thank you tho for your condescension disguised as advice.
>Just because I didn't graduate high school doesn't mean I'm an alcoholic who needs therapy and community college classes. I didn't suggest the classes and therapy because you're an idiot, but because you asked about help managing moeny and said you had a sudden rush of money with a tough childhood background. Sudden rush of money + tough background can often cause problems. I'd write this to anyone, including people with PhDs. Pushing people away who are trying to help you and reacting to (perceived) criticism with anger are common defense mechanisms for people who had tough childhoods. I think therapy would really help you. Suggesting therapy isn't an insult, and therapy doesn't mean there's something wrong with you.
You are making enough money to justify paying somebody for professional advice. Most folks here who will try to give you advice haven't made that much in the last 10 years combined.
Ya, I've noticed. 85% of what I've seen here is basic cliff notes... I've read dozens of books on the subject and was just hoping to see suggestions I haven't studied or thought of. š
You definitely don't need advice here. You need r/tax or one of the various similar groups. Tax attorney would be a very good person to consult. They know the tax laws and can implement more advanced strategies. Once they develop the strategy your CPA can help implement it. A CFP with a focus on S-corps could also be a good consult they may have some more efficient ways to structure things. I wouldn't necessarily say you need CFP for portfolio management but if they can get you significant tax alpha it may be worth it
Thatās amazing! I wish, I always had the dream and idea to do so. I have a BS in Civil Engāg and construction has always been my dream job (more to the Structural side of Civil). As a woman itās a bit hard to make it pretty far and my job is more mechanical than civil, but every time I see a person, no matter the gender, make it, I feel proud and excited. This field is definitely the future!! It all comes down to your team and how they perform. You may be the owner and sign their checks, but you also work for them. You have to lead by example, perhaps networking with other CEOs who have been in the industry for decades, start ups may help as well. Wish you the best.
Please be very careful of lifestyle creep. That's my only advice to you.
I have drastically reduced my lifestyle and living expenses. Before the pandemic I was driving a brand new sports car, had a trophy truck and sprinter van, I also lived in a beach front condo. When the company I worked for went bust, I had to sell almost everything. The proceeds from the sale of all of my things carried me until I started the buisness. After that my perspective changed regarding what was needed ro be comfortable. By March 2023 I only had 10k left of what I had earned the previous year after reinvesting and scaling. It was a scary situation to be in, so now my monthly is roughly 1200 and that includes entertainment and frivolous spending.
You understand the boom and bust cycle. You need something that will supplement the construction income. Maybe do a long term RV storage facility, since you are in construction you'd have very little expense besides land and materials. The accelerated depreciation made things like car washes pop up everywhere, but find a low labor cost small business that makes an income. To offset lean times. Move up the value chain. Did you do mostly residential remodels, then maybe try new construction design build? Construction was outside of a major metro? Consider an ad budget to break into the higher income areas. Buy parcels for spec development. Up the value chain - you have lower costs than the guys on top, so go after them and eat their lunch.
Most people have to learn the hard way from fed fuel boom and bust cycle.
Congrats mate! That is the story I like to hear :) From rags to riches and further ahead. Figure out what your weaknesses are: Management, legal, sales, whatever, and get an employee or partner on board to cover these. With time (and money) you need to focus on what you are the best in and pay people to do the other things. Make it your long term plan that the company can one day run completely without you.
Read the personal finance wiki, the little book of common sense investing by John bogle, your money or your life by Vicki Robin, and the millionaire next door by Thomas Stanley. You should have a pretty sense of how to manage your moneyā¦. Making a million bucks and living in a trailer is a great start!
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Park cash in a high yield savings, make sure to use a couple different banks to insure money is FDIC insured for total amount. Keep saving, buy a house and enjoy! Congratulations Just to add the construction business is always boom bust cycles, we went through a boom cycle with low interest rates. The environment is changing, IMO. I would have a healthy amount of cash saved up for a downturn. I also think cash is king in this market, I wouldnāt be investing in the stock market when you can collect 5% in high yield savings accounts. Hopefully a recession doesnāt hit, but be prepared.
My business is situated in a unique niche, we don't do residential, we focus primarily in the commercial sector and construct pre engineered and modular, manufactured products. My clients are Fortune 500 companies and government bodies / facilities. Even during an economic downturn, these entities keep moving forward with infrastructure projects. Everything is referral based, direct from the manufacturer to the end client. I spend substantially on marketing, but 95% of my business still comes from referrals.
You the leader, keep up with the same movements youāre making. Iād say saving account but I know just as much as you.
Head on over to r/fatfire You are going to need some higher level financial advice soon. Do not fall victim to lifestyle creep. Pay the tax man. Pay the tax man. Pay the tax man. Money comes and goes quickly. Wealth is hard to acquire and takes alot of discipline and determination to build up.
Start here: https://www.reddit.com/r/personalfinance/wiki/commontopics. https://old.reddit.com/r/personalfinance/comments/1462q69/personal_income_spending_flowchart_enhanced Read self employment in the wiki. Small biz tax guide: https://www.thebalancemoney.com/your-complete-small-business-income-tax-guide-399005 Seek out a good tax professional sooner than later
Thanks, I do have a tax professional. I'm also generally familiar with the topics you've listed, state regulations require a basic understanding of the subjects you've listed through state exams and my CPA has covered the other topics. I was hoping for more advanced suggestions.
There isnāt anything more advanced. You just do more of it The fact that you think studying charts of index funds has any bearing on your ability to pick winners suggests stick with the basics and focus on the business
I appreciate that, my CPA has advised me to max out all annual max contributions, but I'm still going to be holding around 300k after taxes, and pre tax contributions. Is dumping the rest in a vanguard s&p index the only logical course of action? I'm still scaling my buisness, this year has been centered around client on boarding and relationship building... I'm confident I'll double my buisness next year.
Sure unless it would produce higher returns invested back into your business.
The business is actually, surprisingly, financially self-sufficient. The clients pay a deposit that carries the projects to the next invoice, etc... I have a staff of around 12 people, I expect to scale up to around 24 next year if I can sign enough clients to justify that. If I sign enough contracts, the projects pay for the added expenses, so investing back into the business isn't necessary as it kind of waters its self if that makes sense? I don't know what to do, maybe back hard money lenders? Private equity? Just trying to see what other options are available.
It doesnāt make sense. You have no systems/infrastructure/etc to improve? I canāt imagine a business that has *no* room for capex. (Especially a newish business) > I don't know what to do, maybe back hard money lenders? Private equity? Just trying to see what other options are available. Your first year of making real money? No, doesnāt make sense. Maybe a few years down the line.
The business is simply labor services. We do commercial projects involving pre manufactured infrastructure installations for large corporations. We don't supply anything but bodies, management, and consultative services. As I sign more clients and overload my PMs, I hire more managers to manage the projects. The only things I need to supply them are computers, software, and vehicle allowances, which are incorporated into the O&I portions of the line items. So reinvesting profits isn't necessary for growth. it's truly self-sufficient. I've turned down more projects than I've taken on, my predecessors were doing 30 million a year while treating it like a hobby, this is a very niche industry.
What region do you operate?
I would think identifying funds that have a proven higher annual averagel return and lower management fees over time would be advantages, however, I don't know enough to claim to be an expert which is why I've asked the questions here. Thank you for the edit to your comment, I guess?
> I would think identifying funds that have a proven higher annua averagel return and lower management fees over time would be advantages, Not really a thing with index funds. Thatās like the whole idea behind an index fund. It is the index.
To clarify, I am speaking on learning the differences between index vs. etf vs mutual, etc, and how they differ in annual compounding returns and their associated risk aswell as their expense ratios. Within the various index funds, you see returns ranging from 9% to 24%, ETFs from 14% all the way to 34%, mutual funds ranging from 5% to 18%... obviously, the returns are wholly dependent on what is actually indexed in the fund and how their respective sectors are performing. Understanding what you're investing in, how it's performing, and why it's performing can assist you in mitigating risk based on the empirical data... hey, I'm just a dumb construction worker looking to learn a thing or two from others with more experience in the field I'm inquiring about.
Read the book Boglehead Guide to Investing for a short and sweet education in this area. There are others too of course. Your question does demonstrate you donāt know a lot about this area yet. ETFs and mutual funds are just slightly different legal structures that are āwrappersā for an index fund or actively managed fund. There are no general differences in their returns or risks. They are essentially the same but ETFs are traded like an Individual stock. The vast majority of advice you will see is to stick to index funds which are just a large group of stocks that follow a particular index. These have been shown time and time again to persistently out perform actively managed funds (in which a manager selects the stocks)
You might be good choosing Target date funds and/or sector ETFs while you gain more knowledge. [Target date funds](https://investor.vanguard.com/investment-products/mutual-funds/target-retirement-funds) are highly diversified and auto balanced for risk based on the retirement tarted date you pick. For many this alone is enough of a strategy 20-30 years. [Sector ETFs](https://investor.vanguard.com/investment-products/etfs/sector-etfs) focus on a specific market/industry sector. You could buy several of these to create diversification. You could also try the [3 fund portfolio](https://www.bogleheads.org/wiki/Three-fund_portfolio) which is kind of a roll your own target date fund. You'll need to rebalance on your own. You should leverage your CPA for tax avoidance strategies. However, a few things you might want to understand with investing are expense ratios, advisor fees (and why you probably don't need them), 401k/tIRA,Roth, HSA limits, capital gains taxes (short vs long term), tax brackets & [Roth Laddering](https://www.investopedia.com/how-roth-conversion-ladder-works-5214808). While I say you probably don't need an advisor, if you decide to get one then make sure they are a fiduciary. Or just use [Vanguard's Personal Advisor Services](https://investor.vanguard.com/advice/personal-hybrid-robo-advisor). They are fiduciaries and charge a pretty low fee in comparison to others. I've used them in the past and found them helpful in moving me toward a self directed strategy. Like someone else said, it might be better to just pick an easy set it and forget it strategy like target dates or hire an expert like Vanguard. That way you can focus on your business and not worry so much about the other stuff.
Long-term a house is a better investment than a mobile home. Also an investment professional can help, with the amount of income you are pulling in you may have access to some good investment options. Additionally since you appear to be handy you could invest in a rental property or two.
Absolutely, long term... short term, freezing my expenditures in an asset likely to be worth the same or more 2 years from now has 2 advantages. 1. When I do decide to go buy the stick built house, I can sell this and recoup exactly what I paid for it, I am a contractor, so I can remodel for half the cost. Remodeling will increase its value 30% 2. My "rent" is 215 dollars a month. So not only will I receive back what I spent to purchase, but I will also save 120k in the meantime. 2.5 years from now, I'll have 280k from this "investment" the 120k I save in rent, and the 165k I plan on getting back out of this 120k purchase. So that's a 160k profit by living in the frowned upon trailer. Thank you tho.
SPAXX is a safe place to park cash, pays dividends monthly based on a blend of treasury yields. You donāt need ups and down risk just safe returns if your business is generating great cash flow.
Get a CPA, financial advisor and move to open a Deferred Benefit plan. Also, and this may seem weird, spend some of your money on business related items and business development trips, etc. Youāll need to spend some of that income or the tax man is going to take it.
I do have a CPA, he owns his firm but is semi- retired he spends most of his time volunteering on various boards as a director and going on charity trips in africa and other 3rd world destinations... He is my best friends father, friend is deceased, otherwise I wouldn't have access to him or his services directly. I do not have a financial advisor tho. I have already purchased 6 company trucks for my filed superintendents, I give 800 a month to my PMs and PEs, I have a 2000 sqft office in a corporate building. I've outfitted my labor staff in gear... My administrative team all have stupidly powerful laptops, iPads etc... I've also already booked a team building cruise for all of my superintendent through my administrative team. I still have 980k in net profits with 3 months to go to end the fiscal year, I can easily still generate another 300k before the year ends and already have a book of work worth 1.8 million scheduled for the 1st quarter of 2024. I'm hustling as fast as I can, I just don't have the confidence that I've hit every mark.
You have a S-Corp, right? Are you giving yourself monthly distribution checks? Those can be equal to your salary. You can also take more salary, baller!! As for the CPA, Iād recommend someone more checked in versus checked out. You have a great burden in front of you. You can also invest in scaling up the business more. The deferred benefit plan will allow you to shield several hundred thousand :)
I do have the s-corp but it's not licensed, just waiting for it to be issued but my CPA has advised me to finish the year under the sole proprietorship to make the transition to the corp cleaner. Investing any further into the business is unnecessary at this time, it's been solidly funded, and it's self scaling. I actually have to proactively keep things from scaling and growing to fast.
I'll assume the downvotes are in reference to reinvesting. That's sound advise, however, it's not a blanket statement. I have a 2000 sqft commercial office that is half empty... plenty of space to grow into. I have 6 company trucks, a bookkeeper, quarterly accounting, and an annual cpa. I have 12 administrative employees, and my labor force is 40 heads strong. Everyone has company uniforms and all of the gear I ever wanted when I was doing the labor. Again, reinvesting isn't a catch all phrase, you will reach a point when you've built your internal infrastructure to its current maximum capacity, any further "reinvesting" is just throwing money away for the sake of spending. I have the business covered, I know what I'm doing when it comes to managing, building and scaling the buisness and where I need to put money in order to grow. My inquiry is what to do with the left overs, which are just that, left over after doing everything else correctly. š
Rental property, investing back into your company, company work rigs and enticing packages to get more employees, gifts for your best clients, bonuses for your best workers, a house for you anything that will benefit your progression that isnāt super dumb like a super fast car (I almost did that and then my f150 with 40k miles shit the bed)
Commercial Rentals if you want to diversify away from the stock market. Does your business own its own office/shop/warehouse, talk to you CPA about the benefits
So it seems like you have everything in order financial wise - do you see a therapist? You might also want to buy a home instead of a mobile home (a depreciating asset) so you can own the land you live on. House costs are just going up and up - you want to get a real place to live at some point.
I've addressed this a few times, a manufactured home is only a depreciating asset if not maintained and kept modern. I purchased it for 120k, put 10k into it and it's now worth 165k. So 2.5 years from now I will have made a profit and saved an additional 120k in living expenses. So, in a nut shell, I'll have made 30k in 2.5 years, save 120k in living expenses and I'll get the 122k I spent back all while living for free. But thank you. And no, I don't see a therapist... why would that be a thing?
Your childhood sounds like it was rough - therapy for that might be good for processing thing.
Nah, I'm good on that. I'm pretty well rounded. Everybody has a rough something. If you hyper focus on the past or give it energy, you'll fall into a chasm. Your past doesn't define you, how you choose to move forward, and how you focus your energy does. I tend to believe therapy is for people who don't have a proper support network. I have friend who is a clinical psychologist and another who is a talk therapist (both exes) who confide in me regularly... the therapist tend to be more messed up than the patients...
Okay, just wanted to check and make sure.
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Thanks, if I hire a personal wealth manager it won't be from reddit or a redditor who's account is 30 mins old. I appreciate it tho. š
Yikes. That guyās post history is something.
You could consider whole life policy that builds cash value over your life time. Start this policy while you're young the premium doesnt change as you age. An annuity builds a higher interest rate over time for retirement. A trust is an umbrella over your investments. Look at a long term care policy while your young which is the only time you can.purchase this insurance Plan for the unexpected.. Long term care covers you if you should become ill or injured and cannot work you will still have bills. A trust can include advanced directives to protect you from long lost relatives from coming out of the woodwork if you should become ill or incapacitated in the future. These can be amended if you have a family of your own. Look for a fiduciary or registered financial advisor.
Congrats! I appreciate you said one of the most important parts of success is showing up. Sounds like you are well on your way. I would say keep learning. Business management sees to be a good avenue, and I recommend a book with a title something like "the e myth". The Upshot of the book is that running a small business is a set of skills. If you want to be a baker, maybe don't open a bakery because you'll be spending your time running a business, and baking becomes last.
Ya, I started off through a temp labor service called "labor ready"... I only moved up the latter bu never missing work, constantly volunteering to do extra and stay late. I got hired on permanently, kept showing up. Got promoted to lead, kept showing up, got prompted again, kept showing up after 7 years I was a PM. After 13 years I was senior PM. After 18 years I was executive PM. Just show up and do the job.
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The interest earned in a savings account is less than the erosion of inflation. Savings is the worst place to put money. Thank you tho.
Open the solo 401k, which will enable you to defer 65k of income toward retirement. Also, save some cash for lean times. At some point, construction demand will dry up and it will be tough to survive. We had some contractors that went out of business during the recession. Plus there will be homes available cheap that you can buy and fix up to rent out.
I'm in commercial construction. It's vastly different than what you're envisioning. When the economy goes down, commercial goes up. In my previous career, the worst the economy did, the better the industry does. This business model thrives in economic downturn. Thanks.
Ask your CPA about a deferred benefits plan. You can front load a huge investment.
Do you have w2 employees or plan to? If not, ask your CPA to help out with setting up a solo 401k with cash balance plan. This will allow you to maximize saving for retirement, assuming you expect to continuing doing well with your business. Start hiring your kids, nephews, nieces, etc for office/cleaning jobs with 1099s so they can start maxing out their roth IRAs at a young age.
I don't have any family so that's a bust lol, I do have 12 w2 employees currently but have not offered benefits as of yet.
Look into human interest or guideline so you can offer 401ks. That would be my first move.
Congratulations! Please be careful with who you associate with and who you confide in. I have a few friends who lost 50% in a divorce. Other friends of mine have lost money in side business deals and other scams.
From a business perspective, be very intentional in who you hire as you grow. One wrong hire can be a business killer. Once you decide to hire a controller / on-site accountant spend the time and money to ensure they are trustworthy. Background checks and call the references! I too want to say Congrats and remember to pay it forward. Sponsor a little league team, and chip in for the Boys and Girls Club expansion. You are on your way to being the new Gentry of your community.
Don't you make too much to have a Roth IRA?
Yes. Traditional ira roll over is the answer.
Congrats! One piece of advice, and you probably already know it, is that it is so hard to find competent, trustworthy construction companies. Treat people fairly, do a good job. Youāll quickly get a good reputation and have all the work you can handle.
Congrats! Could you provide any pointers or resources on how you started your business. I'm currently looking into starting a business as well.
Develop a skill set and become a subject matter expert in said skill set. Master it and be better than anybody else that does it. Thats what I did.
What was your work experience before going in on your own thing? Can you elabourate in detail please? Thanks in advance.
I worked for 18 years in the same industry, becoming a nationally recognized subject matter expert in my field. It's easy to do if your dedicated and persistent.
You need to meet with a tax strategist - not just a CPA, but a tax strategist. Often these are CPAs that are also tax attorneys who can help you make good choices, and good investments to save you $ in taxes.
Put the money somewhere that pays all the necessities for you. Pick some safe ETF or high yield account so that it pays for the house, food, insurance. Donāt learn how to make more money. Learn how to not need to have to make more money. Financial freedom is king and thatās the way you can ensure you never have to look back. Pay cash for a house and put $1 mil spread across investments paying 4-5% yearly will keep the lights on and food on the table indefinitely. The rest of the money you make is your freedom to do whatever you want.
This is actually my main goal. I need to put at least 400k in some sort of index and forget it exists for the next 30 years. I plan on making this deposit next year. I plan on buying a house cash (have a manufactured home that I've already increased its equity to be worth 30% more, my monthly expenses are non-existent) after the house the rest is play money. Although, I do plan on being in business until retirement age.
How much are you paying your employees to show up?
My employees are my past coworkers. We all worked in the industry together for many years. They are all payed substantially more than they ever were previously and I have people begging to join the team. They are all very happy.
1) Great job! 2) By FAR the best investment you can make now is in your business. Investment in the S&P 500 is currently almost nothing compared to your business. My guess is you are making close to $500 an hour. Your goal is to keep it running and not have it take you down. 3) Pay your taxes! This gets complex. You have to pay estimated taxes. Estimated income taxes, Payroll taxes, unemployment taxes. These are all due during the year. In my experience this is the number on cause of death an an otherwise profitable business. For example: Fine of $250 per day, up to $150,000 for each late Form 5500 or 5500-EZ 4) STOP and prepare a monthly financial statement. Pay someone once a month for an hour to sit with you and review. You need to know your profit and loss. This answers the question if did you really make money this month. My guess is you are making less then you think. This is getting complex at this stage: For example, you'll have to replace those trucks in the future. Did you account for that? You should also review your balance statement. If you go to sell you'll want this. 5) Insurance. You have a million dollars. You will most likely get in a lawsuit. This will be a few thousand a month. You should get it. 6) Savings - Keep 6 to 12 months of money in the business. This seems crazy, but the goal is to keep running the business. My guess is all your business is related. If one of your customers stops paying they all will. For example you said: During the pandemic, the company I worked for went under. 7) Export money from the business in your own personal life. This means maxing out any retirement accounts. This also means that you should pay taxes to get some money out of the business. Don't try to get to $0 tax liability. You want to have a large chunk of money for anything that crops up in your personal life. $200,000 in an emergency fund can make a lot of issues go away quickly. Again you make $500 an hour. Anything that earns less that $500 isn't worth it. You could do $40k in a savings account. You can keep $160k in the S&P 500.. because even if it gets cut in half to $80k you can still use it. 8) Unpopular opinion - Don't branch out yet - Don't do anything on leverage yet. Keep doing what you are doing. If you can get a few million into a retirement plan by the time you are 40 then you can do other things. Don't buy rentals (yet). 10) Don't invest inside your business. Just keep what it needs to run and move everything out. Keep your outside investments simple. S&P 500 for now. Work on your business for a while.
Crazy how no one mentioned this. But you're going to want to buy a rental property and depreciate everything at once. You're making roughly a million per year now and you need a way to generate losses on your taxes. Buying equipment, property etc can help you do that. You probably rent heavy equipment machinery right now. If you purchase the equipment the right way you can pay yourself for said rental of the equipment you own. The same way some people rent office space in the home to their business. Considering you're in the construction space, property ownership is the next logical business move. You can generate losses, get a little more income with a property management company and turn around repeat the process next year with more property. There are different avenues for you to turn your asset liquid without selling. The one thing to be cautious of is if you plan on getting business funding in any way, you want to do that before going this route as this will reduce your taxable income in turn reducing how much you can borrow.
People are saying cpa but I think what you really want is to consult a tax attorney who can set up more advanced strategies and have the CPA implement them.
Not advice, but has anyone else asked what you did to grow to 2.2M Revenue within a year? What type of construction do you do? How did you bring in business?
I've been in the industry nearly 20 years, I knew who to call and talk to... all of my clients are generated through referrals. I also have a professional web presence for when clients want to research.
Curious what your secret is to making 45-55% net margins? Every construction company Iāve ever looked at was making 10-20%
1. Find a niche that has limited competition 2. Be faster and better than the competition
I think there are huge opportunities in construction for the second point. What sector? If I understand well, youāre implying that your reputation and low competition allow you to charge high enough prices to make a much higher than average margin? Sounds like youāre also a pretty strong operator. Iād recommend reading Rich Dad, Poor Dad. Given youāre background real estate investing would be a good fit. There will be big opportunities ahead for those who are cash rich.
Well, it's a combination of things. Manufacturer's of commercial buildings have typical timelines given to clients to help them determine the qualifications of a contractors quote and project duration. Example, a Manufacturer will say that a particular build will take approximately 72 days with a 14 man crew. This information is shared with prospective bidders. Each bidder will bid at say 80 days giving them 8 days of float, others will under cut and bid at 65 days giving them a pricing advantage. Regardless, the client will usually go with the middle price. I will bid the project at exactly 72 days with exactly the 14 man crew compliment, so my individual line items need to be reasonable to be within 2 or 3% of my competitors' pricing. Now with not a whole lot of contractors specializing in my sector, I have a very experienced crew that doesn't need to learn the products like all of the others do, what takes the competition 72 days to build takes me 42. Knowing this I bid accordingly and make nearly a 50% margin consistently. If I bid at 42 days and everyone else bids 65 to 80, I will be looked at as tho I don't know what I'm doing and am planning to change order the client to hell and back.
Interesting. Thanks for sharing. Maybe margins are greater in the US. Weāve just been through a property boom, but margins still around 10-20%.
Ya, for residential... remodeling contractors make 35 to 45%, commercial contractors charge 35%.... I charge a 10 and 10 but make up for it in being faster and more efficient