Would you bond your own company? Lessons from a Lemonade Stand

That's what I was hoping to do is simple concepts.

Would you buy the lemons before you get paid? Lemons maybe are cheap.

Yes, absolutely.

And yes, maybe it's a silly analogy, but it goes back to one thing banks and bonding companies want working capital.

You got to pay for supplies and your helpers, your little brother, Jimmy, and maybe Susie goes, gets you some ice and more water.

You know, you got to pay for the supplies and that kind of stuff.

Why is it they worry about a contractor having working capital? I think it's asking, like, could you carry this job without the money coming in? Does that resonate to you?

It most certainly does.

Because working capital just allows you to work.

And the definition of it is your current assets.

That's cash, receivables, anything that's going to be turned into cash relatively quickly.

And then how much money you owe over the next 12 months.

How much are you indebted? And that includes your materials and your equipment and everything else.

So from a lemonade stand standpoint, you look at it and you say, what elements are missing here to make it work, to make it successful? And from a bonding company's point of view, you're exactly right.

No working capital.

then they're really worried you're going to be able to finish the job.

What else could you tell? Oh, we don't need working capital.

You cannot convince a bonding company of that when working capital seems to be what causes a lot of contractors to go under having no working capital and default on the job and not finish the job.

Yeah, and I think going back to our analogy, the lemonade stand, you got a nice stand and like we were talking about before, like Wimpy will pay you Tuesday for a hamburger today.

Maybe Sally says, I get my allowance on Friday, but your little brother Jimmy still wants to get paid and he says he's not coming back tomorrow if you don't have cash.

Why is it that bonding companies worry about cash? Do you get it? I mean, Jimmy's not going to come back just like your subcontractors aren't going to come back if you can't get paid.

And sometimes that cash talks, right? That's

right.

That old expression, money talks and BS walks.

It's true in a lemonade stand as it's true in the construction industry.