Last week, we wrote a funding support letter for one of Capstone Corporate Funding, LLC’s clients who submitted a bid on an opportunity with the Port Authority of New York & New Jersey (“Port Authority”). The company submitted their bid along with a letter of funding support to prove to that they had sufficient access to capital to complete the work. The company unfortunately lost the bid to another firm who submitted a bid at 50% of the company’s bid. As a public institution, the Port Authority has to take the lowest bid, but it is not practical for one union contractor to under bid another by such a large margin. The client was not disappointed by losing the bid because the company bid the work at their best price and at a gross margin that would ensure the survival of his company, which is a fair way to conduct business.
The client is “in the game” because they have a construction factoring facility with Capstone. The owner is positive about the company’s future because he knows he has the skills to provide customers with the best construction services available in the market along with funding to grow the business. The client was also aware that this is one of many bids the company will be participating in.
There is no point in taking low margin work that will hurt your company in the long run. Many contractors submit low margin bids during slow periods to keep cash flowing and to keep employees on jobs. The end results are:
· increased accounts payable
· liens on jobs
· an overall loss of reputation
This happens time and time again.
At Capstone, we have a policy:
If the gross margin on a job is too small, the related accounts receivable will not be factored.
Why does Capstone do this? It is only a matter of time before the owner of the project puts their foot down and stops paying due to the use of substandard materials or workmanship. There is no opportunity for the client to come out of the job stronger than they went into it without sufficient profit. Accordingly, if the client cannot make money Capstone will not want to participate in a transaction that will result in a loss of capital even if we get paid in full. It is not good business for the client or for Capstone!
We have observed that many disadvantaged business enterprises (DBE, MBE, WBE, etc) flounder following the receipt of their designation from the respective state or federal agency. There is an expectation that work will come rolling in once the designation is granted.
Without funding support from a working capital facility, an Invoice factoring facility or a company like Capstone, who understands their business model, disadvantaged business enterprises have limited options. These entities are NOT in the game and are missing opportunities everyday.
Get in the game! Find a Business funding solutions that will support your growth and bid on opportunities within your skill set. Opportunities will be won and lost however you’ll always be able to deliver the highest level of service or product possible. The frustration will be replaced by exhilaration due to company growth.
Take that first step and Get in the Game!
