An escrow account is essentially a savings account that’s managed by your mortgage servicer. How can this be helpful in managing the cashflow in construction?

If you are thinking of becoming self-sufficient in the construction industry, investing your profits into an escrow account is one thing that you might want to consider.

YOU NEED TO BE DISCIPLINED

Everybody in the industry knows that this is a challenge. Investing in this kind of account requires a significant amount of discipline. As you’re gaining profits, maybe you want to reap the rewards of those profits. If you’re playing a better long-term success strategy, the ideal situation would be to become fully self-reliant first.

Yes, it’s almost unheard of to do that. And more likely, you’re going to have to make that first initial loan or deal with a bank or an investor. When you get that money, you should have had your homework done to know how much money you need for a bar.

You need to start bidding work. You should have all your license and all that stuff before you ever go to the bank and get all that upfront.

This way you’re off to the races. You’re bidding work. You know how much work you need for the next year. As you do that, know how much money you’ve got to pay back towards that initial loan. You incorporate that into your bids as you win jobs and you bring them in, then that’s another thing.

YOU NEED TO SET YOUR GOALS

You got to set goals, set milestones. You need to be able to hit that budget, beat budget, or be under budget on every project you do. You get that money paid back. Start your escrow account once that money is paid back or even before that money is paid back.

Start building it. By the time you get that loan paid off, you’ve got a good sum of money in your escrow account. You can continue to bring jobs in. You continue to bring them in at or under budget. And as you do that, you take a percentage of your profit and put it in your escrow account.

You steadily build that escrow account when you need money. At that point, you go to your escrow account the same way you’ve done with a bank or investor, whoever you made a deal with. And then, as you bid your projects, you make sure you pay that back with interest. That way, you are making interest off the money you’ve loaned yourself. It’s a slow process starting. Just like what Dave Ramsey said, “It’s kind of like a snowball effect.”

As you pay it off, whatever money you’re paying, you take that same amount of money because it’s already in your budget. You’ve got that money budgeted, doing work, making money, and still making these payments. We’ll take that money, put it in your escrow account, and build you a line of credit between you and yourself.

That way, you’ve got a working line to work off all the time. And as you use that money, you pay it back to yourself with interest. In a such manner, you’re always making money off your own money, and each job will stand for itself.

BE YOUR OWN BANK

After everything is paid for, you want to invest that back into yourself. So you want to put a big chunk of that into your escrow account. You want to use some of it to grow your company.

Same thing. Whatever money you need, you’ve got it set up here in escrow. Let’s take this amount of money, and let’s make it. You’ve made a good living, and you paid yourself. Let your company build itself. The bonuses will come once you get to a sustainable company goal.

And then, if you want to grow, you’ve got the money to grow without having to reach out to a bank or an investor. After that, you’ve got something to be proud of.

THINK ABOUT AN EXIT PLAN.

At that point, if you decide to exit, the escrow account is your money. It’s your last retirement fund, and that’s not old to anyone. There may be a penalty for pointing out. But whatever it may be, it’s going to be a minute comparison of what the end goal is.

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