Seven Reasons Why Most Contractors Will Never Be Able To Retire On Their Own Earnings

Here is a wakeup call prediction for contractors and for tax payers as well;

Most residential construction business owners will never be able to retire.  They will have to work until they die or are too old to work anymore.  If they don’t or can’t work until they die, then they will have to get on the government dole so they can get housing and food to keep them alive. 

The same is actually true for most Americans.  According to an article on the Money Morning web sitecurrently retired Americans have less than $25,000 or less in savings and investments, and 31% have less than $1,000.  It’s sad to me to think though that construction business owners, after years of owning and running a business, won’t have enough money or investments accumulated so they can support themselves and their significant other during retirement.

Here is another scary fact found in that same Money Morning article.  47%, of current retirees were forced to retire early, mainly because of disabilities, poor health, or the loss of a job and the inability to get a new one.

Let me offer just a few reasons why I am so sure most contractors may never be able to retire:

1. In many of my seminars I ask contractors to raise their hands if they are on the path they need to be, financially, so they can retire.   It’s rare that 10% of attendees raise their hands.  I also think many assume they will be OK and raise their hands.
2. Most contractors don’t charge enough to properly run their businesses and pay themselves for their efforts.   They seem satisfied with earning just enough to stay afloat in business and in their personal lives.  In fact, when they take into account the number of hours they work each year, most admit they earn less per hour than most of their employees.  Some even admit they make less per year than their carpenters.  I know a good number of them, probably out of embarrassment; don’t admit their financial short comings.
3. A good number of construction business owners don’t make enough money to support their families.   In fact for a good number of them, because their wives have jobs and therefore provide the family’s health insurance, they are able to keep their business doors open and pretend everything is just fine. 
4. Only about 20% of construction business owners know the true cost of being in business.   Of the other 80% a majority may be able to estimate project costs accurately, counting very stick and brick, but then they are guessing on the real break even burdened cost of estimated labor hours and also use the wild ass guess method (WAG) when it comes to the markup they use to cover overhead and profit to price their jobs.
5. In addition to using the WAG to price jobs, most contractors have no idea how overhead and profit works.   As Melanie Hodgdon points out in her Remodeling magazine article titled “Four Ways Hopeful Thinking Can Ruin You”, many contractors say “Yeah, that job was a mess, but at least I didn’t lose money on it."   The sad reality in this assumption is that the job didn’t cost more than they sold it for, but they didn’t earn any money to cover their overhead and or any profit.  So in reality they did lose money and there will be no profit on that job to save for retirement.
6. Most construction business owners I speak with haven’t done any retirement planning.  In fact 56% of American workers haven’t bothered to figure how much they’ll need to retire comfortably either. (Source: Employee Benefit Research Institute) How then could these contractors even know how much money they will need to retire and when they can actually retire?   For these contractors I am pretty confident they won’t have what they need.
7. The last and my final reason (although there are plenty more) most contractors will never be able to retire is because they see themselves as contractors instead of business owners.   It’s a simple fact to recognize that when a business sells at the right price it earns a profit.  But when the business owner straps on his tool belt he is only earning a wage. 

So, what should contractors in this position do?

Here is a short list:

• If earning a wage isn’t earning you enough to retire on, you might want to learn how to become a real business owner.
• If you are using the WAG method to price jobs you might want to advance your math skills and or find someone who will do the math for you.
• If you have been selling on price to get work you might want to invest in some professional marketing and sales skills.
• If you won’t do anything about these challenges you might want to look into how to apply for government assistance now so you’re ready to do so when your body eventually gives out.

3 Reasons Contractors Don't Share Financial Info With Employees

I recently read an interesting article about how much a business owner should tell their spouse about their company finances.  Two different opinions were shared and explored.   I’m on the side of sharing the info myself, but certainly not everything in detail.

That article got me to thinking about why so few construction and remodeling business owners share financial information with their employees.   First, I’ll offer a few great reasons to do it.  I hope the benefits will motivate more business owners to do so.   Then, I’ll offer my thoughts on why business owners avoid doing so. 

3 reasons to share your business financial information with employees:

Construction business owners who keep all the financial information about their businesses to themselves are definitively missing out on several potential benefits.   Simply put, by sharing financial information you can accomplish at least three things that will help lower your financial anxiety and help you make and or keep more money:

1. You can get the opinions and advice of others so you can be more confident in your numbers and using them to make sound business decisions.  Getting insight from others can also help you avoid costly mistakes.
2. By involving the right employees with the creation and interpretation of business financials you can share the workload required to create them.  This can make getting your financial reports much more timely and therefore improve their accuracy.
3. By mentoring employees on how to use financial reports you can help them learn to think like a business owner so they too can make sound business decisions.   This is an important and required step if you ever want to remove yourself from the day to day management of your business and or offer a profit sharing plan to employees.

So then why do so few owners share their financial information?

Let me also offer three common reasons why many construction business owners can’t or won’t share business related financial information with their employees:

1. The most common reason is because the business doesn’t have a real financial system that properly separates and tracks costs and expenses.  For these business owners their financial system is really no more than a checkbook showing money coming in and going out.  Without the ability to identify and separate your actual job costs from overhead expenses there is no way your business can get a meaningful profit and loss report.   These business owners don’t share the information because there really is nothing of value worth sharing.   Eventually, once a year for most of these business owners, their accountant gives them the good or bad news when their tax returns are ready to be filed.
2. Often financial information is held back because the business owner is embarrassed that he or she doesn't understand the business finances well enough to explain them or answer questions about them.  This is not good.   Imagine what a great employee will think about his boss and or the business if he discovers the owner is guessing at the financial health and well being of the company.  Think about it.  If you were an inspired and career motivated employee would you want to invest in your career at a business that is in the dark about predicting and measuring profits?
3. During my years of experience providing financial consulting for construction business owners I have had many owners share with me their concern that if they educate employees about and share company financial information with them it will only serve to help them get ready to leave and start their own businesses.  This could be true.  On the other hand I found by educating my employees most of them figured out they didn’t want all the stress and financial responsibilities that came with being a business owner.   However, those who did leave and started their own businesses where in a much better position to be financially successful.   As a business owner I found personal satisfaction in helping make that possible.

Some words of advice

If this articles speaks to what is happening at your business it’s up to you to do something about it.   I definitely recommend you do not consider growing your business in any way, or sharing the information with employees, until you and your business can produce and interpret accurate business financial reports.   To help you see if doing so might be worth it try this self quiz to see if a properly setup financial system can help you and your employees improve business profits and reduce financial anxiety.

Yellow Pad Estimating For Contractors: The Good and the Bad

Many contractors start out estimating and learning how to estimate using what I refer to as the “Yellow Pad Method”.    Using paper and a pencil they can create estimates any time and on the fly.   However as the business grows, particularly when others take over the management and building of projects sold, the typical yellow pad estimate may not give the build team the information they need to build the project on their own.  Also, the information within the yellow pad estimate may not be in an intuitive and organized format, making it hard to find the information they need. 

I came to this realization as I built my company and eventually formalized my estimating method and started using a better tool to get it done.   I learned at lot by attending training seminars, reading articles and plenty of trial and error.  In this blog post I’ll share a little about what I learned during the evolution in hopes it will help your estimating evolve.  

I’ll even offer you a free copy of my recently updated Excel Estimating Spreadsheet Template.

The Good

Actually I think yellow pad estimating is the best way to learn how to estimate.   I say this because every time you do a new estimate you start out with a blank canvas.   This allows you to be creative and try new ways to estimate and organize your info each time you do one.  Using the yellow pad I learned how to do estimates in a variety of formats.   For example the information in the estimate could be listed in critical path order, the same order I promised my client and therefore wanted my production team to build it.  For another client I assembled the information room by room so they could decide what to do at a later date if the total cost came in higher than their current budget.

Using the yellow pad I could also do quick estimates for small projects on the fly.   This often allowed me to sell the job at the first visit as long as I could also easily write up my proposal ready for a signature.   That was back in the good old days when work was plenty and hand written proposals were the norm.

The Bad

Eventually I became frustrated with many of the limitations of using the yellow pad to estimate.  Here is a brief list of what I ran into that motivated me to make the switch to using Excel spreadsheets instead.

• I had to add up all the numbers with a calculator multiple times before having enough confidence to give it to my prospects because I didn’t always get the same number!
• Cutting and pasting to insert missed tasks was literally cutting and pasting using scissors and tape.
• If a prospect who several months back had said no to my price called back to go ahead, making updates to the estimate was not possible, I had to do it all over again.
• If the customer wanted to make product substitutions or wanted suggestions to value engineer the project, to be confident about the price differences I had to do the estimate all over again for each option.
• After hand writing the estimate and proposal me or my staff then had to also hand write out the sub contractor agreements and the materials lists.
• When I had to do another estimate for a similar project trying to reuse an old estimate wasn’t as simple as copying and pasting or changing the quantities like it could be using a computer to do so.

Then I started using Excel to Estimate

Eventually, after a lot of experimenting using the yellow pad I eventually incorporated what I had learned into an Excel Estimating spreadsheet I created on my own.   Doing so definitely improved the speed and accuracy of my estimating methods.  The end result also provided the majority of information the production team needed so they could build the job without me around, leaving me time to sell more work.

For more on how I advanced my estimating methods and how I used the Excel estimating template check out this previous blog post titled “Don’t Underestimate Your Estimating System’s Potential”.

Click on the button below to get my NEW UPDATED Estimating Template now!

Guest Blogger: Melanie Hodgdon is a Certified QuickBooks ProAdvisor who has been providing financial analysis and QuickBooks training for contractors since 1994. She’s the author of A Simple Guide to Turning a Profit as a Contractor.  Melanie and Shawn often coordinate their efforts when helping remodelers develop financial systems for their businesses so they serve the contractor, not just their accountant.

Who's Paying For Your Carpenter's Non Productive Time?

I was discussing the cost of labor the other day with a client, and he told me he really had a handle on what his costs were. “No kidding? That’s great,” I said. I then quizzed him on what factors he’d included, and was impressed that he’d gotten so many: wages; company-paid payroll taxes; Worker’s Comp; liability insurance; vehicles, cell phones, and small tools used by production workers; health insurance; retirement. “And what about non-productive time?” I asked. Puzzled, he asked me what I meant.

The fact is that while it’s relatively simple to calculate what it costs to pay a production worker for an hour of time, you have to remember that he’s not going to be available to perform the work that you estimated for 100% of that time.

Let’s do the math.

Assuming no overtime, a worker is typically paid for 8 hours/day, 5 days/week, 52 weeks/year. This adds up to 2,080 hours. So you’re paying him for 2,080 hours a year.

But for how many hours will he actually be available to you to perform the work you’ve included in your estimate for labor?  Subtracting for some common events, we see the number of hours available for producing the estimated work starts to evaporate.

What else cuts into that productive time? How about those weekly production meetings? OSHA safety meetings? Meetings about the new health insurance or retirement options? What about training and education? How about the requirement that they clean out the vans every Friday afternoon? Do they help clean up the shop? Maintain tools? Are they paid for commuting time?

How might this affect estimating the cost of labor for a job?

Let’s say that you pay Will $20/hr. After adding all the burdens to that hourly rate, you discover that his total annual cost is $63,500.

You can look at this annual total in two ways: how much does Will cost you per paid hour, and how much does Will cost you per productive hour: the hours that he’s actually available to perform those labor tasks you included in the estimate when calculating the job’s sale price?

From the chart, you can see it costs over $5/hour more for Will’s time when you base the cost on his productive time.

So what does this mean in terms of pricing jobs?

Using the wrong labor cost can be devastating, particularly in jobs where there is a high proportion of labor.

Let’s see how it would play out in jobs with varying amount of labor.

For a 100 hour job, based on the burdened cost per paid hour, the estimated cost would be $3,053.

Those same 100 hours, based on the burdened cost per productive hour, costs $3,553. So the cost difference between using the paid vs. productive hr cost figure would be $500. For a 1,000 hour job, the cost difference would be $5,000.

Now let’s look at the selling price of the job, assuming a 50% markup.

For a 100 hour job, the difference in selling price would be $750.

For a 1,000 hour job, you’d be underpricing by $7,500!

So next time you estimate work, be sure you’re working from realistic costs. Labor is tricky to estimate anyway; getting a handle on what it really costs for that hour of nail banging will bring you closer to costing and pricing your jobs accurately.

Need help with figuring out your labor costs?

Call or Email Shawn today. 

Do it now so you can be confident you are pricing your spring and summer projects correctly!

Stars are Aligning for Contractors; This Year Could Be the Turning Point in Your Business

The economy and the remodeling marketplace finally seem to be improving.  It’s not happening as fast as we all might like, but it is slowly improving in what appears to be a sustainable way.  And, as a result, consumers have been gaining the confidence to once again spend money on and invest in their homes.   If the recession caused your business to downsize or slow down, now might be the time to decide whether you want to and will commit to improving and growing your business.

Indications that contractors and the supply chain are both optimistic

I am still being cautious about making such a statement about the marketplace, but a few key indicators have prompted me to do so.  

First, is the number of contractors not only contacting me for help with their business systems, but actually committing to the investment required to do so.  About a year ago I noticed the inquiries picked up, but after we discussed the typical costs to put business systems in place many contractors decided to hold off, citing concerns about short work backlogs and protecting their cash flow requirements.   Now, with a good backlog of work under contract, both the calls and the commitments have dramatically picked up. 

Second is that the supply chain is finally spending money again on marketing to and investing in their remodeling contractor customers.  Although still not as busy as they used to be, trade shows this past year have grow in size again as more manufacturers and distributors are back participating at the shows.   Also, since about early this past summer, the number of manufacturers, distributors, dealers and trade associations contacting me about speaking at their events has also dramatically picked up.   The supply chain is once again spending money to educate their staff as well as their contractor customers, as a way to grow their businesses as well as their customers’.  The Rhode Island Builders Association Boot CampsThe Rhode Island Builders Association Boot Camps I was involved with is just one example of this trend.

Don’t get left behind

If you’re a contractor thinking about the future opportunities and potential for your business now is the time to act.   As I discussed in a previous blog titled “Generic Contractors Are Fading Away, Brand Names Are Shining”, those contractors who are investing in their business systems and their brand have been capturing good projects with good margins.   Those who have been and continue to protect “their status quo” are going out of business or continue to struggling financially. 

Here’s how I look at it. 

About 75-80% of remodeling consumers buy predominately on price.  Also, my experience tells me, about 75-80% of contractors are generic commodities in their market place.   That means that if you want to capture business from the 20-25% of consumers who select a remodeler for reasons other than lowest price you better get going improving and differentiating your business.  The idea is to build your market share, in your target market, before someone else does.

Here’s a quote by a famous baseball personality that I think sums things up

"There are three types of baseball players: those who make things happen, those who watch it happen, and those who wonder what happens."     

 Tommy Lasorda

3 Financial Myths That Compromise a Contractor's Long Term Success

Here is my list of the top three myths I see that compromise a contractor's ability to achieve long term financial success.  These areas definitely affect a contractor ability to profitably grow a business, as well as the contractor’s personal financial health, including retirement funding.

I must be competitive with my pricing

In my opinion when any business seeks to be competitive it typically becomes a commodity.  By that I mean the buying public looks at that business and or it’s offering as being the same as their other choices.   When consumers see a product or service as a commodity they ultimately make their choice between available options based on price.   By trying to remain competitive contractors playing in this sandbox become bidders in a reverse auction where the loser is the one who wins. 

To prove my point, ask any contractor who sells their services through a bidding process if they will have the money they need to comfortably retire at 65 without working again.  There will be some exceptions, but I bet the majority will tell you their plan is to work until they die.  What would their significant other say about that plan?

Also, keep in mind that nine out of every ten contractors will eventually fail.   By being competitive contractors are most likely joining the ranks of contractors who will eventually fail.   Rather than compete, why not differentiate your business?   Check out an article I wrote on this subject for Remodeling Magazine

I can't raise my prices; I'm already the most expensive contractor in my market.

I hear this one all the time from contractors.  Most of the time it comes from contractors who have no idea of their true cost of doing business and guess at what markup to use.  This is referred to as the WAG method, or the "Wild Ass Guess" method.  Based on the fact that they are guessing at what price they should charge I would also suggest they are guessing about being the highest price in their market.   Did they do or hire someone else to do market research to back up their claims?  I doubt it. 

When I ask how they know they are the most expensive most contractors tell me their prospects are the source of their assumptions.   For those using their prospects' feedback to determine their price point in the marketplace remember, buyers are liars.   The 11th commandment states that you can lie to a sales person and still go to heaven!

One of my contractor coaching clients told me he was the most expensive in his market and would not be able to sell anything if he raised his prices.    After I helped him do his first business budget and determine the markup he needed to use to cover his true overhead costs and make a profit, he went out that night and closed a deal at his new higher pricing.  Check out this article I wrote for remodeling magazine about the benefits of having confidence in you numbers.

I can only charge what the market will bear

Now, if a contractor has done market research, for his or her local market, this may be true.   Savvy contractors, those who know what price they need to charge, will sell at higher prices up to the point that a majority of protects stop buying.  I would consider this to be true market research.  However, these business not only know how to determine the true costs of doing business, they also typically have professional marketing programs to help them get in front of specific prospects and they employ professionally trained salespeople who know how to sell.

Contractors using the WAG method to price their work also typically do not have a strategic marketing plan.  Without targeting a specific market of customer types, how can a business owner know what price point the market will bear?  Without professional sales skills, how would a contractor know if the reason for not selling at higher prices is due to the market or to his/her selling skills?

Also, what market are they referring to; the one they are proactively pursuing or the one that randomly ends up knocking on their door?  Are they using professionally trained sales people or are they using order takers?   One way to differentiate between sales people and order takers is that sales people present their solutions in person.  Order takers typically hit send.   If you use the hit send method I don’t think that counts as a valid way to test what the market will bear.

Want to be able to charge more for what you do? 

Check out this blog about why some contractors can raise their prices but most can’t.

Looking to target specific customers and work types?

Check out this all day Marketing and Sales Workshop

Manufacturer, Dealers Partner With Trade Association to Offer Free Education for Contractors

All serious construction business owners have at least two things in common.  First, continuing education is key to improving their businesses.  Because the business world is constantly changing, to remain successful, construction business owners need to keep up with new ways of doing things as well as advancing their business systems and management skills if they want to stay ahead of their competition.   Second, they need to make sure they surround themselves with the right resources so they can get the education they need from reliable sources at an affordable price.

This fall contractors will be able to get both in the same place thanks to window and door manufacturer Andersen® Windows.   Thanks to the efforts of Dealer Account Representative Don Hamel, Andersen® Windows has pulled together a series of five FREE Contractor Educational Boot Camps that will be held at the Rhode Island Builders Association (RIBA) offices in East Providence RI.   I will be the presenter at each of these events.  In addition to the support from RIBA and Andersen Windows several lumber and building materials dealers and product manufacturers have joined together to sponsor these events.

The five boot camps will include the following dates and topics:

9/26/13: Marketing Boot Camp: Targeting the Right Customers

10/3/13: Estimating Workshop: Know What You’re Selling Before You Sell It.

10/10/13: Small Business Finances and Profit Strategies for Non-Accounts

11/7/13: Sales Workshop-Smart Selling for Tough Times

11/14/13: Production Workshop-You Sold It Now You Need to Build It

Why these topics?

The list of topics above was put together to help give contractors a comprehensive exposure to several important areas in their businesses.  The content of these sessions will include valuable and timely information that will help contractors differentiate themselves in the marketplace and make more money.  Also, each of these sessions has been approved for two continuing education credit hours towards renewal of a Massachusetts Construction Supervisor's License (CSL).   If you are a licensed Massachusetts contractor make sure you let RIBA know you want a certificate of completion for CSL credits when you register.

Who is sponsoring these events?

Here are all the logos of the businesses that are sponsoring these events.  You can click on the logos to go to the web pages for each of these businesses.

	Brought To You By

Don't miss out, register now!

If you would like to attend one or all of these boot camps you need to register for them individually.   Seating will be limited; so make sure you register right away.  Click on the links above for the class or classes you would like to take to see class descriptions and find the registration links.

I hope I’ll see you there!

10 Sign’s You’re Playing The Game of Contractor Roulette

Most contractors are great craftsman but terrible at accounting and financial management.   Most can build a house from the ground up without any plans but have no clue how to identify and create the financial reports they need to know whether they are making or losing money. 

Building or remodeling a house without any idea of whether you are making money or not, and if you will be able to pay all the bills as they come due, is like spinning a roulette wheel at the casino.   You put money down, spin the wheel and hope to make money.  Problem is that you have no idea or control over where the wheel will stop.   If you run out of money the casino is happy to let someone else step in, lay down some money and do the spinning. 

Like most gamblers, contractors always brag when they win, but never want to talk about it when they lose.

Contractor Roulette Is Not A Good Gamble

If it sounds like I'm describing you and your business you are playing what I call "Contractor Roulette".   Sure, once in a while you may win, and even win big.  But remember the odds are with the casino.   How about you?  Have you been spinning and winning or has the “casino” been winning and encouraging you to keep playing?

My list of 10 signs you’re spinning the “Contractor Roulette Wheel”

1. You lose sleep at night worrying about money.
2. You have no idea what markup to use.
3. You think margin and markup are interchangeable terms.
4. You never know if you will have enough money to pay your bills until they're paid.  Again
5. You guess at project payment schedule amounts and when they're due.  As a result you constantly suffer from cash flow challenges.
6. When a prospect asks you if you will match someone else’s price for the same job you figure if the other guy can do it for that price so can you, so you say yes.
7. You are always putting the whip to your production employees to beat the labor allowance in your estimate because you need to make up for dropping the price of the job just so you could sell it.  Again.
8. Even though you got price quotes for the materials before you sold the job, after you take the job you either bid the materials out to a get a lower price or beat your vendors up to sell them to you for less than they already quoted you.  Again.
9. You do little or no marketing so you have to try to sell to everyone who contacts you, even if you have a feeling they will try to beat you out of any profit.  Again.
10. You need to sell a job this weekend and get a deposit just so you will have enough money to meet last week’s payroll.  Again.

Strive to become a Big 50 Remodeler

If you believe in the idea of relative success, where you convince yourself you are doing pretty well if you compare your results to other contractors who are doing far worse than you, then maybe you can be happy staying where you are regarding financial management at your business.  On the other hand, if you want to measure your success against truly successful contractors, perhaps use Remodeling Magazine’s Big 50 list as your reference.  To qualify for that list you need to be making a decent net profit.

There is hope!

If you have been playing Contractor Roulette here is a simple three-step plan to help you end your gambling habit:

1. Admit you have a gambling problem and commit to do something about it.
2. Get the professional help you need to help you stop gambling and eliminate the causes of your gambling addiction.
3. Find someone you can trust to hold you accountable to doing what it will take to make the switch.

Related articles:

The Five Biggest Financial Related Mistakes Contractors Make

Remodelers: I Bet You Don’t Know Your True Burdened Labor Costs

Five Ways To Think Like A Business For Business Owners

11 Common Traits of People Who Buy Remodeling On Price

Consumers who buy remodeling on price typically don’t care about anything else but price; until they become customers.  Then after your remodeling or construction company has them as customers they seem to always want more than they agreed to pay for. 

There are two main types of prospects who buy remodeling on price. 

• The first is those who are driven to pay as little as possible.   These people typically apply this logic with everything they buy.   They are also much more likely to lie to you, your employees and your subcontractors if it suits their purposes for saving money and or getting more than they paid for.
• The second is those who, lacking insight, simply don’t know what else to consider when deciding between contractors so they base their decisions on the bottom line.  These people may actually be willing to pay more when selecting one contractor over another, but the contractor must be a true sales person to help them discover other more important things to consider.  

It also takes a true sales person to distinguish between those who buy on price on purpose and those who buy on price due to a lack of insight.  Most contractors are terrible salespeople, so most contractors have to sell on price.

For those who have been selling on price

My purpose of writing this blog is to provide contractors with some motivation to embrace sales training so they are not destined to sell on price forever.   Check out my list below of the common traits of those who buy your services on price.  If these things are happening to you it’s your own fault.  When you think of yourself as a contractor first and a sales person second, you doom yourself to a career that will probably pay you less than per hour than your employees earn.  If that is already happening you have three choices:

1. Decide to do something about it and get some professional sales training and coaching.
2. Decide to do nothing and recognize that you and your business are commodities
3. Or, avoid thinking about it and stop reading this blog post before you feel any worse about your situation

People who buy solely base on price have these common traits

I encourage you to use the comments area to add any others you feel should be on the list.

1. They see remodeling as a commodity where every contractor and proposal are the same, not a service where one company does things differently than another.
2. They always seek to get more than they paid for.
3. They don’t like to give big deposits or commencement payments; they expect the contractor to finance all or most of the job until the final payment.
4. They lied to you and think it’s just fine to do so.  This often leaves them wary and concerned that you will lie to them as well, creating a need for them to always be suspicious when interacting with you and your team.
5. These people won’t like discussing change orders at all, won’t pay for change orders at acceptance and or will want to negotiate their cost at final payment.
6. These people try to get free stuff out of you and your team after you start their job.  If you give in on this they will want more free stuff.  They are also likely to forget about the free stuff you already gave them when you want to charge them for any extras or change orders.
7. They will typically dispute your payment schedule, make scheduled progress payments late and delay your final payment as long as they can.
8. They will only buy from you again if you are the cheapest of the contractors they speak with.
9. They get closer to their own retirement at your expense and limit your ability to retire.
10. They will often find some way to blackmail you into reducing the final price.

These people hang out with other people just like them!

Here's one last thing to think about if you sell to people who buy on price; they hang around with other people just like them.   If they refer you they will probably be referring you to other prospects who also buy on price.   When they do so, based on their own experiences working with you, they will often coach the referral on how to lie to you and get stuff for free.   They will also often identify what your business’ weaknesses are so the referral can watch for them and use them to blackmail you into some type of money related concession before they are done with you.

Guest Blogger: Melanie Hodgdon is a Certified QuickBooks ProAdvisor who has been providing financial analysis and QuickBooks training for contractors since 1994. She’s the co-author of A Simple Guide to Turning a Profit as a Contractor.  Melanie and Shawn often coordinate their efforts when helping remodelers develop financial systems for their businesses so they serve the contractor, not just their accountant.

Five Ways To Think Like A Business For Business Owners

I work with many companies in transition. The steps from being a “guy and a truck” to having an office and a bookkeeper and field employees are frequently challenging, but the milestones are pretty easy to identify. Ray the Remodeler used to work out of his house, but now he’s got an office. Bill the Builder used to pound nails, but now he does sales and supervises a crew. A less easily-measured but potentially even more important milestone is when the owner is able to recognize and maintain separation between himself (his personality, his idiosyncrasies, his strengths and weaknesses, his preferences, and his habits) from the company for the sake of the business.

Adding the trappings of a business (office, staff) without shifting attitudes about the business has held many owners back and limited the potential growth of their companies. As long as they see themselves as remodelers, rather than owners of businesses that deliver the service of remodeling, they risk seeing their businesses as extensions of themselves, reflecting their own strengths and weaknesses. They also tend to see their companies as being so unique that they can’t be run using best business practices.

Have you ever said anything like this?

• “If I used that kind of markup in my area, I’d lose all  my customers”
• “Yeah, I’d love to job cost my labor but I could never get my guys to fill out timecards accurately.”
• “I’m just too busy to keep up with the paperwork, so I really can’t count on my financials.”
• “Sure I’d love to hang up my toolbelt, but there’s nobody else who can do what I do.”
• “My customers would never stand for me creating change orders for all the little extras we do; I just either eat it or try to make it up somewhere else.”

If you have, this is exactly the kind of self-defeating head talk that will keep your business not only dependent on you, but restricted in scope and sophistication to the limitations of your energy.

Here are some suggestions:

1. You are not your business. Don’t allow your personal limitations to hold it back. So you stink at paperwork. That shouldn’t doom your company to have paperwork that stinks. Hire somebody who just loves paperwork to take care of it for you, but only after you have determined what information you want and worked with him/her to make sure their method of data entry is going to get you what you want.
2. Chase profit, not dollars. When owners start talking about how much their sales have increased, I remain unimpressed. Sales are nothing. Profit is where it’s at. Let’s say your volume is $600,000 in year 1 and $900,000 in year 2. A 50% increase, right? Wonderful, right? Maybe yes, and maybe no. If in order to sell and produce 50% more you had to hire a production manager, an estimator, and a salesperson and that caused a significant increase in your overhead, you could wind up with a lower net margin at the end of year 2. You might even end up with fewer actual dollars of profit to say nothing of the added stress of running more or bigger jobs. Know what numbers to watch, how to interpret them, and what to do to improve them.
3. Plan for growth. Contractors who wouldn’t build a dog house without detailed plans all too often “build an addition” on their business without even a napkin scribbling. In other words, they add personnel, equipment, or practices but fail to integrate them into an overall plan. The result can be as disappointing as buying twenty 2x6-8’s when what you really needed was ten 2x6-16’s.
4. Avoid basing business decisions on your gut. Thinking like a company instead of an individual can protect you from making decisions that, deep down, you know are bad. Do an “at cost” project for a friend? Hard for you to turn it down, but a justifiable decision from the standpoint of the business. Hanging on to those dead weight employees because you dislike conflict? It may be hard for you to let them go if you’re thinking like a kind uncle, but much easier if you’re thinking like a business.
5. Stop trying to do everything yourself. If you haven’t already figured this stuff out on your own, hire somebody who has helped hundreds of contractors understand their numbers, replace habits with systems, and achieve a healthier relationship with their business. Comments from my clients reveal that many contractors struggle with the business side of things.  Would you like to move “…from being clueless & frustrated to confident and comfortable….”? Would you find it “…refreshing to speak with someone who actually knew what they were doing, understood what (you were) trying to accomplish, and just made it happen.”? Are you sick of being “…lost in a sea of numbers…”?

If your business had a voice, would it be offering you the very same advice?