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This Article Will Focus On another way to generate new profit centers for Plumbing and Mechanical Contractors. This one applies to all other contractors as well.
Sometimes Your Journeymen and even the apprentices, labors and office staff need some cash before payday and they will get it one way or another. “Whenever there is a big enough why it is human nature to find or make a how”
I understand all too well how owning a plumbing contracting company with employees and being an owner with a burning desire to generate a profit. It means you need to do whatever you can within reason, to help keep everyone focused on doing their job, even apprentices!
When an employee needs cash between paydays, they have several options. Here are two of them and please note one of them will cost your Plumbing and Mechanical Company some serious profit dollars and the other one will save your Plumbing and Mechanical Company some serious profit dollars:
Option #1 – Plumbing Contractor Employee Visits Payday Loan Store On Company Time With Company Vehicle
- Payday loan stores typically offer 14-day advance of $100 for roughly $15 which does not sound bad until your construction accountant runs the numbers and finds out it is approximately 391% annual interest rate:
- Borrow $100 for $15 For 14 days ($100 / $15 = 15%)
- Calculate the number of two week periods in a year (365 days / 14 = 26.07)
- Multiply the number of two week periods by 15% (26.07 x 26.07 = 391.08%)
- If your employees borrow on a regular basis it can cause them to spiral down deeper and deeper in debt and the effect on their cash flow can
- The unseen effect on your Plumbing and Mechanical Company is they tend to blame you, not the payday loan store. We live in a world of what is, not what should be – Randalism
- When do your employees go to the payday loan store? On your time of course! If they are in a company vehicle and paid for travel time, it only makes sense to expect them to do it on your time, fuel and mileage costs.
- That may not seem like a bad thing until your construction accountant runs the numbers and finds out it cost your Plumbing and Mechanical Company $17.82 per person riding in the vehicle plus operating costs for the vehicle which can start as low as $1.78 per mile and go up from there:
- It will take roughly ten minutes each way for the detour to and from the payday store, add ten minutes inside the payday store for a total of 30 minutes.
- You pay your employee $25.00 per hour and they waste 30 minutes.
Every Ten Minutes Your $25.00 Hour Construction Worker Costs $5.94
- Click on What Ten Minutes Waste Costs Your Construction Company and get an in depth understanding of what it means when I say a construction worker earning $25.00 per hour costs your Plumbing and Mechanical Company approximately $36.64 an hour with taxes and overhead or roughly $0.59 a minute x 30 minutes = $17.82.
- If your Plumbing and Mechanical Company earns 10% net profit you will need to sell an additional $178.20 more work to make up for the loss you suffered.
- For every additional employee in the vehicle simply add another $17.82.
Option #2 – Implement Process From Your Business Process Management System For Employee Loans
- Understand the Randalism “You can be right or rich…pick one”. If it goes against your Plumbing and Mechanical Company’s policy to offer employee loans don’t do it. If it aligns with your company policy, do it.
- Whatever you do never, ever charge interest on the “loan” because your employees will despise you even more than they do now and they will get even.
- Make the whole process fast and easy as possible. One method is to give them cash and having them sign a simple I.O.U. or write a quick note on a piece of paper.
- Unlike a formal promissory note, where the borrower is in control of making repayments, the employer can control repayments of an employee loan. However, you should check with your construction attorney first and obtain written authorization to deduct money from any payroll check. You need to be specific about the reason for deduction; repay cash loan / advance.
- For Plumbing and Mechanical Companies that want it, we have an employee loan or debt agreement sample you can download here and I strongly advise you to have your attorney review it and make whatever adjustments they deem appropriate. The document also makes provision for the full amount to be deducted should the employee resign. The employer would therefore be wise not to extend loans greater than the weekly / monthly salary.
- A more extensive agreement should be drawn up for longer term or large loans. Your labor laws may also limit deductions to a percentage of gross remuneration, so check with your local laws and your attorney before extending credit.
- Put the paper in the Petty Cash box, give it to your bookkeeper or better yet if we are doing your bookkeeping send it to us or send us an email and we will take care of the paperwork for you.
- Give cash, do not write a check because they will simply visit the bank, check cashing store and cost you money like in the example above.
- In QuickBooks Setup An Employee Loan Process and the related report to keep track of loans and repayments. The report will appear in QuickBooks as follows:
Whenever you issue a loan, record it in QuickBooks and the report will show an increase in that persons loan account. Whenever a payment is made through payroll or if they pay it back via cash or check make the appropriate QuickBooks entry and the report will show a decrease in that persons loan account. Whenever an employee loan account has a zero balance, their name should not appear.
This Is One More Example of how Fast Easy Accounting is helping construction company owners just like you put more money in the bank to operate and grow your construction company. Construction accounting is not rocket science; it is a lot harder than that and a lot more valuable to people like you and me so stop missing out! Call Sharie 206-361-3950 or firstname.lastname@example.org
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About The Author:
Randal DeHart, PMP, QPA is the co-founder of Business Consulting And Accounting in Lynnwood Washington, www.FastEasyAccounting.Com He is the leading expert in outsourced construction bookkeeping and accounting services for small construction companies across the USA. He is experienced as a Plumbing Contractor, General Contractor, Project Management Professional, Construction Accountant, Intuit ProAdvisor, QuickBooks For Contractors Expert and Xero Contractor Accounting Specialist, Bill.Com Guru and Tsheets ProAdvisor. Check out our Contractor Success Map Podcast on iTunes and Follow Randal on Google+
I leave you with this heartfelt blessing – “Trust your inner guide, that part of you that knows you are enough. You are a child of a magnificent loving God who knows everything will work out in the end. Mistakes are an illusion; coincidences do not exist and the Universe is always in balance. Move forward in unwavering faith and have fun knowing the Universe is forever loving and supporting you as you continue exploring and discovering new horizons. Especially as you work through many character building experiences along your path which are designed to bring out the best in you during your lifelong journey and beyond.”
Randal L. DeHart, PMP, QPA