***Editors Note. I had someone convey these very ideas to me long ago but I never heeded the advice and it was a major factor in our business failing. Please, if you can do one thing do not be afraid to demand the money you’ve earned. GCs and Owner’s Reps are notorious for holding the threat of future work over your head when pressure is put on them for payment. Although we didn’t do it enough, when we did exert force to get paid not only did we get paid 90% of the time but not one customer stopped doing work with us. In fact on most occasions it helped in the future because they knew we wouldn’t stand for being paid late. Unfortunately, it was a lesson learned too late. Please don’t make the same mistake, it can be the reason you stay in business.
How Do Contractors Get Paid? Plumbing Contractors Don’t Unless They Ask.
This Article Will Focus On why not asking for money is the root of 99.9999% of all problems, fears, angst and insomnia for Plumbing and Mechanical Contractors and how to fix it.
All construction problems are related to cash flow or communication Some Plumbing and Mechanical Contractors are gung-ho, pedal to the metal and full-speed ahead when it is time to do the work and yet these same men and women are embarrassed to ask for the money. More men are reluctant than women.
For What It Is Worth, I struggled with asking for money during all of the years of owning and operating a construction company and wanted desperately to use all ten of the excuses listed below. Many times, I would have to psych myself up like a boxer getting ready to step into the ring before a fight just to get past my macho-man oversized giant ego and ask for the money.
Most Clients Said O.K. and paid the invoice without any hesitation. Those few times when someone wanted to stall and not pay was when I was so glad I had asked because then we could take immediate action and go to war if needed.
Always Remember, “There Is A Hall Of Justice; However There Is No Hall Of Fairness” and your family, even if you are single you are a family of one, depends on you to provide food, clothing and shelter, do not let them do without because you are a bit uncomfortable.
The Top Ten Reasons Plumbing Contractors Don’t Ask For Money
- The customer just signed the contract and I haven’t done any work yet
- As soon as I need money I will ask for it – See Cash Flow Diagram
- I don’t want to look bad in front of my customer by appearing needy
- I don’t want to appear financially weak in front of my staff
- My wife is good at managing what little money I bring in so I don’t need any just yet
- I have personal and business credit cards to finance the work
- I have many charge accounts at suppliers everywhere
- My sub-contractors don’t bill me until the end of the month
- I have some money in my savings and retirement fund I can use
- I have a line of credit on my house (Wives hate and FEAR this one)
When To Ask For Money
- When the contract is signed ask for a deposit And record it in QuickBooks and on the Pay Application. We recommend one week of work as a fair deposit. To calculate it take the contract amount and divide it by the estimated number of weeks to complete.
- For example: Contract $50,000 / 5 weeks = $10,000. Use this money for working capital and stop financing somebody else’s dream. Note: if you have heavy payments for subcontractors or material and equipment front load the payment schedule accordingly.
- Progress Payments Every week, perhaps on Monday, you could review the work that was completed the week before, issue a simple invoice or better yet give your customer a comprehensive payment application and get paid.
- Change Orders Every change order has a clear scope of work and pre-determined price which needs to be documented BEFORE THE WORK IS STARTED and paid in full in advance. Sound strong doesn’t it? Well change orders have a short-short shelf life…the value of the work and the motivation to pay for the work on all Change Orders rapidly diminishes after the work has been performed. This happens a lot because some of your customers think you should have read their mind and have known in advance they were going to want the change. All change orders need to be documented, signed and paid for early and often or Christmas may come early for your customer and not at all for you and your family.
- Final Payment When the work is done when you prepare the final invoice you will credit back the deposit and either issue a small refund check or collect a small check.
- If you did everything right you did not put any of your money into the project and in fact the project increased your cash reserves.
How Many Projects Can You Work On At The Same Time?
- If You Put Your Money Into Every Project then make a list of all your cash and anything you can turn into cash: checking + savings accounts + credit cards + suppliers credit limit + home equity line of credit + other lines of credit + kids college fund + Christmas fund + vacation fund + loose change + gold + silver + jewelry + any other cash or anything that can be converted to cash then add it all up and that is how much construction work you can do and hope to get paid.
- If You Operate On Your Customers Money Your limits are how determined by your soft assets, business systems, and your hard assets including equipment and employees and ability to schedule and manage resources.
Having A Documented Business strategy for your plumbing and mechanical construction company could be the ultimate answer for your situation.
Large Profitable Plumbing And Mechanical Contractors have known about and used some form of Business Process Management (BPM) for hundreds of years.
During The Past 100 Years, colleges and universities have taught the principles of BPM to their business majors. The students, who actually paid attention, did the homework, understood the system are scooped up and hidden away inside the financial, and project management offices of these same large profitable construction firms. Click Here To Learn More.
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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 – “When the student, the teacher appears. I have many teachers and all of them have added tremendous value in one way or another. The first lesson we all have to learn is the teacher was always there waiting for you to notice them. I will grant you that I may not be the right teacher for you; however, when you are ready I trust you trust your gut or intuition to guide you to finding the right teacher and when that happens expect great things.”
Randal L. DeHart, PMP, QPA