One of the most interesting things I have learned from the construction industry is that there is a lot of risk being a contractor that the public doesn’t understand. We often hear stories of the contractor skipping out on work and the homeowner losing out. Those stories bother me because I hate the fact that there are unsrupulous contractors out there. They unfortunately have tarnished the industry. For every bad contractor there are probably hundreds of honest and caring ones.
The story the news never tells is the homeowner who doesn’t pay the contractor. This probably happens more than you may think. A contract takes a lot risk when doing a project. Imagine if you hired my company to reroof your home and we agreed on a price of $10,000. If I ask you for the customary 50% down payment you have taken the risk of giving me money and me not doing the work. That’s why contracts and a little due dilligence on the home owners part are important. I then start the job. I order materials and schedule the roofers. Work goes as planned and in a few days we are done and inspected. All is well. The roofers come to me for a check and I pay it out. The bill for materials comes in and I pay it out. The permits and engineering fees are all paid. Let says I have paid out $9,000.00. I have spend $4,000 more than you have paid me. I go to you and give you the final bill expecting a check. Then you proceed to tell me I can’t pay because I had to get the car fixed or my kid is sick etc. I say I will be back in a week. No payment again and again. At this point you have a new roof, my team is paid and I’m out $4,000 bucks plus the $1,000 of uncollected profit. Now multiple that by 10x or a 100x and you’ll understand that owning a small business and going after the big customer can leave you broke.
Unfortunatley besides putting a lien on the home or going to smalls claims court a contractor has little recourse. Say you eventually pay me six months later. For six months I have had $5,000 sitting out there. If this happens with several customers a small business can quickly fall into debt or worse have to close up..
The lesson is that as a small business owner you must have a really good feel for your customers. It’s just as important for you to interview them as it is them interview you. I have a rule that if a customer tries to negotiate price to much and all they seem to care about is price we don’t work with them. We give a fair price up front. If they want the price lower, they have to change what they want. If you can’t afford the metal roof you get a regular roof. If you can’t afford granite you get Corian.
In your business please interview your customers and get a feel for them. You take a risk on them as well.
Till next time – wishing you great customers
Joseph Cortez
Joseph Cortez 