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HVAC
Articles |
Be Careful of that Big Job, It Can Put
You Out of Business!
If you are an adult who was once a child, and most of us were, you have heard this statement from your parents more than once; “If you would simply listen to me you would not have to make the same mistakes I made!” Did we listen? Sometimes perhaps but more often than not we looked back weeks, months or perhaps years later and thought to ourselves “Ghee, if I have simply listened to my parents I wouldn’t be going through what I am going through.”
Well I am not your parent but guess what? There is something I want to share with you that could be of great benefit and perhaps even save your business. If you are a young company what I am about to share with you may not have occurred yet. If you have been in business for perhaps five to ten years it has probably already happened to you, and hopefully you learned something from it. If you have been in business for ten years or more I can pretty much guarantee this has happened to you at least once and if you are reading this article you most certainly learned from it…..because you are still in business!
Let me explain the problem with a short story. A few years ago you started your own company. It was hard but you are doing pretty well. You might have started out doing just service, just remodeling or perhaps just new construction. You are not rich but things are moving along in a positive direction. Over the past 3-5 years the biggest job you ever did was perhaps $20,000 to $30,000. One day you look in the paper. The local school system is going to completely remodel the high school. Bids will be taken from contractors in various trades over the next few weeks. Wow, what an opportunity. You are young, wanting to grow and this job would certainly put your name on the map in the local community. You get a set of plans and find the portion of the job applying to your trade isn’t just big…it’s huge! Over the next several nights you review the plans, do the math and find just your portion of the overall job is going to exceed $230,000. You think to yourself, “If I could bid that job, and get it, it would surely be the thing that springboards our company to those huge profits we have been dreaming about for the past few years.” Fortunately, you recently attend a class on labor pricing so you know how to bid the job to make a reasonable profit. There, after seemingly endless nights the bid is complete, ready to submit. You were not greedy because you really want to get the job. If your numbers are right you have a 10% net pre-profit built into the job. That would produce a $23,000 profit ($230,000 x 10% = $23,000) in addition to covering the companies overhead, including your salary, and it would keep the crews busy for several weeks, if not months.
You submit the bid and wait. The day finally comes and the winners are announced. You got the job! There is joy in the kingdom. Lots of work to do, great profit and the crews will be busy through spring! That night you take your wife to dinner and discuss how you are going to spend your $23,000 profit!
You order the equipment/materials from your supplier and in a few short weeks the job begins with nearly every tech working full time on project. Before you know it it’s payroll time. Better submit an invoice for the work done so far. $30,000 should cover it. A week passes and no check. Another week passes and still no check, so you make a phone call. To your dismay you are told invoices may only be submitted once a month, between the first and tenth. You are now two weeks behind but next week is the first of the month so your check will surely arrive soon. Another week or two passes and still no check. Another call to the office only to find out one more detail you forgot about. The Standard Operating Procedure is “Payment in 60 days after receipt of invoice”.
Now what? No money coming in for another two weeks with payroll on top of you and guess what else arrived in the mail today. You got it, it’s time to pay your supplier for all those materials you ordered for the job. Luckily, good business planning actually, you had a line of credit set up. You borrow on that to make payroll and to pay basic overhead costs. The distributor will have to wait. Finally, the initial invoice arrives 60-90 after having been submitted. But wait a minute. I invoiced the general contractor for $30,000 but I only received $27,000. It’s time for another call. “Where is my other $3,000?” The kind office manager on the other end of the phone then tells you about the 10% retainage that will be held back until the final checklist in completed. Yes Mr. Contractor we are going to keep 10% until the total job is completed and yes we understand that is your profit – sorry!
As the job progresses a familiar pattern arises. Payroll and overhead need to be paid but there is not enough money in the checking account to cover it. Time to borrow on the line of credit again, and again until you hit the limit.
So let’s review our great job again for a minute. Bid right, fair profit. That sounds good. However, each invoice is 60-90 days before being paid and when they are paid 10% is being withheld. That’s bad. Worse yet, the line of credit is being used up, my supplier is threatening to put me on COD and the wonderful residential customer base you built over the past years has stopped calling because all your techs are tied up on this great job and can’t get loose to service their needs.
Well I think the point/s are made. Now don’t take this wrong. I am not saying never take that big job but what I am saying is count the cost. A contractor in a recent class was sharing that he had a similar type job but was able to negotiate a 20% down payment with agreed upon terms of payment within two weeks after an invoice was submitted with only a 5% retainage. It is amazing what you get when you ask.
If your profits are not what they should be you may want to consider attending our three day “Basic Business Boot Camp”. Check out our website for a detailed schedule. Each class is limited to 15 contractors so sign up now while space is still available. If you would like to attend a FREE Webinar overview of the boot camp simply call our office or sign up on our website at www.GrandyAssociates.com.
Tom Grandy, president
Grandy & Associates
One Executive Blvd.
Suite LL-4
Owensboro, KY 42301
Phone: 800-432-7963
FAX: 270-684-7425
E-mail: TomGrandy@GrandyAssociates.com
Website: www.GrandyAssociates.com
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