Cash Flow Troubles
Work wise, our relationship is excellent - multimillion dollar residential construction. Tons of excellent work. Almost no competition. If I'm not making decent money, it's my own fault for saying the wrong number. I can't walk away from him because everything else works so well.
If you're doing so much work with this contractor and your success is tied to him, I would say you've got more than a cash flow issue. Maybe that's not what you're saying. Anyway, why not get a decent line of credit to cover yourself if cash flow is slow? Nobody wants to use it, but it doesn't mean your business is going in the hole if you do. Cash flow is an inherent issue in our field. Use it if you need, then pay it back when the cash comes in.
Beyond that, work to distance your business from any one client. You need to have enough work from other sources so that you can put your foot down with this contractor and say "show me the money!"
In my experience, contractors will do nothing but take, take, take. They're only out to make as much money as they can for themselves. And I say this being an equitable partner in a contracting business. For this reason, I market to and try to deal specifically with the end user, the homeowner.
Get more diversified in clients! Don't continue to keep all your eggs in one basket, as they say, or it will eventually bring you down.
From the original questioner:
Thanks for all of the advice. I'm aware of the "eggs in one basket" situation. I did, on my own, break off our work for 6 months in the past. I am a one and a half man shop, and running around submitting bids to people I don't know is a real time drain. Basically, my relationship with this contractor is perfect, except for the cash flow issue.
Currently, my game plan is to come up with some strict rules of deposit and reimbursement with the perpetrator. That being said, I may have to take out a line of credit to stabilize things. I'm still sucking up a lot of financial woes from last year... built a new shop, building up material inventory, etc.
Instead of simply adding my usual markup (profit?), I'm considering adding an extra 5% to this customer's bill, anticipating that I won't get paid in a reasonable amount of time.
I like the response about a 5% increase due to rise in gas, sheet goods, lumber, etc., then 2% discount if paid in 10 days. The accounts payable person (if doing their job) looks for these money saving ways. Besides, the squeaking wheel gets oiled first!
It may not be the contractor. I have a contractor that sends me a lot of business. Sometimes the pay is immediate and sometimes not. The difference? The homeowner's bank, if they need one. There is a wide difference in how banks and title companies operate. Some have a limited number of draws. If this is the case, look into the line of credit. I have one, and I only use it for this kind of situation, and pay it right back.
I have come to the conclusion that contractors are good at giving you business with excuses. "Yeah, it was a great job, but we haven't gotten paid yet by the client because..."
1) Contractors will take as long as they can to pay you, although they do keep you busy.
I will not be a subcontractor for any reason. I figure if they think that I am a finance company, I might as well act and charge like one. We have had no problems whatsoever getting paid on jobs because of this new financial agreement that they must fill out in order for me to give them any credit. Also, if you make an agreement like this, make sure it holds up in court, and make it almost so long that they will say "Ya know what, it's easier just paying the bill."
I send an intent to lien letter at 40 days and lien the property at 45 days. Once your contractor understands that you are serious about collecting your money, you will not have future problems.
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