Even with the booming construction economy, contractors are still going out of business at an alarming rate–and the reason is most likely poor cash flow. As sales volume increases, so do your payroll and supplier costs, all of which must be paid–usually long before you get paid for those jobs. If you’re not on top of your cash flow it doesn’t take much for it to all come crashing down. You can’t make your payroll with a book of receivables.

In today’s interview, business expert Michael Stone shares his 20+ years of contractor coaching experience and explains how even in the best of times contractors can go out of business. Michael gives up the top 6 reasons contractors fail and what you can do to avoid them.

What you’ll hear in this episode:

  • Top 6 Reasons Why Contractors Fail:
    1. Not charging enough for their work—“Being competitive is optional, but being profitable is not!”
    2. Failure to use proper change work orders—“The problem is that change work orders aren’t usually written or agreed to before the work is done.”
    3. Failure to use good legal contracts—“Your contract should state that there will be binding arbitration by a non-attorney arbitrator.”
    4. Having too many employees for the volume of work being produced—“When production goes down, your overhead expenses go up and they suck the money right out of the company.”
    5. Having an improper payment schedule on their contracts—“A down payment means money has changed hands and the customer is committed to you.”
    6. Having a lack of profitable sales—“If you can’t make at least 8% profit, then walk away from the job.”
  • Michael tackles these topics by answering Lightning Round questions:
    1. Why increased cash flow does NOT mean that the contractor should take out extra to pay bills
    2. Why the owner’s salary is different than company profits
    3. Why your backlog should be no more than 4-6 weeks—“If your backlog is more than that, then your prices are too low.”
  • “Most roofers are too busy putting shingles up to educate themselves on how to run a good business.”

Resources:

Markup and Profit (Visit Michael’s website for his weekly newsletter, articles, resources, and information on seminars and classes.)

Email Michael: michael@markupandprofit.com

Call Michael: 360-335-1100

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