Wow, it turns out this is a long one! Some of this stuff you might already know but I also almost guarantee you’ll learn something new. I’m going to keep the introduction brief because this post is decidedly not! I see lots of people around us and that worked for us who want to and try to go out on their own and it’s hard, really hard! Being new to any business is hard but there are lots of competition and roadblocks to starting out in construction. The other side of this is there is lots of demand, opportunity, and money to be made! I’m happy to share all of our tips and tricks and not exactly secrets as well as pitfalls you want to avoid falling into. You just have to promise not to come and do it where I am, just kidding I’m happy to share this information with anyone who will find it useful. Some of this is ‘do as I say and not as I do’ but as I’m writing it I keep thinking “we should really be sticking to our guns on that one!” So it’s still good advice. If you have any tips or tricks not listed here please, please leave them in the comments and help a newbie out!
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Honey has been working in this community for 2 decades now and for himself for 16 of those years. We get our work mostly from repeat customers now and word of mouth from those customers. Other sources include other contractors who refer us for a complex job they can’t handle, referrals from the building supply center and let’s just say miscellaneous. We’re lucky to be in the position where we don’t advertise and have steady work both contract and cost plus. About the only thing I have to offer is that it’s mostly fair to use pictures of jobs you worked on for another company if and only if you are sure you have the resources to do that job by yourself. Then I think it’s fair game.
What I’ll offer instead it the two options you have for costing out work and those are cost-plus versus contract work. Let me start off by saying don’t let someone push you into a firm contract price for a job if you’re not comfortable because you very well might lose your shirt. Contract work is the type of job where you provide a quote outlining step by step how much you’ll charge for a job from start to finish. Things like, roofs, siding, septics, and a predesigned deck are all usually done as a contract. Customers like this sort of arrangement more. Really take your time thinking through all the steps and prepare your quote for this sort of work carefully and specify any likely things that could extend the cost or timeline of the project. So you might write in a roof quote a sentence or two like this. “This quote assumes existing sheathing and sheeting is reusable. The additional cost to replace a sheet will be $100 per 4×8 sheet and $300 if re-sheathing is necessary. If something does come up beyond the scope of the work make sure to let the customer know right away.
The other option is cost plus and usually, contractors will find this preferable although it’s not without its drawbacks. In this arrangement, the customer agrees to pay you the cost of the materials plus labor at a pre-arranged rate. Usually, we bill this sort of work weekly or bi-weekly. This can actually be better for the customer in the long run because we all build pads into contract prices just in case. For renovations in older homes, we always opt for this arrangement because it’s impossible to know exactly what costs will be up front. If a customer really hasn’t made a firm plan yet there’s pretty much no other way to start the job. After all, how can you cost out a job exactly without a firm selection of finishes, scope of work and decisions on design made? If you’re not comfortable quoting out a job explain how your cost-plus system works and be prepared to give a ball-park price and timeline up front. If you discover that things will be going well over time or that ball-park budget make sure to let your customer know right away and have ideas ready for cost-cutting measures when you do.
As hard as it is to do, and it is hard, don’t be afraid to speak frankly about money. I don’t think it is a really great idea to come down from your quote for a couple of reasons even if you really want the job. One is it unfairly makes it looks like you were juicing up the original price and word will travel quickly that you did that for one person and you’ll be expected to do it all the time. New construction outfits are often lean and mean and can undercut more established players for a lot of good reasons. If you really want a job for advertising, convenience or you’re even a bit desperate for work build that into your quote price and lead with your best offer. Instead of agreeing to take money off the top at the start instead tell the customer you’ll do your best to come in under budget at the end and then deliver. A great way to earn a repeat customer and great word of mouth is to bill them less than they were expecting at the end. When negotiating a contract make sure you clearly communicate the following points ideally in writing as much as possible:
- Methods of payment accepted
- Deposits and progress payment amounts and points
- Work hours and days
- That extras and changes could cost more time and money
- Any expectations you have for the customer (such as picking and/or supplying materials on time)
- That they should come to you right away with concerns
- How to reach you
- When you will start
- How soon after completion you will be paid
How to handle deposits
Deposits are dicey at least in the eyes of customers but the thing is a lot of jobs call for one and are often most needed by new contractors. Lots of shady folks in the industry have taken deposits and walked away. When this happens people talk about it and when one person does it a lot it often makes the news at least locally. What doesn’t make the news is all the customers that don’t pay when the bill is due and these folks might even prey on smaller newer contractors. So contractors need deposits to proceed with jobs but customers are afraid of getting burned both rightly so. How then do you negotiate this impasse?
The thing is it is fair to ask for a deposit, for this reason, it limits the amount of money you are out in actual material. Not that being out labor costs is any less a big deal. What we do is frame the deposit as a material deposit and make it clear that until it’s paid no work gets done. This works well on a couple of fronts. It makes sense to the customer that they are just paying for the material at that point and it keeps you from being out material right from the start. We usually provide the ‘our cost’ receipt to customers at this point but you don’t have too. You could add a little bit or charge the customer retail cost. We usually also cover this cost up front on our own rather than asking for a cheque before the material shows up. If you’re new you might not have the resources to do that and that’s totally okay. Get the cheque and have the material delivered as soon as it clears, (more tips below to get a cheque to clear within the day.) Once the material arrives the customer’s mind will be put at ease.
Since you’ve agreed to this arrangement in advance if you’ve put up the money for the material (say roof shingles) and they are at the customer’s house. No work starts until you have it, that’s how we do it for jobs where material costs will be significant. Now… if it takes a hot minute to get that material deposit or any other shadiness occurs this should raise your antenna that getting paid at the end might be an issue and you should be as careful as possible for the rest of the job.
Now some of this is’ do as I say not as I do’ because well, we can all be idiots. Actually, it’s really hard to shut down a job for late payment. When half of the work is done for the job a progress payment of a little less than half the outstanding balance should be made. I say a little less than half because this way you still have money in the job and in the customer’s mind that is incentive to finish quickly. This allows you to get some money out of the job earlier and maybe pay your guys that week. It also should be done every single job because if the person is going to try to stiff you in the end or take forever to pay you it lessens that blow. Let the customer know clearly that the progress payment will be due as soon as possible. So say things like half of the shingles will be on in two days so we’ll need the next cheque on Thursday, there’s no misunderstanding that. If the payment is missed, or even when it’s due really you should shut down the job entirely. That way you’re not digging yourself a bigger hole but also it sends a message that you will be paid or else. If you need to for money, or to make other customers happy feel free to go on to other work at this point. This was an agreed upon part of the contract and not having the cheque ready on the day counts as breaking that contract. Especially as a new contractor, you need to keep working to keep the lights on and there is no shame in that. You should be prepared to come back ASAP once you get that cheque though. Also if the job is bigger or longer, or is priced as cost plus it’s totally fitting that you might do more than one progress payment.
This is a place where we don’t take our own advise but trust me we should! It’s harder to shut down a site for non-payment then it sounds because we’re often hearing a myriad of plausible sounding excuses and so will you. Technically we usually have the money to keep going and the urge to just be done is strong. Usually, if there is a problem getting progress payments there will be a bigger problem with the final payment in our experience. It’s even harder to go on to another job and tell customer 1 “you broke the contract I’ll be back when I’m ready” at the end of the day when the cheque is due but you can legally. What is more realistic is to work the next day (unless that day involves a huge expense), not show up the day after and start a small job the day after that if you need to. If you have to pay your guys that day get them to work at your house since I already know you’re behind on that!
Don’t work too far from home
When you’re first starting out it’s tempting to take any good paying job no matter where it is. Don’t though until you’ve thought about it a great deal. You will underestimate the cost of the commute in terms of time and money, you’ll have to buy anything you forget probably without a discount you’re used to. All this adds more stress and tuckers you out more leading to less work getting done in a day at the site, further adding to unanticipated costs. You don’t have a support network there like a supply store where you know the people and a rental center you are familiar with. The effects of working away from home are compounded if the property is more rural and further from building supply centers with reasonable rates. You can do it if you want but it will suck more than you’re thinking and it tends to be a lot harder to turn a profit.
Accumulating tools, when to rent, how to buy and make sure you sell some!
There are tools, even specialist ones you do need to buy and no matter how big you get there are ones you should always rent. When you buy tools there’s almost never a need to buy new at full price. When you’re first starting out it can seem like you’re buying three tools a week and that can be normal. As good as your intentions are, just accept that you will rarely if ever have a tool fixed if it breaks. Owning a tool is the most convenient option and renting does cost time and money. Contractors, in general, are often too quick to buy over renting in any number of scenarios.
Very expensive tools that are prone to breaking should almost always be rented and never ever borrowed. If it breaks you’re on the hook to replace it and still not have it to use. Something like a specialist nail gun that’s designed to shoot stainless nails for cedar shingles requires constant maintenance, is prone to jamming and costs about a thousand dollars. Even if you do a decent amount of this work it’s probably best to always rent it. Same goes for tools you need for just a moment like transits, especially laser ones. You can rent it set it up and use it in about an hour and then return it. Chances are your rental place won’t even charge you for the day at all if it’s out and back within the hour if you’re a regular customer. We did pick up an old school one for a lot less than the $600 price tag but up until then we used a nice laser one for years for probably less than $50 never shelling out $1200 to buy it by returning it quickly.
When looking to buy tools the used market is a great place to look. Construction people who run into money problems are always looking to unload tools they shouldn’t quickly to get some quick cash. So pawn shops are an often overlooked resource for good working tools. Plus they’re pretty easy to test out in store with a little preparation. Another good resource is the shop in town that repairs them. They often have people drop off tools who hear the price to repair it and just abandon it or never come back to pick it up once it’s repaired. If you are looking to invest in one of those really expensive specialist ones, like a truly giant hammer drill this is a good place to check out!
Also if you’re buying replacement tools that are better than what you already have for a deal or picking up duplicates (pinners anyone) that you forgot at home make sure you actually take the time to sell the old ones before they break, rust up or you lose them entirely.
Putting limits on customer requests
It’s really tempting to bend over backward and honor all of a customer’s requests when you’re first starting out but be careful. We already went over not lowering your quote price but there are a lot more. Customers will often make it clear that they want you there every day, dictate your work days and hours and there is ALWAYS a long list of requests that are beyond the scope of the contract. It’s very common that they will request changes once that part of the contract work is completed.
You decide the hours and days that you work unless there is a really good reason even then accommodating that is at your discretion. You’ll hear things like:
- I want you here every day
- It’s fine with me if you work weekends
- I sleep until 9 so…
- You should be here by 7am
- I’ll be home from work at 2 today so…
- I have houseguests here on Thursday and Friday so …
If you want to accommodate these requests and it’s convenient for you to do so then fine but you’re under no obligation to. How you run your business is up to you and your people maybe you work longs days every day and maximize your time. Perhaps you work a standard 9 to 5 to manage labor costs and have rested efficient workers, that’s up to you. We don’t work at sunrise for the most part and go home when we’re too tired or conditions mean we’re not that productive. If you get push back try explaining to a customer that if the weather is too bad, everyone is too tired, you need a day to re-group or someone has an emergency elsewhere it isn’t in their best interests to have you working at their house just to ‘show up’ every day. You can always say “we’ll do our best” and “safety first!”
When it comes to changes and extras it really comes down to two possible responses “sure no problem” and “yes but it will cost extra time and/or money.”
This is something that all construction outfits struggle with. As much as the industry has a bad name for sketchy players homeowners themselves are probably a bigger problem. I wish we had figured out a way to solve this problem entirely or even in large part but unfortunately, that’s not the case. Officially we accept cash, money transfers, certified cheques, bank drafts and personal cheques from repeat customers. However, if someone hasn’t paid we’re forced to take what we can get. We have had to take installments, pay-pal and in more extreme cases written IOU’s, objects of value and bartered services to get paid and it sucks! We really ought to stick to our shutdown policies more and cut our losses and not finish a job if we strongly suspect that last payment isn’t coming but it is so hard to leave someone in the lurch like that. There are a few things we do know and I’m happy to share those.
One trick is getting a cheque to clear on the same day if you need the money now or suspect there aren’t funds there to cover it. That is to take it to the home branch bank listed on the cheque. No matter what the teller says she can cash it there for you but you might have to open an account there, apply pressure or talk to a supervisor. The bank might also want to call the customer to make sure they wrote it, though they don’t have to and that’s fine. In our experience, people rarely write a cheque that’s bad but it does happen usually instead you’ve just been made to wait for it a long time when counter to your policy they finally ask “Will you take a cheque?” If the funds aren’t there yet, which does happen they usually fess up at the point the teller calls them.
Whether you’re shut down or not, there are a few things you can do to not so subtly remind them to pay you. Texts asking about it are hardest to ignore, dropping by to check on things on an evening or weekend also tends to work. If they are late you have no reason to feel embarrassed to straight up ask for it though we always seem to. In cases where there is one final quick thing to do, you can ask for the final check on the day you show up to do that one big thing in advance, though this is a bit shady for a final cheque. It could be something like having the dumpster removed, sodding the lawn, removing the excavator or touching up the paint. We don’t roll that way but it is an option.
Finding the right people
I pretty much have no business writing about this one since now we only employ family members and have a small crew but that wasn’t always the case. Before I started honey went through more than a few (dozen) guys and sometimes had up to 5 guys (and the occasional gal) over the years. We’ve found it tough to find good people in general and even tougher to keep them. If we have had someone we wanted to keep it’s usually been temporarily when they are short on work themselves. What we do well in is treating our sub-contractors well and generally they’ll almost drop what they’re doing (if they can) to work for us which is awesome! I am however happy to share what little we have figured out.
Providing lunch to your employees has been pretty successful for us and kept our employees more loyal to us in the past. It doesn’t cost a whole lot and it makes them feel appreciated every single day. The cost of fast food isn’t a whole lot and bringing lunch to the site means you don’t have people leaving for an hour and sometimes returning late, not at all or inebriated. If you can find a way to swing it providing a home-cooked meal will make your people very, very happy and grateful! When we ran a bigger crew that was my job. Also, if you’re going to ask them to work late through dinner and they usually don’t, make sure you feed them and make it extra yummy!
We do most things ourselves but we’re also happy to hire a specialist when we need to or it’s a big job. Make your sub’s lives as easy and rewarding as possible and they will be loyal to you, give you a good rate and come as soon as you call. Let them know and see the job if you want to hire them as soon as you start and find out what their time is like right now. Do all the prep work you can like removing an old chimney and carrying the bricks up to the rood for a mason, install a laundry sink temporarily for a drywaller or painter and arrange alternate parking in advance for your excavation needs. Make sure everything is on site when they start if you are providing material, as few people as possible are working around them and take care of clean-up for them. Feed them and check in when they are working for you to see if they need anything.
Chances are you are not the only construction outfit in town, if you are then well, lucky you! Especially when you’re first starting out you might not always have all the muscle you need on a given day. Other companies are your competition but there’s enough work for all of you. We’re usually a 2-4 person operation but somedays we need more hands on deck. Those days we call on another (much younger) crew in town, who do exactly the kind of work we do to the letter for more hands on site. Most regularly for concrete pour days. In exchange, honey offers expert advice and oversight for their technical jobs and we loan out our expensive tools to them we wouldn’t lend to anyone else. We sometimes all hang out socially, wave when we pass each other, recommend each other for jobs and if we lose out on a job we’re happy to see it go to them. Sometimes we drop what we’re doing to lend a hand to the local concrete guy for a big pour, repair unexpectedly rotten structure for our mason or cut a tricky tree for another crew. Try not to have an ‘us or them’ mentality because the truth of it is there’s plenty of work for everyone and we all need help once and a while. Being tight with the wider construction community is also a good thing so that you can be alerted to ‘problem customers’ in your area. If there’s a really rainy day in the summer we’re likely to have members of at least three different crews drop by since they know we’ll have the coffee pot on and we think that’s just great!
If you’re just starting out on your own or still just thinking about it I wish you all the success in the world! It’s incredibly rewarding to work for yourself. Of course, it’s not without its drawbacks but you’ll learn a lot. If you can start with little jobs on the side that’s a great way to do it but it might not be all that feasible depending on your trade. You probably need to give it more than a full year before you know if you’ll want to stick with it for good so be prepared for the long haul. It’s an industry filled with ups and downs so try to keep that in mind when times are high and don’t spend like it will last forever. If you’re thinking about it what’s the number one thing holding you back? If you’re already established what’s your number one tip for newbies?
Here are a few other posts from my construction secrets series you might find helpful!
What it’s REALLY like to work for yourself
The definitive guide to sticking to a renovation or construction budgets