Let Us Help Reduce Construction Business Start Up
Contractor's Levels of Stress
You Quit Your Job - And started a construction
business only to discover you need a contractor’s license and bond.
Suddenly you realize it costs real money. Now that's stressful.
Ask A Friend Or Relative - To loan you some
start-up capital and they agree on condition you are partners in
the business and each have an equal share. You do all the work they
get half the profits and you politely refuse. This is getting very
Go To Your Bank - And they offer you a line of
credit. They don't want to be partners they just want everything
you own used for collateral. You say O.K. and then find out the
interest rate is 24% and they can call the loan due if you miss a
payment and take everything you own. This is getting extremely
Use Credit Cards - And supplier accounts to
finance your new business and be very careful about what you
What To Do Next - You have never run a business. The only thing you
know is your old boss was a terrible business manager and anyone
could do better than that. But now that you are the boss you don't
know where to start NOW THAT'S STRESS!
Spending Time To Set Up - Your construction
company properly will save you grief, time, money and pay you
dividends in the future. In addition you will do a better job
protecting your business and personal assets.
- Get Organized - Pick a company name that says
something about what you are doing. We strongly recommend a
Subchapter S Corp (a Sub S) for tax advantages, protecting your
personal assets in the event of a claim or lawsuit against your
company and for future expansion. Consult with a construction
attorney and follow their advice.
- Tax Advantages For LLC or a Sub S - The profit
or loss from your business is passed through to the owners as
normal income. Since the LLC or Sub S does not pay state or federal
income tax (as separate business entities), you may be able to save
money over a Sole Proprietorship; no double taxation.
- Partnerships Are The Only Ships
- Designed to sink. We recommend stay away from them like the
- Bookkeeping Service - That understands
construction is best when you start because we can setup QuickBooks
correctly in the beginning and take care of the accounting until
you are ready to take over.
- Bank Accounts - Set up two bank accounts in
your company name. All large income and expenses go through one
account and keep the debit card in your personal safe. The second
bank account is for your debit card you keep in your wallet and has
no more than $500 or whatever you need for small purchases during
- Never Co-Mingle - Personal and business money
or you could lose the tax benefits and personal protection of your
- Put Money In And Take Money Out - Of your
business is O.K. in done correctly. Your bookkeeping service can
advise you on how to do it so that it is recorded in QuickBooks
- Insurance - Is critical to your construction
company. General Liability and Auto/rental equipment insurance can
help protect you and your company against claims for personal
injury and property damage, and may provide you with legal defense
of those claims. Talk to an insurance agent that understands
construction about your insurance needs.
- Architectural or Engineering Designs - Similar
services are good reason to get Professional Liability (Errors and
Omissions) insurance to help protect you and your company from
claims arising out of mistakes in designs and calculations.
- Contractor's Licenses - Information changes
rapidly so check online for your local county or contact us and we
can help 206-361-3950 or email email@example.com.
- Performance Bonds - If you are doing public
sector work you will probably be required to provide a performance
bond to ensure that you complete the work in accordance with terms
of the contract. Bonds or guarantees are provided by surety
companies. Getting your construction company qualified is a process
because the surety company will go through a due diligence process
on your company to determine how much money they will write or
guarantee for your bonds.
- Business Planning And Strategy Development -
Is the blueprint for your business to succeed. You get out of them
what you put into them. Garbage In = Garbage Out! Your business
plan is a living breathing document that you will change and update
as needed. It provides the baseline and milestones for your
business and lets you make decisions in advance in the calm
environment of your office instead of "on the fly" while driving,
talking on your cell, eating lunch, and putting together a bid. It
is a must have to borrow money from a bank.
- Paperwork - Begin the habit of putting all
paperwork into manila envelopes which you write the job name on
both sides in big letter. If you are thinking of doing your own
bookkeeping think again, your time is more valuable in managing
your business, getting customers and keeping them happy. Let us
take care of your accounting.
- Estimating Process - There is no one right
answer. You can develop your own estimating and pricing process or
you can use something like UDA.
- Contracts - We recommend seeking the advice of
a qualified construction attorney to put together a contract that
fits your specific needs. Your contracts need a well-defined scope
of work, clear payment terms, a reasonable schedule and a good
change order clause. No work should ever be performed based on
verbal agreements. Get everything in writing, always, no
- Invoicing - For small projects we have a Free
Invoice Template you can download and for larger projects with
multiple deposits, change orders, progress payments check out our
- No Financing - Your customer or client's
project by providing a substantial amounts of labor, material,
subcontractors and rental equipment hoping to get paid later on
down the road. McDonald's restaurant model: #1 Customer places
order #2 Customer pays #3 Customer gets food. I have owned and
operated several construction businesses and have clients who do it
now and always work on "Other People's Money (O.P.M.). Nothing will
kill your business and your hopes and dreams faster than running
out of money.
- Marketing Then Sales - Is a process that never
stops. Selling convinces your customer or client to buy your
construction services and it comes after the marketing step.
Knowing how to write proposals for customers or respond to a
request for proposal (RFQ). What makes your company different than
the competition? What are your strengths, weaknesses, opportunities
and strengths? Perform a SWOT Analysis. Never ever bad-mouth your
competition; it's temping but unprofessional and they might
actually do a better job than you do.
- Join Trade Organizations - This is a great
place to meet new customers and get lots of referrals because
construction is deep and wide and no company does it all. The best
one we have found is The Master Builders Association. And spend
time learning about Networking For Contractors. This organization
is good for all construction and related industries.
- Labor - Can include yourself in the beginning,
construction workers, subcontractors and labor pools like Madden
Industrial Contractors. Subcontractors are specialty trade
contractors that you can delegate certain portions of the work you
intend to perform. Make sure they have appropriate experience,
properly licensed, bonded and insured. It is important in order to
maintain future long term relationships that pay dividend to pay
your subcontractors on time and treat them well.
- Employees - Bring lots of flexibility and
responsibility. Flexible because you can allocate resources as need
and scheduling is in your direct control. Responsibility because
someone has too process payroll and the payroll tax returns. You
need to manage cash flow to have money for their wages, benefits
you offer and any applicable state and federal withholding taxes
related to their wages, such as Social Security, income tax
withholding, workers Compensation and unemployment insurance. In
addition you may be responsible for employee benefits such as
vacation pay, health insurance, and contributions to a retirement
program. With labor Pools they take care of all of that and you pay
a fixed cost per hour or whatever you negotiate with the service.
Check with your construction attorney and your liability insurance
agent to make certain you are covered.
Lessons You Will Learn The Easy Way Or
The Hard Way
Lesson #01 - A new contractor meets an
experienced customer and money changes hands and not the way you
The Contract Abuse - This is typical of what
happens when you first get started. You bid on a project and you
are the low bidder. You are given the client's standard contract,
which contains the client's favorite set of commercial terms and
conditions, to sign as a condition of getting the project. You
close your and sign the contract because you don't want to ask for
changes in the terms or consult your construction attorney. You put
the signed contract in your bottom desk drawer and pray hard
nothing will happen during the course of the project that will
cause you to ever have to read the contract again.
That Is Not What Happens This Is What Usually
- Poorly defined scopes of work create claims and disputes.
- The completion schedule is too short and exposes you to
monetary damages for failure to finish on time.
- Payment terms put you in never ending negative cash flow by
loaning the customer money at 0% and borrowing on your credit cards
- The customer keeps 5% to 10% of the contract price as retention
for up a year or more after the entire project is finished which
could be all your profit in the project.
- Indemnity clauses could make you financially responsible for
bodily injury and property damage claims caused by customer
- Indemnity clauses could make you pay the customer's attorney
fees and costs.
- Your insurance company may be required to provide additional
insured coverage for the project giving the customer free insurance
and full access to the policy coverage and limits.
- Oftentimes the term and coverage of the warranty is beyond
normal industry standards.
- Dispute resolution clauses that require arbitration first and
then litigation, probably the two worst ways ever invented to
- The client's pre-printed final waiver of lien document
(necessary for contractor to receive final payment) waives all
contractor's rights to recover unpaid extra work and to pursue any
claims that arose during the course of the project.
Your Construction Attorney - Is your friend and
ally and can save you a lot of grief. Most contracts are easy to
read and understand.
Scope of Work - Description in the contract is
of key importance and a well-defined scope of work with details
that outlines specific work to be performed by you, the
contractor. The scope of work needs to also define work that
is excluded and all work to be done by others, including the owner,
which may interface with the contractor's scope of work. Never
worry about too much detail; that detail will significantly help
with the avoidance or resolution of claims and disputes that may
arise out of the scope of work.
Schedule And Gantt Chart - Make sure you have enough time in the
schedule to perform the scope of work. This is where every minute
spent developing your Work-Breakdown-Structure (WBS) is worth an
hour or more in time needed to do the work.
Add Contingency To Your Schedule - Minor delays,
weather, equipment problems, etc. always happen and do not expect
the customer to be sympathetic and allow more time for delays. This
is extremely important if the contract has liquidated money penalty
damages for late completion.
Payment Terms - Should need to add positive
cash flow. Get cash coming in early and often. Paid when paid and
paid if paid terms are ridiculous and we recommend not signing them
ever! Clients who want these types of payment terms all have access
to plenty of money and can pay you. Remember cash is king!
Retention - Instead of retention being withheld
from your progress payment invoices consider providing a warranty
guaranty instead but check with your construction attorney
Indemnities - Can be an open door to your cash
reserves and everything you own, be careful! Indemnities typically
cover claims for bodily injury, death of persons and property
damage. The broad and intermediate form indemnities may require you
to pay for bodily injury, death and property damage claims caused
by the client, and you could be liable for the customer's
attorney's fees and costs. Indemnity in contracts can be a
dangerous risk transfer if enforced in a court of law could
possibly bankrupt your company for something you didn't do. Again
your construction attorney is the person to ask and don't be afraid
to walk away from a project.
Three types of indemnities:
- Broad Form: A broad form indemnity
contractually obligates you, the contractor, to be responsible for
claims arising out of any amount of the client's negligence,
including his sole negligence. The 100% indemnity.
- Intermediate Form: An intermediate form
indemnity contractually obligates you, the contractor, to be
responsible for claims arising out of the client's negligence,
excluding only those claims arising out of the client's sole
negligence. The 99.9% indemnity.
- Limited Form: A limited form indemnity
contractually obligates both the contractor and the client to be
responsible only to the extent they are negligent for a claim.
Additionally Insured - Is a typical requirement in a contract that
means something like: "Contractor will name customer as an
additional insured on his General Liability Insurance policy."
Understand that when you name your customer as an additional
insured to your general liability insurance policy (bodily injury
and property damage coverage) he receives full access to the policy
monetary limits and coverage provided by the policy at no cost,
FREE, $0.00! The customer may also receive the legal defense of a
claim because your general liability policy for FREE!
Other Things To Be Aware Of:
- Warranty - Is a good thing because it shows
your commitment to stand behind your work and fix or replace
defective parts or workmanship. Standing behind your work with a
good warranty will give you a very good reputation. However,
warranties don't have to go on forever and you don't need to marry
the project, one year is about right and perhaps you could offer
extended warranties as well. Your warranty should exclude things
like normal wear and tear, corrosion, improper usage, etc.
Make sure your warranty is specific as to what it includes and
excludes, when it starts and when it ends.
Dispute Resolution- Well defined and documented dispute resolution
clause in all your contracts that outlines the process to try and
resolve disputes with negotiation as the starting place and if
negotiation fails, then mediation. If that will not work provide
for a senior executive in each organization to try and resolve the
dispute. If all else fails arbitration and/or litigation is the end
and both parties will lose.
- Lien Waiver - Do not ever give a lien waiver
in advance of the check clearing the bank. All 50 states have lien
laws that provide contractors with some limited protection against
customers that refuse to pay. Make sure your construction attorney
reviews the original contract looking for the customer's final lien
wavier that could be hidden deep in the contract documents. Some
final lien waivers also waive your rights to collect outstanding
change orders and/or bodily injury or property damage claims
against your employees or property caused by the negligence of the
customer so be careful.
- Board Of Advisors - Finally one of the best
things you can do at very little cost is put together your own
Board of Advisors to help guide you.
- Find A Mentor - Someone who has been were you
want to go and can guide you. We would like to be that person for
you. Call Sharie 206-361-3950 or email
firstname.lastname@example.org and schedule your no charge one-hour
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