5 Mistakes Most Contractors Make

i've been in construction for 43 years 26 of those years as a general contractor now living as a general contractor for me was at once exhilarating and satisfying and terrifying and confusing i mean all of those things right and any of you who have tried it as a general contractor can probably relate to that but i would like to speak to you guys who are starting out and tell you about five mistakes that i've seen contractors make over and over and over and about three of those i was making and didn't stop making them until about 10 years ago and once i stopped making those mistakes everything got better people think that general contractors make buckets of money right and some of us do i never did i always made a good or at least a decent living i had a ton of freedom and i got to build a lot of fascinating things that i would have never learned to build if i had either a been working for someone else or b been focused on the money entry column and one on the other side along with this driveway was part of a project i did for an excellent client front porch retrofit completely changed the look at front of the house now for a long time i thought that i was focused on the money but gradually it became clear to me that i must not be because i wasn't making a ton of money but instead i was having a really fulfilling life and it finally became clear that that must have been what i wanted because that was the thing that was driving the decisions i was making so it's a trade-off as a general contractor you're always trying to decide whether it's a the money or be the relationships and the work and the satisfaction and i aired always on the side of the work and the satisfaction but i only give you that disclaimer so that you can kind of begin to understand what your real motivations are and begin to project what the pitfalls or satisfactions might be that come as a result of those motivations i built this suspended concrete deck with the stainless steel cable railing and the fabricated powder coated railing system about 14 years ago and i should add there is no easy money now occasionally you're going to hit a long ball but you're not going to hit a long ball every time you step up to the plate so with that firmly in mind let me cut to the chase here and tell you the things that i wish i would have known years ago item number one is not charging enough money let me break that down a little bit if you're just starting out you have some idea of what you were worth as a carpenter a carpenter is actually worth twice that amount of money when you're working up your your projected labor costs add to that your overhead overhead is everything that you spend and everything that you do that does not contribute to the specific job think of it the time you spend on the phone the time you spend working up the price doing the takeoffs making the drawings going to the planning department calling your subcontractors the money you spend to put tires on your truck and the paint job on the side and pay the the bond and the insurance and the the lights in your shop all of those things are overhead they will devour you you have to have some idea of what it costs you to be in business and make sure that's included in your in your pricing the next really the last and the most important piece is you have to put profit in every job and i'm not talking about the amount that you make per hour for the work you do i'm not talking about what it costs to keep the lights on and the tires on your truck i'm talking about the money that's left over at the end of the job which is your reward for taking the risk in doing the work in the first place now the amount that you attach to bids for profit is wildly and widely variable it took me a long time to work up the courage to put 20 percent on every job after i figured every single cost my time and everything related to the job and i would put on 20 percent you know it was okay it kept me in business it kept me out of bankruptcy it got me through two or three um recessions but it wasn't enough you've got to put profit on your job or you will be out of business in five years the psychological gear that you have to shift is to stop thinking about the value of what you provide in terms of what you would pay to receive it it's an irrelevant perspective the value of what you provide is what other people are willing to pay and it's a hard thing to discover because your competition is not going to be anxious to share that with you but in general terms if you're not missing at least half of your bids because of price you're too low now the last point on this is don't make the mistake that i made and that is you want to figure this out early in your career because if the reputation you establish is for being inexpensive you're the cheapest you get the work done and you're the budget construction solution it's going to take you years to pull yourself out of that the reputation that you want or at least that i recommend is being wow that guy's expensive and he is worth it so if you concentrate on that be comfortable losing jobs on price and be uncomfortable turning out anything except a good product you're going to find yourself needing to do less work in order to make more money that's pretty good item number two is centered around communication both your verbal communication and the communication in your contract but we're not getting into the contract here because the global problem is the problem with communicating clearly for instance expectations you need to be able to paint a word picture to your customers of what's going to happen when you come in to do the demolition in their kitchen maybe it turns the whole atmosphere or the feeling of the job against you before you even provided a product so learn to paint word pictures of what they should expect both in terms of the rough work and in terms of what the finish is going to be like you need to let them know that if you are trying to match let's say some there's a tongue a pine tongue and groove ceiling on an exposed beam living room that you're adding on to there is no possible way on the planet to match the color between a 30 year old pine board and a new pine board with stain or sealer can't do it and so let them know that your finishes that are matching existing are going to match as closely as possible give them an acceptable range and make sure they understand that now the next place that you need to be able to communicate perfectly is around resolving concerns the first way to be sure you have a chance of resolving a concern is to resolve it promptly don't procrastinate returning the call no matter what her tone was in the message she left on your machine a text is fine but you're going to have to have a conversation with these people in order to help them begin to relax enough that you have a chance of coming to some sort of an amicable settlement this speaks to bedside manner if you don't have a good bedside manner you better figure out how to get one or you're in the wrong business it's all about establishing a relationship of trust and then confirming that the trust was well placed over and over and over you can't do that without communicating last tip on communication it's a habit that we call under promising and over delivering let's say you're taking a job that you're pretty sure is going to take about a month but you are vulnerable to your painter's schedule so you tell these people because they would like it done in a month i need to tell you this could easily stretch out to three months in this current um construction climate and with the weather constraints that we're facing this could go longer well if you get that contract and then you slam it in three weeks or maybe the month you're a hero but if it goes the other way they will never forget the disappointment of not having that project ready when you told them it was going to be ready so be careful what you promise because you're going to need to beat that promise if you're going to build the reputation that you want next item most of us live in an intensely regulatory environment and it's a pain and there are times when dog on it you just do things however they need to be done in order to accomplish them but you're never going to meet a truly successful contractor in the 21st century that doesn't play by the rules i finally figured that out about 15 years ago that i needed to stop being frustrated by the system that i lived in and adapt and comply but here is the other thing that you have to be aware of those costs for complying with the regulatory environment have to be passed on to your customers those rules and those regulations and that insurance and those bonds and those licenses exist to benefit the customer and so they need to pay not the contractor that's done by attaching the right overhead numbers to your bids to your business model it has to have the money that's required to play by the rules if you're going to play by the rules so what can happen by working around the corners and dodging some of the requirements is that yes you can get away with it you can even get a lot of work done and sometimes you can reduce frustration but the fact is that one thing always leads to another and conflict with the system tends to avalanche and grow and the snowball gets bigger and bigger until it gets really hard to deal with when if you would have just checked each box and made sure the costs were passed on so that you could prosper and they got what they needed everyone would end up happier item four is without a doubt the single most important variable in the whole undertaking of being a general contractor and before i start in on this you need to know that right now you begin to listen to a hypocrite because i was never too good at this i was good enough and what i'm talking about is operating a business without accurate books you've got to be able to keep track of costs if you can't pretty soon you're kiting and that is taking the money that came to you in order to accomplish this job and throwing it back behind you to clean up a mess from the job before because you didn't understand costs because you hadn't kept track of costs your bidding was not accurate your payment was sporadic you have credit problems that your suppliers and pretty soon it is a shipwreck do yourself a favor if you're not a number cruncher hire somebody to do that bookkeepers can be hired maybe maybe your spouse is gifted in that way then let them do it don't try to do something yourself that you can't do and please don't ignore this piece because it will bite you now closely related to this one of the single biggest changes that i made was about probably 15 years ago i established a line of credit in order to level out the highs and lows of cash flow there are states in the united states that will not issue a contractor's license if you can't demonstrate that you have a line of credit it is that important and it reduces stress and pressure and the temptation to pull money on an advance or a deposit to take care of a problem that you have lurking just over your shoulder to such an extent and in such a complete way that your life will be better if you can manage credit if you're responsible with credit it's one of the biggest favors that you can do yourself now closely related to all of this and really worthy of an entire sort of discussion is when to ask for money how much to get on the front end when your progress payments should come how much to leave as a retainer how to ask for an additional draw when it wasn't specified in your contract all of those things are key understanding when and how much money to get is just the other side of the pendulum swing from understanding when and how much money to pay but all of it is absolutely dependent on being able to keep accurate records of where your money is and where it's gone and how much money to allow for the things that are coming up so before we wrap this up with item number five i've just got to point out that i've been talking to contractors here right primarily startup contractors but we made a video series on similar points from the perspective of the things that your client ought to know about you before they hire somebody like you or me you know because we are all criminals at heart right or at least that's the way that we are often regarded so if you would be interested in that the things to know before you hire somebody like me you can check the link check the notes to this video and it'll take you to a link to where our supporters can access all of those things and if you don't want to become a supporter that's fine you can go to amazon we have it on amazon in an e-book format and we'll have a link to that site in the notes also last item managing growth and this is a big problem right because if you don't have work you're broke and if you have too much work you're soon broke and if you were going from a little work to a lot of work that is the scenario where most of us fail rapid growth is the hardest thing to manage as a general contractor and the reasons for that maybe if you think about it just for a little bit are obvious because you're funding a lot of work from the profit of a little work and you just can't do it so you've got to think about that before you jump on a big fat job that just happens to come along the next thing that i would warn you about in conjunction usually with big fat jobs is taking work in order to get work somebody comes along and says you know i don't have much money in the budget on this so if you give me a real real great number on this scott you know i'm you're going to be the guy i come to to bid all the work that i've got coming and believe me when i tell you i've got a lot well right then you need to put the brakes on because what you want to do is take that job at cost in order to get a whole bunch of work later to build your business here's what you need to realize that guy doesn't want to pay you much to do this job and he's not going to want to pay you much to do any other work that he's ever going to have now you can't blame him i mean he's just looking for a bargain like all the rest of us but it is always a mistake to take a job at a reduced price because of the promise or the hope of getting additional work from the same client so the last thing is find some way or some person that can help you get a realistic view of your capacity everybody i know you can believe in yourself what this will do is it will either build your confidence in pursuing the big jobs or to help you realize wait i'm not cut out for that big high high-pressure stuff i'm going to content myself with the smaller or medium-sized jobs and if you price those right there's money and little work too i mean the industry is always changing there are niches there are specialties there are lots of jobs out there that people can't find anybody to do and are willing to pay a chunk of money to get it done so get a realistic view of your capacity try to get a realistic understanding of what you really want what your motives really are and then just get up in the morning early and work hard and enjoy life as a general contractor if i haven't scared you off and if you're still thinking you want to be a general contractor start one foot in head of the ahead of the other it's the turtles that win the race boys so pace yourself be smart always put first things first get out of bed early in the morning work hard treat the people around you exactly the way that you would like to be treated and odds are you're going to have a good life thanks for watching and keep up the good work [Music] you

Channel: Essential Craftsman

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Keywords: anvil, forge, blacksmith, forging, craftsman, mentor, trades, tradesman, career, smith, carpetner, builder, wisdom, workbench, fabricate, tools, tool, tips, trick, hacks, protip, contractors, contractor risks, hiring a contractor, hiring a builder, contractor contracts, contractor mistakes

Id: lV-fPCWdSEk

Length: 17min 9sec (1029 seconds)

Published: Sat Oct 24 2020