Los Angeles Electrician Blog

You should never “lend” your contractors license to anyone, for any reason, ever. There are many good reasons for a contractor to have this “never lend” policy.

However, sometimes it can be advantageous for a contractor to pull a permit for someone else’s work. Like a homeowner installed his own main electrical panel and then he finds out that his city does not allow homeowners to obtain a “Homeowner’s Permit” for that job.

Without going into a lot of explanation, here is a form I made up a few years ago that has minimized my risk and maximized my profit in these situations. WARNING! Is this legal in your state? I’m not the guy who knows or is going to find out; that’s up to you. But, anyway, here’s the form:

Request for Electrical Permit Form

I _____________________ am requesting that The Electric Connection

Print Name

obtain an electrical permit for electrical work located at

__________________________________________________________

Address City State Zip

I am aware that The Electric Connection did not perform this electrical work and is not responsible for any corrections or repairs required as a result of either the electrical work or the inspection of this work.

I am aware and agree that The Electric Connection is obtaining a permit for work that was done by others and that The Electric Connection is not responsible for the quality and/or safety of this work now or at any future time, and that The Electric Connection is not responsible for any present or future liabilities arising out any of the work covered under this permit.

For the sum of __________ plus the exact cost of the electrical permit, The Electric Connection will obtain an electrical permit for this electrical work. If the electrical work does not pass inspection, I may or may not choose to hire The Electric Connection to make any corrections necessary to bring the electrical work up to city/national electrical code standards as required by the electrical inspector.

If I choose to hire The Electric Connection to do this electrical work, I am aware that there will an additional charge for this work, and that this additional cost will be mutually agreed by myself and The Electric Connection before any work is started.

________________             ___________________
Signature                                    Date

When I was first starting my own business, I looked everywhere for a simple book that would show me the basic actions necessary to build a successful contracting business. I never found one.

Now I have written one. I hope that you have found it a good investment of your time and that you will be able to use the information in this book to help you build a successful business.

Contracting is a rough business, but it can be very rewarding as well. I have never met a contractor yet who did not have to work long and hard to achieve his or her success, but I also never met a successful contractor who regretted the time and trouble it took to become successful.

If contracting was a guaranteed way to make easy money, everybody would be a contractor. If it were impossible to succeed in the contracting business, nobody would be a contractor. What the contracting business is, is what you make it.

There is no mystery to becoming a successful contractor. What you need to do is – be honest, work hard, work smart, demand the best from yourself and others, and be persistent in the face of adversity. If you can do these things, then you have what it takes to become a successful contractor.

WISHING YOU EVERY SUCCESS,

Kim Hopkins

This book covers the basic actions necessary to succeed as a small contractor. There are, however, other more complex aspects of contracting that you should be familiar with as well — estimating, income tax, getting credit, and what to do if your business is going under. Fully dealing with these subjects is beyond the scope of this book. As a matter of fact, lots of books have already been written on them.

Even though these subjects are somewhat complex and can take a lot of time to fully understand, you can learn at least half of everything you will ever need to know about them in the next few pages.

I’m going to go over each of these subjects briefly and another as well — a pay plan for employees which increases production. So, if you fully learn what is in this chapter, you will have the beginnings of a good working understanding of these aspects of contracting. Then, at your convenience, you can add to your basic understanding by reading other books, attending seminars, or simply gaining experience as you expand your own business.

ESTIMATING

I have seen entire books on estimating that actually never covered its basic concepts. Estimating the cost of a job can become really complex, but it doesn’t need to. Here are some rules to keep it simple:

1. DON’T WASTE YOUR TIME ON CUSTOMERS WHO DON’T GIVE YOU WORK

If you spend hours and hours bidding one job and you don’t get it, that’s a lot of time wasted.  If you have bid three jobs for a customer without getting one, don’t bid any more jobs for him no matter what he says. This customer has reasons for asking you to bid jobs that don’t seem to include an interest in your doing the work.

2. FIND A FAST WAY TO DETERMINE THE COST OF A JOB

This is important. There is more than one way to accurately figure out how much a job costs. What you need to do is find the fastest and easiest way to accurately determine the cost of a job.

Generally speaking, if the job is small enough, you can simply estimate the time that it will take you or your employees to do the job (four hours, two days, etc.) and add on the cost of material and/or any other job expenses.

For larger jobs, assign unit prices to the various tasks that you frequently do and then add up the number of these tasks necessary to do the job.

3. THE BIGGER THE JOB, THE SMALLER THE PERCENTAGE OF PROFIT

This is almost always true. You can make money on small jobs and on big jobs. But, the smaller the job, the easier it is to add in extra money as insurance against unforeseen difficulties and still bid competitively. If you add ten percent as a cushion to a hundred dollar job, it is only a ten dollar increase. If you add ten percent to a one hundred thousand dollar job, it is a ten thousand dollar increase and may stand in the way of your bid being accepted.

The bigger the job, the more profit you can make.  But also, the lower your percentage of error in bidding must be, and the more money you are likely to loose if you have made a bidding error.

4. THE BIGGER THE JOB, THE MORE ACCURATE YOUR PRICE MUST BE

See #3 above.

5. IF YOU HAVEN’T DONE IT BEFORE, DOUBLE YOUR ESTIMATE

If you don’t have personal experience in doing a certain type of job or part of a job, you are almost always going to underestimate the amount of time that it will take. The average time to do the job will turn out to be about double what you originally thought.

The solution is simply to double your estimate, including the price of materials. This seems so simple because it is simple, but it is still true.

As a contractor, no matter how much experience you have, you are going to run into things that you are unfamiliar with. If you apply this rule, you are going to save thousand and thousands of dollars. I know this for a fact, because before I learned this rule, I lost thousands and thousands of dollars by underbidding work that was unfamiliar to me. After I started applying this rule I stopped loosing money.

INCOME TAX

If your company makes a profit, it will owe income tax. This is a subject that you should take up with a good accountant, but there is a general principle that I can tell you about.

SPEND ALL YOUR MONEY BEFORE THE END OF THE TAX YEAR

If your company has collected one hundred thousand dollars during the year and has paid out only ninety thousand dollars in expenses, it has made a profit of ten thousand dollars. It is going to owe income tax on that ten thousand dollars profit.

BUT, if your company can pay ten thousand dollars of bills early, then it will not have made a profit and it will not owe any income tax. For example, if your company has taken out material from a wholesale house and the bill is not due for another month, you can always pay that bill earlier than the due date and reduce your profit for the year.

This particular idea has saved me thousands of dollars in income tax over the years. As I have stated throughout this book, you should always be honest and operate completely within the law. This advice holds true in the area of income tax as well. But, if you can legally minimize your company’s income tax, you would be foolish not to.

If you are making a healthy profit, you would do well to consult a good accountant or tax attorney before the end of your company’s tax year to help in Tax Planning.

CREDIT

Basically, the way you get credit is you demonstrate that you are trustworthy.

Find a wholesale house that you do a lot of business with and ask it to open up a small credit account with you. Then keep your pay agreements with it.

Once you have gotten credit with one company and have kept your pay agreements for a while, you will be able to use that company as a reference for other companies that you want to get credit from. Really, it’s as simple as that. As long as you keep your pay agreements.

If you already have bad credit, it can get more complicated. You will have to prove to the person giving you credit that even though you were once a bad credit risk, you are now going to be a good credit risk. This leads us into the next subject, which is….

WHAT TO DO IF YOU ARE ALREADY IN TROUBLE

If you are already in a situation where you owe more money than you can pay, if you are taking any work you can get because you desperately need the money, if you spend hours and hours trying to collect money, and if other people spend hours and hours trying to collect money from you, you are already in trouble.

It takes a LOT more skill to salvage a failing business than it does to start and build a new business. This subject warrants a whole book, and I may someday write one.  But, for now, I hope that in reading this book you have figured out some of the things that you can do to dig yourself out.

The key is to start making a 20 percent profit — or you will only be getting in even deeper trouble. If you can restructure your company so that it is making a profit and you can make some new agreements with the people that you already owe money to, you CAN turn your business around.

PAY BY PRODUCTION

In the contracting business, there are many ways you can pay the people that work for you. General contractors almost always pay their subcontractors by production. In other words, they have agreed in advance on how much the job is worth, and they pay their subcontractor that amount. Usually employees are paid by time — by the hour, the day, or the week.

Probably the single most important thing that I figured out as an employer was how to pay my employees for their production rather than for the time worked. After I started using this PAY BY PRODUCTION system, I had the following results:

1. My company made more profit.

2. My employees made more money.

3. My prices were more competitive.

I have never seen a book written about this subject and because I have found this system to be so effective in my company as well as other companies that I have consulted to, I may write a book on it myself.

For now, I encourage you to think about how you might reward your employees for the production that they do instead of the time that they spend.

Of course, you must make sure that what you do is legal and observes all the laws regarding employees. But it can be done and everyone involved can benefit.

WORK * MONEY * EMPLOYEES * EXPERIENCE

There is a direct relationship among these four things. Usually, if a contractor has a lot of any one of these things, he will also have a lot of the others as well. Any really successful contracting company has a lot of all of these things. Here is why:

To have a lot of MONEY, you need to have customers who are happy with your WORK. For you to do good WORK, you need to have good EMPLOYEES. For you to have good EMPLOYEES, you need to pay them good MONEY. For you to be able to pay your employees good MONEY, you need to collect MONEY from good customers who pay you good MONEY because your good EMPLOYEES do good WORK. And because your WORK was good, customers will give you more WORK and will recommend your company to other good customers who will also give you more good WORK that will make you more MONEY.

Sounds simple, right? And it is, too, provided that you have enough EXPERIENCE as a business person to keep it all together.

If you had a certain amount of MONEY and a certain amount of good WORK which was done by a certain number of good EMPLOYEES, you would achieve a certain amount of success as a contractor, provided that you had enough EXPERIENCE as a contractor to keep your organization running smoothly.

There is a very important rule of business that is so obvious that it is often overlooked by contractors who are anxious to build up their business quickly.

THE BIGGER YOUR ORGANIZATION, THE MORE EXPERIENCE IT TAKES TO RUN IT

Simple, right? But, many new contractors make the mistake of expanding their business faster than they have expanded their ability to manage their business. As a matter of fact, this is perhaps the most common mistake that new contractors make.

Nobody becomes a successful contractor overnight. It takes TIME to build up the resources necessary to have a successful business. The four basic resources that you need are WORK, MONEY, EMPLOYEES, and EXPERIENCE. And, if you want to have a successful business, you will keep these four resources in balance with each other. The success of your company depends on it.

Also, the speed with which your company can stably expand is directly tied to these four resources. No matter how much you have of the other three resources, your company can only stably operate at the level of the lowest of these four resources.

As an example, if you had a ten person company but you only had enough work lined up for three people, you would quickly loose seven of your employees. At that point, the resources of your company would have naturally come back into balance — you would now have enough work for three employees and you would only have three employees. Your company would also be earning only the amount of money of a company with three employees, not ten.

So, you can see that it is the lowest resource that dictates what level a company can stably expand to. Other examples of this would be when you are offered a large job, but you can’t take it because you don’t have enough EMPLOYEES to do the work. Or you had to turn it down because you wouldn’t be paid for sixty days and you don’t have enough MONEY of your own to cover the job expenses.

Many contractors who try to expand their business are unaware that they are lacking the proper amount of one or more of these four resources. And when they try to expand their business without making sure that they have enough of each of these four resources to handle the new expanded size of their business, they get into trouble.

Here is what can happen to a contractor who tries to expand his company without the proper amount of WORK, MONEY, EMPLOYEES, or EXPERIENCE:

WORK

Obviously, it is unlikely that any contractor is going to hire more guys if he doesn’t have work for them. But some contractors make the mistake of hiring more employees when they only have a brief period of extra work, not extra work that is going to continue for long enough to justify hiring more employees.

Another common mistake made by contractors is to assume that all work is good work. This is not true. Some work is definitely good, and some work is definitely bad, and most work is somewhere in between these two extremes. It can prove very unwise to do a very large job for a new customer without having first worked with him on a smaller project. For a contractor to expand his company stably, it is not enough for his company to have a lot of work; it must have a lot of good work.

MONEY

The most common problems that contractors have are about MONEY. Here are the five biggest complaints about money:

1. They don’t have enough money.

2. Customers don’t pay them soon enough.

3. Customers don’t pay them at all.

4. They don’t have enough money to pay their bills.

5. They don’t have enough money to expand.

When a contractor thinks that his problem is that he doesn’t have enough money, he has made a very significant mistake. You see, in the contracting business, not having enough money is never a contractor’s main problem, it is only the symptom of a bigger problem.

If a contractor doesn’t have enough money, whatever the “reason” is, it means that he has already made some kind of error in running his business before he had the money problem. There is a rule about this:

THE FINAL PROOF THAT A CONTRACTING BUSINESS IS SUCCESSFUL, IS THAT IT IS MAKING A PROFIT

Let’s suppose that a contractor did a job for a customer and then the customer didn’t pay the contractor, and so the contractor couldn’t afford to pay employees who had worked on the job. What is the biggest problem here?

A. The customer didn’t pay the contractor.

B. The contractor picked a bad customer to do work for.

C. The contractor didn’t have enough money in reserve to pay what he now owes his employees.

D. The contractor is not experienced enough to run his contracting company at its current level of operation.

The answer is — all of them! They are all big problems that will, sooner or later, result in a contractor needing more money than he has.

Every one of these problems is taken up in greater detail in other parts of this book. The point here is that the contractor had already done lots of things wrong before he figured out that he had a “money” problem. And, unfortunately for the contractor, because he thinks that his biggest problem is that he hasn’t been paid by the customer, this contractor won’t be able to actually handle the more basic problems that he should be fixing up. And until he fixes up whatever the basic problems are, his company will never be very successful.

LACK OF MONEY IS NEVER THE REAL PROBLEM — IT IS ONLY A SYMPTOM OF A BIGGER PROBLEM.

IF YOU WANT TO REALLY FIX A MONEY PROBLEM, YOU MUST FIRST FIX THE BIGGER PROBLEM THAT CAUSED THE MONEY PROBLEM

EMPLOYEES

The most important thing to understand about employees is this:

THE QUALITY OF AN ORGANIZATION IS DETERMINED BY THE QUALITY OF THE PEOPLE WHO MAKE UP THAT ORGANIZATION

If you want to have a good company, you will need to have good employees. It’s as simple as that.

There are literally thousands of things that can go wrong with employees. They can steal from you or your customers. They can show up late on the job or never show up at all. They can get into auto accidents. They can get into fist fights. They can get sick. They can be hurt on the job or get hurt at home. They can hurt somebody else on the job. Their cars can get stolen. Their tools can get stolen. Their children can get sick, get lost, get arrested, or get pregnant. They can upset your customers. They can make false claims at the labor board or with your workmen’s compensation insurance. They can drink or take drugs on the job. In short, bad employees can find lots and lots of ways to do things which will harm your company. Bad employees will cause your company to loose money.

On the other hand, good employees will do many things that will help your company to succeed. They will show up on time, do good work, and keep your customers happy. Good customers will make your company money.

EXPERIENCE

Of the four main assets of a successful contracting company — WORK, MONEY, EMPLOYEES, and EXPERIENCE, perhaps the least appreciated and most important is EXPERIENCE. Without it, you will soon be out of business. With it, you can overcome almost any problem.

If you are operating your business correctly, then as your contracting company grows, you will gradually but steadily be accumulating more work, more money, more employees, and more experience.

If you are running a twenty man company, you are going to need a tremendous amount of experience. Fortunately, you do not need all that experience to run a one man company. As you gradually build up your company, you will have the opportunity to gradually build up your experience.

By reading this book, you are gaining some of the experience of a man who has learned how to successfully run a twenty man contracting company. As you work each day to make your own company a success, you will be gaining more and more experience. Each day you will know more than the day before.

If you want to gain the most useful experience in the least amount of time, it is important that you learn how to observe things correctly. This is actually a skill that you can learn. Basically, the secret of accurate observation is that you see what is really happening, and not just what you assume is happening. Think about it, and if you can figure out what that last sentence means, you will have started on the road to learning the art of accurate and correct observation.

PUTTING IT ALL TOGETHER

Once you have built your business up to the point where you are beginning to hire employees, the basic thing that you need to do from then on is to simply continue to do what you have already been doing — promote for more work, do the work, collect the money, and make a profit. Just do this day after day, week after week, always making sure that you keep the four basic resources of your company — WORK , MONEY,  EMPLOYEES, and EXPERIENCE — in balance with each other.

If there is some problem with something in your company, don’t make excuses for it or justify the problem in some way. Just find out what caused the problem and fix it, so that the same problem doesn’t happen again.

When you expand the size of your company, handle all the reasons why it is not making at least a twenty percent profit before expanding again. In this way, you will always make sure that you have enough money when you do expand  again — you will have made the money necessary to expand before you expand.

Promote for more work than you need, pick only the best customers to work for, make sure you service your customers well, make a good profit, invest your profit in expanding your company, carefully hire new employees, learn from your mistakes, make use of your growing experience, quickly locate any problem within your organization and fix it, and when everything is running smoothly at your new level of operation, and when you are making at least a twenty percent profit, increase your promotion again.

If you can do these basic actions well, over and over again, you will soon find yourself with a very successful business indeed.

THE STORY OF HOW ONE MAN BUILT A SUCCESSFUL CONTRACTING BUSINESS

This is the story of John, an electrical contractor. John could have been a carpenter, plumber, painter, cabinet maker, general contractor, air conditioning installer, interior designer, carpet installer, or any other kind of business person involved in the trades. John happened to be an electrician, and this is the story of how he built up his contracting business.

Although John had only recently gotten a job as an electrician’s helper, he had already decided that he wanted to become a successful electrical contractor. Fortunately for him, he found a book lying around the office which explained many things about how to become a successful contractor (can you guess which book it was?), so he was in a good position to plan out his future career without having to make a lot of mistakes along the way.

The first thing that John did was to learn a lot about the electrical trade. He went to a trade classes at night and read several books about electrical theory and also books about electrical work. John continued to work in the daytime, first as an electrician’s helper, and then, as he gained more knowledge, as a journeyman.

Eventually, as was required for becoming a contractor in the state in which John lived, John got a contractor’s license. At this point John was ready to seriously consider starting his own contracting business.

For a few years John had been collecting basic electrician’s tools. He also had wisely decided to buy a small truck instead of a car the last time that he had bought a new motor vehicle. Because of this, John had been able to do some small jobs for family, friends, and acquaintances on weekends.

John learned a lot during that time. He learned that people don’t always pay you exactly when they originally promised. He learned that he generally underestimated the time that a job would take. He learned to recognize good customers from bad customers. On many jobs, John only broke even or even lost money. But because John had a steady job working for another contractor, he never got into trouble financially. And he ALWAYS made sure that he did a good job and that each customer was happy with his work.

After a while John realized that he was making a twenty percent profit on his side jobs. Also, it seemed that more and more people were calling him and wanting him to do work for them. The people that John had already done work for were calling him for more work. Also, they were recommending him to other people.

John found himself with more work than he could do on the weekends only. He had a talk with his boss, and they worked out an agreement where John would still do some work for his employer, but he would also take more time off to do some of his own work.

Once John had worked this out with his boss, he was free to put a little ad in the paper. Sure enough, he got even more work and soon John found that he had a full week’s work without needing to do any work for his boss. John told his boss that if he continued to have as much work as he did right now, John was not going to be available much to work as an employee. John’s boss had watched John’s progress as an independent contractor and was not surprised or upset.

John left with an agreement that if he ever did need some work, he could go back to his old company for a part-time or full-time job. Because John had kept all of his agreements with his old boss, he would be welcome back at any time in the future.

Now John was on his own! Would he succeed or fail? John was determined to be a success. The first thing he did was… absolutely nothing different than he had already been doing. After all, by doing good work, and making sure that each customer was happy, and keeping a small ad in the paper, John was able to stay busy. John never forgot that the proof of his small company’s success was whether or not it made a twenty percent profit.

Once John was working a full work week, and he was making twenty percent profit, he knew that he was successfully running his small company.

John was now ready for the next step. It was time to raise his prices. John had been basing his prices on a rate of thirty dollars an hour, so he started bidding jobs and charging customers at a rate of thirty-five dollars an hour.

Some of John’s customers went away, but most of them continued to hire John to do their electrical work. For a while, John had been turning away customers because he just had too much work. But, after he raised his prices, John discovered that he now had just barely enough work to keep him busy.

Because John knew that it was a very important rule in contracting that a contractor should always have more customers wanting him to do work than he has time for, John decided to put an ad in the phone book. He had to spend some money on the advertising, artwork, and a deposit to the phone book company, but he had plenty of money by now. He had been making a twenty percent profit for months and had been able to save up thousands of dollars by this time.

Once the phone book ad came out, John really started getting busy. There was just no way that John could keep up with it all. The only way that John could even begin to do the work that these customers wanted him to do would be for John to hire some guys to help him do the work.

So, did John hire some employees? No, he did not. He raised his prices. John knew that he was not charging his customers enough yet to afford any employees. John raised his prices to the same rate his competitors were charging. Right away the demand for John’s work dropped, but John still had enough work to keep him busy.

At this point, John was making a lot of money. He was working full time and charging his customers at a rate which was much higher than his expenses.

His company was very successful — it was making more than a twenty percent profit. But, because he was a good businessman, John realized that he wasn’t so busy that he had to turn away work, so it was time to do some more promotion. John expanded his phone ad to the largest size possible and also started mailing out fliers to businesses in his area. This increased advertising brought in lots of new customers, and John was able to pick and choose from the very best of them. John was a very happy contractor.

By now John had saved up lots of money in his company. He never had to worry about money. He had more customers than he could handle. Also, John had gained a tremendous amount of experience since he had first started his company. It was time for John to hire an employee.

All the experience that John had gotten while he was learning about which kinds of people to do business with came in handy now. John interviewed fifteen applicants over the phone. After checking the references of five of these potential employees and finding that only two of the references checked out, John had these two applicants come in to his office, and he hired one of them.

Now John had to make sure that he had twice as much work as before so that he could keep both himself and his new employee busy. This was no problem as John had been turning away work for quite a while.

John kept working, making sure that all of his customers were happy with both his work and his new employee’s work.

During this time, John learned a lot about how to manage his time so that he could do an increasing amount of administrative work and still be able to put in a full day of electrical work himself. Although John was able to pay his company bills and make payroll, his company’s profit dropped to only five percent. So John didn’t expand further, but instead worked out all the bugs in his company at it’s current size.

Gradually, his profit came up to ten, fifteen, and finally, twenty percent. Once again, John had expanded his company to a new level and then taken the time to balance the four basic assets of his company — WORK, MONEY, EMPLOYEES, and EXPERIENCE. John knew he had once again brought these four assets into balance because he was once again making a twenty percent profit.

When he felt that he was ready and when his company was again making a twenty percent profit, John hired another employee, and then another, and another. And again, each time John expanded the size of his company, he took the time to keep his four basic company assets in balance. In this way, John found himself in charge of a successful company that had, including himself, five employees.

John was a busy man, indeed. At this point John was finding that he could not work in the field and also sell enough jobs to keep his other employees busy. So, John decided not to do any work in the field and to concentrate on selling.  This turned out to be a successful decision for John. He was able to rely on his employees to produce enough income, and he was able to hire several more employees as a result of his increased sales.

One of the employees that he hired was a secretary. He had long ago hired a payroll company to do his company’s payroll each week, and he had an accountant to handle his taxes, but John now had a company with eight employees. Just answering the phone calls was becoming more and more time-consuming.

It was still one of John’s most important jobs to make sure that all of his customers were still satisfied with his company’s work. Fortunately, John had learned how to choose both employees and customers wisely, so that the work that his men did was of excellent quality, and he rarely had problems with upset customers. John continued to expand his company, always making sure that he worked to handle any reasons why it was making anything less than a twenty percent profit before he expanded further.

As a result, John became a very successful contractor and lived happily ever after.

Author’s Note: I wish I could say that my own contracting story was as nice as John’s. In fact, I made quite a mess of my contracting business for the first few years, which is why I’m so intimately acquainted with all the things that can go wrong with a contracting business. Even today, 30 years after I started my own company, I continue to make tons of bone-headed business decisions resulting in a lot of grief for myself and my staff. But at least I’m still learning. I’m pretty sure I’ll get my business plan set up perfectly any day now…

Many contractors find that their biggest difficulty is in the area of employees. There are so many things that can go wrong with employees that it can seem almost impossible to figure out how to solve all the problems having to do with them. Fortunately, there is a simple way to resolve almost all of these problems.

REWARD THE GOOD EMPLOYEES — REMOVE THE BAD EMPLOYEES

This sounds so simple. I can just imagine some contractor who has spent the last ten years trying to figure out how to handle his employees reading this. How dare I claim that a solution to all his unsolvable employee problems could be so simple. But, really, it is.

A good employee is very simple to deal with. He comes to work on time, every day. He rarely gets sick. He gets his job done without a lot of attention on your part. He does what he says he will do. Your customers like him. You like him. Simple.

A bad employee has lots of personal problems. He is often late, and he is frequently sick. Wherever he goes, he will cause problems. He often does not do what he said that he would do. Because it is your business, you will have to solve the problems he causes, so you will find yourself spending lots of time trying to solve strange and unusual problems that you don’t quite know what to do with. All very complex.

You will find that if you get rid of your bad employees, you will also get rid of these strange and unusual problems as well. Of course, an even better way to handle bad employees is to not hire them in the first place. And there are ways to spot them before you hire them, which will save you a lot of problems. Here are some of the signs of bad employees:

1.    YOU DON’T LIKE THEM

2.    THEY CAN’T COMMUNICATE WELL

3.    THEY COMPLAIN ABOUT THEIR PAST EMPLOYERS

4.    THEY DO NOT KEEP AGREEMENTS

5.    THEY TALK SLOWLY AND MOVE SLOWLY

6.    THEY DON’T ANSWER YOUR QUESTIONS FULLY

7.    THEY DON’T HAVE AN ADDRESS

8.    THEY DON’T HAVE A PHONE NUMBER

9.    THEY CAN’T GIVE YOU ANY EARLIER JOB REFERENCES

10.  THEIR REFERENCES DON’T CHECK OUT

Do you think that this is a terribly unfair list? Well, you’re right. It is an unfair list. I’ll bet that you can think of a good reason why someone could demonstrate any one of these characteristics and still be a good employee. I’m sure that I could, too. Nevertheless, if you hire a person with any of these characteristics, there is at least a ninety-five percent chance that you will end up wishing you hadn’t.

I know that it is popular to be kind and forgiving and nice and helpful to others who are not as fortunate as you are. I also know that if you do this as a business activity, you will destroy your company financially.

If you want to be successful in the area of employees, you should follow the policy of rewarding your good employees and getting rid of or simply not hiring bad employees. If you can apply this policy to every aspect of your relationship with employees, you will find that you will do well as an employer.

HIRING

Finding and hiring employees can be very time-consuming. Fortunately, there are ways to minimize the time. The first step is to get the word out that you need to hire someone. Here are some of the ways that you can do this:

1. Tell your friends.

2. Have your current employees tell their friends.

3. Keep an ongoing list of all the people who ask about working for you and call them when you are ready to hire someone.

4. Put an ad on internet websites like Craig’s List (I added this line on 12-16-09) or in the newspaper.

5. Ask other contractors if they know of anyone who is looking for a job.

SCREENING APPLICANTS

When a potential employee calls you looking for a job, you can save a lot of time by doing a brief interview over the phone rather than having him come in to your office.

The first rule of screening applicants is to end the interview as soon as you have decided that you don’t want to hire him. There is no point in wasting either his or your time. So, what you do is just start asking the potential employee questions. At any point in the interview, if you decide that you don’t want to hire the guy, you thank him and tell him that you will call him back later if you are interested in hiring him. If he says that he doesn’t have a phone, you can tell him that it is company policy not to hire people who cannot be reached by phone.

By the way, you don’t have to lie to anyone. Just say  something truthful that will quickly and smoothly get him off the phone. There are many people who will call that obviously aren’t going to work out as employees:

“Uh………..uh……….uh………was….uh……uh…wondering…uh…..if…uh….you…..uh……had a…uh…..job for…uh……me.”

Do you really need to spend time interviewing this guy? It’s a lot simpler to just take his number and tell him that you will call him back later if you are interested in hiring him.

Let’s assume that you start talking with someone who you think you may want to hire. What questions should you ask him? Here is a list of the basic things that you need to know for you decide whether to hire him:

1. DATE THAT HE CALLED

2. NAME

3. TELEPHONE NUMBER

4. ADDRESS

5. POSITION THAT HE IS LOOKING FOR

6. NUMBER OF YEARS EXPERIENCE THAT HE HAS

7. PAST EMPLOYMENT HISTORY

A. Name of company and telephone number.

Worked there from______  to _______.

What his ending salary was.

What was his reason for leaving?

B. Name of company and telephone number.

C. “   “    “      “    “    “    “.

8. HOW MUCH MONEY HE WANTS TO BE PAID

The easiest way to quickly get all of this information down is to have a form made up so that you just have to fill in the blanks. Remember, at any time, if you decide that you aren’t going to hire the guy, you can and should simply end off on the interview. This is why you should ask for his name and phone number at the beginning of the interview, so that you can end off your conversation quickly but still be able to call him back later if you wish.

If you have completed the phone interview and you are still interested in hiring the potential employee, the next thing that you must do is to check up on the references that he gave you. What you do is contact the companies he worked for and ask them what kind of work he did and why he left the company. The answers may or may not agree with what he has told you. It will be up to you to decide whom to believe if there is conflicting information.

At this point you will be in a position to decide if you want to hire this person. It is your responsibility to make sure that any new employee is going to be an asset to your company, rather than a liability. You have two basic tools with which to figure this out — the telephone application form and your knowledge of the negative characteristics you should look out for.

If you decide that you want to hire a guy, it is now time to have him come in to your office for an in-person meeting. As a final test, make an exact appointment, such as 2 PM sharp. Whether he shows up on time will tell you an awful lot about what kind of an employee he is going to be.

If the in-person meeting goes well, you are ready to hire him. Now, if he turns out to be a good employee, whatever you do, make sure that you treat him with the fairness and respect that he deserves! Good employees are an extremely valuable asset to your company and should be treated as such.

The purpose of this chapter is to outline the steps for starting a contracting business and taking it up to a company with twenty or so employees. When you are successfully running a twenty man company, you will be in a position to decide how large and in what direction your company will grow from that point on.

I have written these steps out as if you are just starting up as a contractor, but if you are already in business, start reading through these steps until you spot which step your company is on right now. Once you have located where your company seems to be, you can go back over the earlier steps to see that they have been fully done. And if you discover that your company has missed one or has not done one completely, you can make use of the information in this chapter to fix it.

The point is that it is not how big your company is or how long it has been in business that matters here. The important thing is that, wherever your business is on these steps, it needs to have completed the earlier steps fully and correctly. If you are intending to build up your contracting business, you will need to make sure that it is built on a solid foundation. Only when each earlier step is fully completed should you go on to the next step.

1. KNOW THE BASICS OF YOUR TRADE

Before you start your own contracting business you must know enough about the work that you do a good job. This is something that you must have learned before you start your business. You can always learn more about the line of work that you are in as you gain more experience, and you will automatically do this as you encounter each new job.

But, from the moment that you do your first job as a contractor, you must be sufficiently skilled in your trade to do a quality job which results in a happy customer. Customers will be paying you money because you have represented yourself as a professional, and they will expect professional quality work from you. If you expect to make a good living as a contractor, you must make sure that you are able to deliver a quality job to every customer that you accept money from.

Once you start your contracting business, you will have enough to keep you busy without the extra problem of not knowing how to do the work that you are being paid to do. So, be sure to know the basics of your trade.

2. DO IT LEGALLY

There are legal requirements that you will need to observe if you want to operate as a legitimate business. If you expect to do well as a contractor, you must know what these legal requirements are and set your business up legally.

3. BE HONEST

If you are not an honest person, you will never do really well as a contractor. If you think that the best way to operate a business is to take the most that you can from someone and give them back as little as you can, then this book is not for you.

Fortunately, the type of person who would be interested in reading this book is someone who wants to improve his ability as a contractor. People like this are basically honest. So, if you bought this book, you’re basically an honest person, right? Good for you. Now, don’t let anyone ever convince you that you can do really well in business if you are not honest. In the long run, the ONLY way that you are going to build up a successful contracting business is to BE HONEST.

4. QUALITY BEFORE QUANTITY

Work for only high quality customers. Hire only high quality employees. Do only high quality work. Demand the best from yourself. A high quality one man company will make you a lot more money than a poor quality twenty man company.

With every decision that you make as a contractor, you will have a choice between better or poorer quality. Better quality isn’t always the easiest choice, but it is almost always the best choice.

You can buy a poor quality hammer that costs you only half of what a high quality hammer would cost. But the poor quality hammer breaks after a week of use, and the high quality hammer lasts for twenty years. So, which was the better buy, the low quality hammer or the high quality hammer?

You might need to pay a poor quality employee only half as much as you would pay a high quality employee. But, because of his unethical conduct and unreliability, the lower paid employee looses you money, while the higher paid, higher quality employee makes you money and also gets you repeat customers. Which employee should you hire?

A high quality customer has a one thousand dollar job, and a poor quality customer has a ten thousand dollar job. You make two hundred dollars profit on the quality customer’s job. Because of various problems, you end up loosing money on the poor quality customer’s job.

Whether you are just starting up or have been operating for a while, before you expand further, make sure that every aspect of your current company is of high quality. An expanding company is only going to be as good as the foundation on which it is built. Make sure your company is built on a quality foundation.

5. START CONTRACTING PART-TIME

Congratulations! You are ready to start your career as a contractor. You are honest and you have decided you want a quality company, you have a knowledge of your trade, and you are all set up legally as a contractor. Now you are ready to get down to business and start making money!

What should you do first? Let’s review the basic actions that you will need to take to make money:

1. FIND A CUSTOMER

2. FIND OUT WHAT WORK THE CUSTOMER NEEDS AND WANTS

3. AGREE WITH THE CUSTOMER THAT YOU CAN DO THE JOB

4. AGREE ON HOW MUCH MONEY YOU WILL GET FOR THE JOB

5. DO THE JOB

6. COLLECT THE MONEY

7. MAKE A PROFIT

O.K. so the first thing that you need to do is FIND A CUSTOMER. There is a chapter in this book devoted to this subject. Which form of promotion should you choose? Should you call up general contractors or architects? Put an ad in the newspaper? Send out some fliers?

Of course, you will need to have some money to pay for the advertising, and it will generally take some time before the customers get your promotion and respond to it. So, do you have the money saved up to pay for the advertising and your living expenses while you wait for the first customers to call you? If you don’t, you have two options:

1. Save up a bunch of money.

2. Continue working for someone else until you have built up a small business that will pay your basic expenses.

Option number one will work, but, as a general rule of thumb, you should plan on needing a minimum of three times the amount of money that you originally think you need. In the contracting business, things have a way of taking more time and costing more than you originally plan.

For someone just starting up a business, the second option, working for someone else while getting the business going has advantages. By continuing to work for an employer the beginning contractor can gradually build up his own company without having to depend on it as a source of income.

There will come a time, however, when the amount of time you need to spend servicing the customers of your own company will begin to conflict with the work schedule of your regular job. At this point, you will need to be especially creative and figure out how to keep all of your agreements with your employer, while at the same time not neglecting or breaking any agreements with the new customers in your own business. You might be able to make an arrangement with your employer to work fewer hours for him.

During this time, it is important to always remember two things:

1. If you are going to have your own contracting business, sooner or later you are going to have to quit your present job. So, your future obligation is to your own company. Don’t neglect your own company in favor of your current employer.

2. You should never break an agreement that you have already made with your present employer. This means that even though you should give your own company first priority, you should never break any agreements with the company that you currently work for.

As an example, if one of your own customers wants you to do a job and your current employer also wants you to do a job, then, as a general rule, you should service your own customers first, providing that you will not be breaking agreements with your current employer by doing this.

6. SUBCONTRACT

Once you have built up your own business to the point where you are doing more work on your own than you are with your employer, but before you have enough of your own customers to keep you busy full-time, you might consider working for your current employer or another contractor as a subcontractor.

This may work out well, or not, depending on your own particular situation and the legal situation in your work area. If this would make sense for you, you can find a contractor to work for by using the method outlined in the chapter, FIND A CUSTOMER, in the section called GENERAL CONTRACTORS.

7. KEEP YOUR PRICES LOW AT FIRST

When you are working for an employer, you are not getting paid all of the money that the customer will pay your employer. This makes sense, as it is left up to your employer to pay all of the bills that relate to the job and still end up with a profit. As a general rule, your employer will need to charge the customer for labor about double what he pays you.

When you first go out on your own, you will not need to charge as much as your former employer did to make the same amount of profit. Your expenses for doing the job will not be as high.

The advantage to you is, at first, you can keep your prices low and still make a good profit. Because of this happy fact, once you make the break from being an employee to becoming a full-time contractor running your own business, you will have a decided advantage over the bigger contractors when bidding jobs. Because your operating expenses are lower, you can charge the customer less than big contractors and make the same profit.

8. WORK FULL-TIME

All other things being equal, the lower your price, the more likely it is that you will get the job. Since your expenses will be lower as a new contractor and you can charge less, if you promote your company in some way or another, you will soon find yourself with lots of work. What you need to do now is just continue doing what you did to get lots of work, so that you will continue to have lots of work.

9. RAISE YOUR PRICES

Once you get to the point where you are sure that you will continue to have more customers than you can handle by yourself, you are ready for your next step. You have several options. You can:

1. Turn down the work.

2. Work longer and longer hours.

3. Hire someone to help you do the work.

4. Raise your prices.

The option to take, at this stage of your business, is Number Four, Raise your prices.

Obviously, turning down work is not the way to expand your business. Working longer hours is only a temporary solution at best. Hiring someone to help you do the work is a good idea and is necessary as your business grows, but not quite yet. First, you need to raise your prices.

The reason for this is that you will need to make more money from each job when you do have employees. As soon as you have employees, your office expenses are going to go up. So, the time to raise your prices is before you get employees.

Let’s look at the situation you are in at this point. You have built up your company to where you have more customers wanting you to do work than you have time for.

Lets say that you are figuring your labor at a rate of twenty five dollars an hour. What would happen if you raised your rates to thirty dollars an hour? Chances are that you would still have all the work that you could handle. It is even possible that you would still have more work than you could handle. But, the customers that did go away would be those who LEAST WANTED TO PAY YOU MORE MONEY.

So, by raising your prices, you not only make more money, but you end up with the better customers! This is pretty good, but it gets even better. Once you have raised your prices, and you again find yourself with an unending supply of more customers than you can handle, raise your prices again. From thirty to thirty-five, from thirty-five to forty, and again from forty to forty-five. And each time you raise your prices, you will also raise the quality of customer that you are dealing with.

10. STOP RAISING PRICES

Stop raising your prices when they are the same or slightly lower than the prices of your competitors. It is very important to understand that by competitors, I am not referring to all the other contractors of your trade, but ONLY those contractors who compete against you.

As an example, let’s say that you have a large ad in a local phone book. There may be one hundred contractors of your trade in your area, but only six of them have a large ad. If a customer calls you from that phone book ad, and assuming that the customer wants to get more than one bid on his job, it is often the case that the only contractors who will end up bidding on the job will be the ones who have the other large ads in the same phone directory.

So, it isn’t important what most of the other contractors in your trade might charge for the job. It is only important what the other contractors who are likely to end up bidding the job will charge.

If you follow this program of raising your prices each time you have more work than you can handle until your prices are the same or slightly less than your competitors, then you will be ready for the next step.

11. HIRE EMPLOYEES

When you have reached the point of charging your customers the same or slightly less than your competitors and you still have more work than you can personally handle, it is time to think about hiring employees.

Now is when you are going to appreciate the fact that you have been charging customers more money than you were charging them when you first started up. As soon as you hire employees, your company’s overhead is going to go up. By overhead, I mean the operating expenses of your business — for insurance, phone, advertising, office supplies, secretarial help, etc.

Assuming that you can run your business efficiently, you should be able to make about a twenty percent profit while paying your employee exactly half the amount of money that you charge the customer for labor. Another way of looking at this is that you need to charge the customer twice as much money for the labor of your employee as you pay the employee. If you do this, your company should make about twenty percent profit.

This calculation does not take into account material costs. We are just talking here about labor costs. If you have been marking-up the price of materials, you can keep that mark-up the same.

This is why you had to raise your prices until they were about the same as your competitors. Now that you are going to hire one or more employees and your prices will need to be higher, you have already established a base of customers who are willing to pay you the amount of money necessary for the additional costs of your new employees. So, you won’t have to worry about loosing your customers because of higher prices. By the time you are ready to hire your first employee, you should already be charging your customers the amount of money that you will need to pay the extra costs of having employees and still have more work than you can personally do.

BE HONEST

If you want to be a successful contractor, you will need to be an honest contractor. That’s just the way it is. Every time you do a job for someone, you have a potential repeat customer. Doing new jobs for repeat customers is one of the best ways to build up a successful contracting business. Do you think that you are going to do a second job for anyone with whom you were dishonest the first time around?

TRUST YOUR FEELINGS

Every day you are going to have to make decisions that are going to affect your business in a good way, or a in bad way. Often you will need to make a decision quickly. If you want to do well as a contractor, you had better make a lot more good decisions than bad decisions.

From a logical point of view, if you can gather up all of the facts and if you have enough knowledge and experience, you should be able to make a good decision. In reality, however, there are going to be times when you know you either don’t have all of the facts or you don’t have enough knowledge or experience.

In these cases, when you find yourself unsure of what to do, trust your feelings on the matter. Do you like the people involved in the project? Do you get the idea that there is something that you aren’t being told? Are you concerned that you won’t get paid? Are you afraid that you underbid the job? Do you just not want to do the job even though everything seems fine?

If you get a feeling like this, pay attention! Don’t let “logic” get in the way of your survival as a contractor. It is very important that you TRUST YOUR FEELINGS. You will almost always be glad that you did. If you take a minute to think about it, I’ll bet you can think of a time when you ignored a feeling that you had about something and then it turned out that your feeling was right.

LEARN FROM YOUR MISTAKES

There is a good side and a bad side to making mistakes. The bad thing about mistakes is that, one way or another, something unpleasant has happened. But there is also a good thing about mistakes — you can learn from them. This is not a minor issue. One person makes a mistake, learns from it, and never makes the same mistake again. Another person makes the same mistake over and over again. What is the difference between these two people?

The difference is this — one person makes a mistake and learns from his mistake; the other person makes a mistake and justifies his mistake.

It can be tempting to find an excuse as to why you made a mistake, but the fact is, if you made a mistake, you are responsible for making that mistake, not someone or something else. Only when you realize that you are responsible for making a mistake will you be able to figure out how to not make that same mistake again. Here is an example of this:

A contractor named Joe tells a customer that he can do the job for twelve hundred dollars. The customer tells Joe that two other contractors have already bid the job for one thousand dollars. Joe agrees to lower his price by two hundred dollars and do the job for one thousand dollars.

At the end of the job, Joe realizes that it cost him thirteen hundred dollars to do the job. He has just lost three hundred dollars. Also, Joe discovers that only one other contractor bid the job, and the other contractor’s bid was for much less work than Joe’s bid. It was a mistake for Joe to have done the job for one thousand dollars.

Obviously, Joe made a mistake in doing the job for only one thousand dollars. The question is, how is Joe going to handle it?

Here are three of Joe’s options:

1. BLAME THE CUSTOMER

2. BLAME HIMSELF

3. TAKE RESPONSIBILITY FOR THE ERROR

Let’s take a look at these three ways that Joe can deal with his mistake:

1. BLAME THE CUSTOMER

What the customer did:

The customer lied to Joe. Actually, the customer lied twice. He told Joe that two other contractors had bid the job. He also didn’t tell Joe that the other contractor’s price was for less work.

Joe can decide that it is the customer’s fault that he lost three hundred dollars because the customer lied to Joe and talked him into doing the job for a lower price than Joe originally had bid the job for.

What Joe will learn:

Some customers will lie to you in an attempt to get you to lower your price. Be careful of customers who make you lower your price.

2. BLAME HIMSELF

What Joe did:

Joe let a customer talk him into lowering his price. He also believed a customer who was lying to him.

What Joe will learn:

Some customers will lie to you in an attempt to get you to lower your price. Don’t let them talk you into underbidding the job.

3. TAKE RESPONSIBILITY FOR THE ERROR If Joe didn’t waste his time blaming either the customer or himself for the mistake, he would be in a better position to clearly see what the error actually was. In this case, Joe’s biggest error was not that he let the customer talk him into lowering his price. Nor was Joe’s biggest error that he chose to believe a customer who was lying to him. The biggest and the most significant error of all was that the job was underbid by three hundred dollars.

It doesn’t really matter who was to blame for the fact that Joe lost three hundred dollars. He still has lost the three hundred dollars. The important thing now is for Joe to be able to separate himself out far enough from the job so that he can be in a position to take a good look at the entire situation.

Once Joe realizes that the biggest error was that the job was underbid by three hundred dollars, he will be in a position to analyze why the job was underbid. Let’s say that Joe looks the situation over and realizes that when he had originally bid the job, he had figured fewer hours than were actually needed to do the job.

Joe can now see that his time estimate was way off. He can now use this knowledge to help him arrive at more accurate bids in the future. In other words, by correctly working out what the most significant error was and taking precautions against making that same error again, Joe has found a way to benefit the most from his mistake.

Now, if Joe ever finds himself in a similar situation, he will not agree to lower his price. It won’t matter if the customer is lying or not. It won’t matter how persuasive the customer is. Because he will have learned from his earlier experience, Joe will know that if he lowers his price, he will loose money.

Successful businessmen do not blame themselves or others for mistakes. They take responsibility for them, learn from them, and use that knowledge to further their success in the future. So if you want to succeed as a contractor, don’t justify or blame yourself or others for mistakes; LEARN FROM THEM.

TAKE RESPONSIBILITY FOR EVERYTHING IN YOUR BUSINESS

There is nothing in your business that you are not responsible for. What you do, what your employees do, what your customers do; you must take responsibility for all of it.

By way of example, let’s say that a contractor named John has three employees working for him. Work starts to slow down, and he has to lay off two of his employees. When the employees ask him why he is laying them off, he explains that there is not enough work for them.

From John’s viewpoint, this is what happened: he had a nice little business going and for some unknown reason, his customers stopped calling him as much as they once did. Hopefully, they will start to call again and then he will be able to have more business. And he will hire more employees again.

Another contractor named Fred also has three employees working for him. He notices that work is starting to slow down. He immediately starts a promotional campaign by  calling up all of his regular customers and asking them if they would like him to do any work. He gets some work, but not enough, so Fred has some fliers made up and sent out to potential customers. Now Fred has enough work to keep all of his employees working, but he knows that the customers he is getting from the fliers will not last, so he puts a continuous ad in the local paper. At this point Fred is finally satisfied that his company will have enough work for the time being. But if it begins to slow down again, Fred will get right back into more promotion.

The difference between John and Fred is this — John has decided that his customers are responsible for how well his contracting business does, while Fred knows that he is responsible for how well his contracting business does.

John is going to have a very difficult time succeeding as a contractor. He has decided that it is up to other people to let him stay in business. They are cause, he is effect.

Fred, on the other hand, has a very good chance of becoming a successful contractor. He has decided that it is up to him to do whatever is necessary to maintain the volume of work that he wants. Fred is not at the effect of waiting for customers to call him, he takes the actions that are necessary to cause customers to ask him to do work for them.

In every aspect of your business, you must take the cause viewpoint and not the effect viewpoint. If you decide that you are not responsible for a part of your business, you are basically deciding that you have no control over that part of your business. This is not to say that another person cannot be responsible as well as you for some aspect of your business.

For example, lets say you send an employee out to do a job for a customer. You have made an agreement with the customer that someone will arrive within half an hour. On the way over to do the job, your employee stops off at the park and takes a nap. The customer waits for an hour and then calls another contractor to do the work. Your employee finally shows up at the job site, but by this time it is too late — another contractor is already doing the job.

Now, who is responsible for the fact that there was a problem getting someone from your company to show up on time?  Well, if you are going to be responsible for everything that happens in your business, then you are. But so is your employee. He made an agreement with you to go to the customer’s job right away, and then he took a nap! Obviously, your employee hasn’t a clue that he is personally responsible for what he does. Whatever his problem is, you had better get him to fix it fast, or get rid of him.

A person who is not willing to be responsible for what he does is a dangerous person to have around.

By the way, in this example, the customer knew that he was responsible for getting the job done. When your employee didn’t show up, rather than be the effect of your company’s not keeping its agreement with him, the customer took charge of the situation and did what was necessary to cause another contractor to do the work.

ALWAYS DEMAND HIGH QUALITY FROM YOURSELF AND OTHERS

Whatever you are doing, do it right. Don’t ever do a half-way job on anything that you are involved in. You will do much better as a contractor if you have a policy of always being sure that whatever you do is done to high standards. If you can’t do something correctly, save yourself and everyone else involved a lot of trouble and don’t do it at all.

If you want repeat customers or word-of-mouth customers, you are going to need to keep them happy with your work. In the long run, the only way to do this is to do good quality work. Whatever they say, any good customer is more interested in the quality of the job than the cost of the job. As a matter of fact, observing how important the quality of a job is to a potential customer can be one of the best ways for you to determine the quality of the customer.

If a customer has a policy of demanding the best from himself and others, it is likely that, as long as you keep all of your agreements with him and provide him with good quality service, he will, in turn, make sure that he keeps all of his agreements with you.

On the other hand, a customer who tells you that he is willing to sacrifice quality in order to get the cheapest price possible is a customer that you should avoid. Obviously, he doesn’t have very much money to pay for the job.

If the slightest thing should go wrong, or even if nothing goes wrong, you may have a hard time collecting from a customer like this. Often, this kind of cheap customer lives a cheap life. He has decided that the world is a hard place to live in and that the easiest way to live in it is to cut corners whenever possible.

There is no reason to involve yourself with customers like this. There are plenty of customers out there who care very much about getting a high quality job done correctly, and they are ready to pay you a fair price to get it.

If you want to get the best customers, you are going to have to do the best work.

DEMANDING GOOD QUALITY FROM YOURSELF AND OTHERS applies to every aspect of your business. You should keep every agreement you make with your customers, employees, subcontractor, and vendors. And you should insist that they keep all of the agreements they made with you.

If you want the best workmen, you are going to have to be the best employer. After all, if they are the best workmen, why shouldn’t they work for the best contractor? The fact is, they should.

In the contracting business, one aspect of your business will often have an effect on many other parts of your company as well.

If you want the most profitable jobs, you will need the best customers. If you want the best customers, you will have to do the best work. If you want to do the best work, you will need the best workmen. If you want to have the best workmen, you will need to pay the best wages. If you want to pay the best wages, you will need to make a high profit for the work that you do. If you want to make a high profit for the work that you do, you will have to work for the best customers….

Do you see how it is all interrelated? So, if you want a high quality contracting business, you will need to have high quality customers, employees, subcontractors, and vendors. And you, yourself must be a high quality person who ALWAYS DEMANDS HIGH QUALITY FROM YOURSELF AND OTHERS.

KEEP YOUR AGREEMENTS WITH OTHERS

This is very important. I would guess that at a minimum, twenty-five percent of my customers have come to my company because another contractor didn’t keep some agreement with them.

Either the other contractor was late to a job, didn’t show up at all, tried to raise his price, did a poor job, didn’t finish the job, didn’t do the job the way he told the customer that he would, or…. The result was that the contractor broke one or more agreements with the customer, and the customer ended his relationship with that contractor.

The very best customers will insist that you keep your agreements with them. They have no time for people who break agreements and because a good customer is generally intelligent and resourceful, he will quickly get rid of a contractor who doesn’t keep his agreements and replace him with a contractor who does keep his agreements. The more a customer values keeping agreements, the more likely he will turn out to be a good customer, while the less he cares about keeping agreements, the less likely he will turn out to be a good customer.

There is a kind of justice in this, since the good customers will end up with the good contractors, and the bad customers will end up with what they deserve — the bad contractors!

INSIST THAT OTHERS KEEP THEIR AGREEMENTS WITH YOU

If someone makes an agreement with you to do something and you make plans that depend on the other person doing what he agreed to do, then you will be in trouble if the other person breaks his agreement. People like this are dangerous to keep around. They can destroy your business and your life. If you want to do really well as a contractor, you will need to surround yourself with people who do keep their agreements, and get rid of the people who don’t keep their agreements. It’s as simple as that. To put it very bluntly, the only way you are going to succeed as a contractor is if you INSIST THAT OTHERS KEEP THEIR AGREEMENTS WITH YOU.

KEEP YOUR AGREEMENTS WITH YOURSELF

If someone told you that he was going to learn how to fly a plane and then he didn’t go ahead and take the lessons, you would think that he wasn’t as reliable as someone who told you that he was going to learn how to fly a plane and then did take the lessons and actually learned how to fly.

If you had a friend who was constantly saying he was going to do things that he never actually got around to doing, you would probably think that he was not a very reliable person. To one degree or another, you would have less respect for him and you would think that he was not as valuable as he would be if he did do the things that he had made plans to do.

In the same way, the promises, plans, and agreements that you make with yourself are not something that you can ignore once you have made them. They are just as important or more important than the promises, plans, and agreements that you make with others. If you promise yourself, for instance, that you are going to finish a particular job that day, then you need to make sure that you do finish it that day. If you allow yourself to constantly break the agreements that you have made with yourself, then you are going to loose respect for yourself.

People who decide that it is O.K. for them to break the agreements that they have made with themselves will be the same people who think that it is O.K. to not keep their agreements with others.

Nobody is perfect. People are allowed to make mistakes, which is a very good thing since so many of us make so many mistakes. If you find that you are unable to accomplish exactly what you had originally set out to do, it is not necessary to blame yourself for not keeping whatever agreement it is that you made with yourself. But it is also important that you don’t justify the fact that you were unable to do what you had originally set out to do.

What you need to do is figure out exactly what happened to your original plan. Without blaming yourself or someone else, without justifying anything, you must look carefully at what happened and find out the exact reason why you were not able to do what you had originally set out to do. Once you know the exact reason why, you will be in a position to learn from any mistakes that you made. In this way you will be more likely to be successful in the future.

DON’T IGNORE UNPLEASANT THINGS — HANDLE THEM!

It is tempting to put off or ignore things that you find unpleasant. This is a very common way in which many people choose to handle their problems. In the contracting business, however, this can be an unsuccessful, or even dangerous, way to handle a problem.

Generally, people have a tendency to avoid problems that they do not have a full understanding of. If you are going to be successful as a contractor, you are going to have to be able to confront, understand, and handle whatever problems come up.

Before you can handle a problem, you must understand it, and before you can understand a problem you must be able to take a good look at it, no matter how unpleasant it is. If you are unable to confront a problem, you will never be able to handle it. If you have a policy of confronting each problem as soon as it comes up, rather than trying to avoid it, you will do much better as a contractor.

BASE DECISIONS ON FACTS, NOT ON OPINIONS

If a customer hasn’t paid you, that is a fact. It may be the customer’s opinion that he will pay you soon, but the fact is that he has not paid you yet.

If an employee has come to work late for three days in a row, that is a fact. It may be the employee’s opinion that there are good reasons for his lateness, and it may be his opinion that he will not be late in the future, but the fact is that he has not been coming to work on time.

You may think that you should work for a customer because he is a nice guy even though he has a bad credit history of paying other contractors. The customer will give you good reasons why he didn’t pay the other contractors in the past and why he will pay you. These are the customer’s opinions. The facts are that the customer didn’t pay contractors in the past. What he will do in the future is opinion. What the customer actually ends up doing is a fact.

It is important that you recognize the difference between fact and opinion. What happened or is happening now is a fact. What you think about it is your opinion.

Your success as a contractor depends in no small part on your ability to make correct decisions. The best way to make  decisions is to use correct facts to help you to form a good idea as to what is going on and what to do about it. A poor way to make a decision is to use opinions about something  to form other opinions as to what is going on. If you want to maximize the chances of making a correct and accurate decision, base that decision on facts, not opinions.

PUT IMPORTANT AGREEMENTS IN WRITING

You should have a written contract for almost every job that you are involved with. But, there can be other important agreements that should be in writing as well. Whenever you make an important agreement with anyone — your customer, an employee, a subcontractor, a material supply house, etc.– put it in writing.

Ask yourself this question — Would I be in trouble if this agreement were broken? If the answer is yes, then you should make sure that it is in writing.

Often, just the fact that an agreement has been put into writing can be enough to keep someone from breaking it. And if an agreement does get broken, it is usually easier to resolve things if the original agreement is in writing.

THE MORE EFFICIENT YOU ARE, THE MORE PROFIT YOU WILL MAKE

The idea is to spend the least amount of time, money, and effort to produce the most benefit to you or the project that you are working on. This book could be considered a manual on how to run your company efficiently.

When someone invests his money at the bank, he wants to get the maximum rate of return for his money. As a contractor, you are investing your time, money, and effort in the hope that you will get a high return, usually in the form of money. The more efficient your company, the more profit you will make.

One of the most successful things that you can do as a contractor is to constantly look for ways that your company can become more efficient.

NEVER DEPEND ON ANY ONE THING

In the contracting business, the only thing that you can absolutely depend on is that you can not absolutely depend on anything. No matter how reliable someone or something is, sooner or later, something will not go according to plan. Here is an example:

A customer asks you to do a very unusual job. You don’t know how to do it yourself, but one of your employees does, so you make an agreement with the customer that you will do the job. The job will take five days. On the third day, as he is driving to work, your man is struck by a drunk driver and put in the hospital. Since you don’t know how to finish the job yourself, and nobody else in your company does either, and no other contractor you have ever known or any other contractor that you can now find has any idea of how to finish the job, you will be unable to finish the job.

At the very least, you are going to loose money and time, because you are unable to finish the job. Obviously, it would have been better if you had not agreed to do the job.

If you had  a policy of never doing any work that you didn’t have at least one other back-up person to finish, you wouldn’t have gotten into trouble.

This is just one example of why you should have at least one back-up for all aspects of your contracting business. If you absolutely depend on any one thing and something goes wrong with that one thing, you will be in trouble. This holds true in the area of your customers, employees, subcontractors, material supply houses, bookkeepers — in short, any person, company, or thing that you need in order to operate your business. If you depend on any one customer for most of your business, what are you going to do if something happens to that customer?

Look around your business and ask yourself this question: WHAT CAN I ABSOLUTELY NOT DO WITHOUT? If you find something that you absolutely can’t do without, you’d better hurry up and get at least one other back-up for whatever it is — the survival of your company may depend on it!

KEEP IT SIMPLE

A. Actually, when one considers the various factors surrounding the contractor in his daily affairs, and when one additionally takes into account all the implications that relate to any action at all that the contractor finds himself involved in, it can often, perhaps nearly always, if not, in fact, always, be advantageous for the prudent contractor to consider maintaining a less complex basis for maintaining actions that result in a greater profitability potential for his company.

B. The simpler a contractor runs his business, the faster the work gets done and the more profit the contractor will make.

Sentence A and sentence B say same the same thing. Which did you like reading more, A or B?  Which sentence made more sense to you, A or B?

When I first went into business as a contractor, I had the idea that the more experience I got, the more complicated I would be able to make my business, and the more money I would make. After three years of constant struggle and effort to run a successful contracting business I finally realized that the less complicated I could make my contracting business, the more profit I would make.

When you are scheduling your men, when you are selling a job to a customer, when you are making business decisions, whenever you are doing anything, do yourself and everyone else a big favor — KEEP IT SIMPLE. Your customers, your employees, your subcontractors, and anyone else you do business with will love you for it. And you will not only be rewarded with a business that is easy to run, but a very profitable business as well.

BE PRECISE

If you want to be a successful contractor, it is important that you are precise in what you say and do.

If you were driving a car down the highway and swaying back and forth from one lane to another, you would be considered a poor driver. Anyone who knew anything about driving would try to keep as far away from you as possible.

If you wanted to convince the other drivers that you were a competent driver, you would drive in a precise manner, deciding on which lane you would drive in and then staying within the precise boundaries of that lane.

In the same way, any competent business person appreciates someone who can make an exact agreement and then stay within the boundaries of that agreement. Keep all of your agreements exact and insist that people who make agreements with you do the same. Being precise is a skill that you can develop by practice. You will find that the more you work on being precise in what you say and do, the better you will get at it. And the better you get at being precise, the more successful you will be as a contractor.

IF IT HAPPENS ONCE, IT WILL PROBABLY HAPPEN AGAIN

This is true, true, true. Don’t make the mistake of thinking that whatever happened could never happen again. As a matter of fact, it is likely to happen again! There is an expression that lightning never strikes the same place twice. THIS IS A COMPLETELY FALSE STATEMENT. Lightning does, in fact, often strike the same place twice.

In Yosemite National Park, there is a large rock formation called Half Dome. And if you ever get to the top of Half Dome, you will find signs warning you that if there is even a hint that clouds are going to pass by, you had best get the hell off that rock, because it is almost certain that if any lightning comes out of a nearby cloud, it is going to strike the top of that rock.

Things don’t just happen by themselves. Things happen because of reasons. If something happened that you like, figure out why it happened and make it happen again. If something happened that you don’t like, figure out what caused it to happen and then change the thing that caused the bad thing to happen. Don’t make the mistake of thinking that it was just good luck or bad luck.

If they play a card game such as poker long enough, all people will get the same number of good and bad hands. And yet some people will win more often than other people. So, even in the area of gambling, there is more to success than merely luck.

Successful gamblers and successful people in all areas of business have this in common: they figure out what works for them and make it happen again. They make sure that they understand why something bad happened, and they take the appropriate steps necessary to make sure that it doesn’t happen again.

IF YOU ARE DOING IT — YOU ARE RESPONSIBLE FOR IT

If you are going to really be successful as a contractor, there is something that is very important for you to understand — if you want something to happen, then you must make it happen. You can’t leave it up to someone else to decide your success or failure.

When you are selling a job to a customer, for example, you need to have the viewpoint that what you do or don’t do will cause the customer to decide to give you the job. If you understand that it is what you do that makes something happen or not happen, then you will be in a position to analyze how well or poorly you did. In this way, you will be able to get better and better at the things that you do. Of course, the better you are, the more successful your business will be and the more profit you will make.

Contracting can be a rough business. If you want to be a successful contractor, you are going to have to be a good contractor. Nobody starts out perfect.

Really good contractors, and really bad contractors have both made a lot of mistakes. The difference between them is that the really good contractors took responsibility for their mistakes and learned from them.

Once you have collected the money, there is only one thing left for you to do. You must be sure that you make a profit on the job.

Pretty obvious, right? But, believe it or not, hardly any small contractors actually do it. I know this may be hard to believe, but it’s true. Let me give you an example of this:

Pete is a plumbing contractor. Besides himself, Pete employs two other plumbers. So, Pete runs a three man company.

Pete sells a plumbing job to a general contractor for forty-six hundred dollars. Pete has his two men work on the job. They finish the job in two days, and Pete collects forty-six hundred dollars.

Now let’s see if Pete made a profit. First of all, let’s agree on what “profit” is. When I say “profit,” I mean THE MONEY MADE IN A BUSINESS ACTIVITY AFTER ALL THE EXPENSES HAVE BEEN MET.

Pete sits down and calculates his company expenses on this job as follows:

AMOUNT OF MONEY PETE
SOLD THE JOB FOR                                    $4600

LABOR                                              $2400

MATERIAL                                       $1200

AMOUNT OF
EXPENSES                                        $3600

AMOUNT OF MONEY PETE
COLLECTED FOR THE JOB           $4600

AMOUNT OF MONEY PETE
SPENT TO DO THE JOB                    $3600

REMAINDER                                     $1000

Terrific! Pete has made one thousand dollars. He takes the thousand dollars home and sits down a second time. This time he pays all the household bills that have been stacking up for the past couple of weeks. Rent, phone bill, credit cards…. Terrific again! He has now paid off all the household bills and still has fifty dollars left. To celebrate, Pete takes his wife out to dinner.

Now the question is — What was the profit for that job? One thousand dollars? Fifty dollars? Unfortunately for Pete, the answer isNO PROFIT. That’s right, no profit. Not a penny. Now let me show you why there was no profit for that job.

Remember, the definition we are using for profit is:

THE MONEY MADE ON A BUSINESS ACTIVITY AFTER ALL THE EXPENSES HAVE BEEN MET

When Pete was calculating his expenses, he forgot one thing. He is an expense. Remember when he took that thousand dollars home? Well, the minute he took that money out of his business and gave it to himself, that money became an expense to his company. Now if he had taken only nine hundred dollars for himself and left one hundred dollars for his business, his company would have made a profit of one hundred dollars.

It doesn’t matter to the company if Pete is the owner or just another employee. The important thing is that, just like an employee, or a material bill, or any other kind of bill, Pete, himself, is an expense to his company. This is perfectly fine, of course, as long as after thecompany expenses have been met there is still money left for thecompany.

Why is this so important? After all, it’s Pete’s company, so as long as all the bills get paid, why can’t he take whatever money he wants? He can, of course, and a great many small contractors do exactly that. These are the same contractors who struggle along miserably for years and finally give up in disgust or are driven out of business by angry creditors.

I really want you to get this point, because as a contractor you are completely in charge of your company’s finances. So the question isn’t how much money you can take from your company, because you can take it all! The question is, how much money should you take?

In order to discuss the answer to that question, I will be using four terms that haven’t been brought up yet in this book:

DIRECT JOB EXPENSES

OFFICE EXPENSES

GROSS OFFICE PROFIT

NET OFFICE PROFIT

DIRECT JOB EXPENSES

DIRECT JOB EXPENSES are all of the expenses directly related to doing the job. This includes all employee pay and employee related expenses such as worker’s compensation, liability insurance, and various employee tax contributions that the company is liable for. Other DIRECT JOB EXPENSES are any material purchased for the job or any tools rented to get the job done.

Basically, any money that you spend in order to get a specific job done is a DIRECT JOB EXPENSE.

OFFICE EXPENSES

Your company has other expenses besides DIRECT JOB EXPENSES. These are expenses such as advertising costs, office rent, phone and utility bills, the salaries of anyone who works in the office of your company, and also, your salary.

If you do your own work in the field, you might wonder whether or not you should consider your own salary as a DIRECT JOB EXPENSE. The answer is no. From the first minute that you have your own company, you must consider that your salary is an office expense. Even if you are the only person in your company, your main job is notto do work for your customers. Your main job is to make sure that your company is doing what is necessary to become a successful contracting company. First and foremost, you are in charge of your company, and any money that you take out of your company,whatever the reason, must be considered an office expense.

For our purposes here, there are only two types of expenses: DIRECT JOB EXPENSES and OFFICE EXPENSES. All expenses of your company are either one or the other.

From time to time, you may run into an unusual expense that you aren’t quite sure how to categorize. If you run into a situation like this, ask yourself this question — If I hadn’t done the job, would I have this expense?

If you would have had that expense whether or not you did any particular job, then it is an office expense. If you have that expenseonly because you did a particular job, then it is a direct job expense.

GROSS OFFICE PROFIT

GROSS OFFICE PROFIT is the amount of money left after paying all the direct job expenses.

NET OFFICE PROFIT

NET OFFICE PROFIT is the amount of money left after paying all the direct job expenses and all of the office expenses.

When you want to know how much profit your company is making, the NET OFFICE PROFIT is the kind of profit that is important. This is the profit that is left over after ALL of the bills are paid, including your salary.

Let’s take another look at Pete the plumber and see if we can figure out what the NET OFFICE PROFIT is from that job we looked at earlier. Here is the job cost breakdown again:

AMOUNT OF MONEY PETE
SOLD THE JOB FOR                                    $4600

LABOR                                              $2400

MATERIAL                                       $1200

AMOUNT OF
EXPENSES                                        $3600

AMOUNT OF MONEY PETE
COLLECTED FOR THE JOB          $4600

AMOUNT OF MONEY PETE
SPENT TO DO THE JOB                  $3600

REMAINDER                                     $1000

But, wait! The REMAINDER isn’t really an accurate statement of the profit at all. It is only a statement of the GROSS OFFICE PROFIT. What we are really looking for is the NET OFFICE PROFIT.

All we have done so far is subtracted all the DIRECT JOB EXPENSES from the total amount of money that Pete collected from the customer. This gives us the GROSS OFFICE PROFIT. To figure out the NET OFFICE PROFIT, we still need to subtract the OFFICE EXPENSES as well.

In this case, Pete works out of his house, and he relies upon word of mouth advertising in order to get work. So, his OFFICE EXPENSES are very low.

Still, he has a phone bill, gasoline and truck maintenance costs, and other small monthly bills that add up to an office expense of about $250 per week. This expense must be subtracted from the one thousand dollars REMAINDER because this is the only job Pete did this week.

So, after paying off both the direct job expenses and the office expenses, Pete has $750 left. Now, should Pete write himself a check for $750? Unfortunately for Pete, the answer is no.

The title of this chapter is MAKE A PROFIT. If Pete takes home all of the money left over after paying company bills, he will have made one of the biggest and most common mistakes in the contracting business — HE WILL NOT HAVE MADE SURE THAT HIS COMPANY MADE A PROFIT.

There are two very good reasons that you must make sure that your company makes a profit:

1. YOUR COMPANY WILL NEED MONEY TO EXPAND If you don’t invest some of the profit back into the company, you will never have the money with which to expand. So, you must leave a certain amount of your company’s profit in the company.

2. YOUR COMPANY WILL NEED MONEY TO COVER UNEXPECTED LOSSES There will be times when your company will lose money. No matter how skilled you get as a contractor, not once or twice, but on an annoyingly regular basis, your company will lose money. So, if you take all the money out of your company when it makes money, what are you going to do when your company loses money?

For these two reasons, you must never take home all of your company’s profit, but must leave some of the profit in your company. In this way, it will be able to expand and to protect itself against unexpected financial setbacks.

The question is, how much profit should you leave in your company? Here is the answer:

SAVE TWENTY PERCENT OF YOUR GROSS OFFICE PROFIT

Let’s take another look at Pete’s job, and see what Pete must do if he wants to save twenty percent of his GROSS OFFICE PROFIT. All Pete needs to do in order to figure out his GROSS OFFICE PROFIT is subtract his DIRECT JOB EXPENSES from the amount that he charged his customer. In this case, that would be:

AMOUNT OF MONEY PETE
CHARGED HIS CUSTOMER                     $4600

DIRECT JOB EXPENSES                            $3600

GROSS OFFICE PROFIT                             $1000

If Pete wants to make sure that his contracting company is going to be successful, he will need to leave twenty percent of his company’s profit in the company. For this job, then, Pete would need to leave two hundred dollars in his company. He can spend the rest any way that he chooses.

Remember when we figured out that there was only really $750 left after taking into account both the DIRECT JOB EXPENSES and the OFFICE EXPENSES? Well, if Pete wants to make sure that his company is successful, he will not take home the $750, but leave two hundred dollars in his company and take home only $550.

Incidentally, when Pete brings home his $550 and then goes over his personal bills, he is going to realize that he made only about half of what his family needed. If Pete is smart, he will take some time to figure out how to get his contracting company to make him more money. AND HE WILL ALWAYS MAKE SURE TO LEAVE TWENTY PERCENT OF THE GROSS OFFICE PROFIT IN THE COMPANY.

If Pete does this, no matter what the temptation is to use his company’s twenty percent profit for personal expenses, Pete is much more likely to succeed as a contractor.

If you can keep 20% of your gross office profit in your company, you will be successfully applying the most basic of all basics; you will be MAKING A PROFIT.