Los Angeles Electrician Blog

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.

Here are the rules for collecting  money from customers:

BE POLITE

BE CALM — NEVER LOOSE YOUR TEMPER

BE PROFESSIONAL

KEEP A WRITTEN RECORD OF ALL  CONVERSATIONS

KNOW THE LAW

BE PERSISTENT

NEVER CRITICIZE THE CUSTOMER HIMSELF — ONLY WHAT THE CUSTOMER DOES

BE HONEST WITH THE CUSTOMER

NEVER DO ANYTHING ILLEGAL

NEVER THREATEN TO DO ANYTHING ILLEGAL TO THE CUSTOMER

BE POLITE

No matter what kind of customer you are dealing with, you should always be polite. There are good reasons for this.

If you are dealing with an honest customer, it is obvious that you should treat him with the friendliness and respect that his honesty deserves. It is easy and natural to be polite with an honest customer, but you must also remain polite with even your worst customers. Here is a list of reasons why.

A. A dishonest customer will often try to provoke you into getting angry with him. He will do this so that he can use the fact that you got angry with him as an excuse not to pay you.

B. Getting angry or yelling at a customer will show the customer that you are not in control of the situation. People tend to raise their voices when they feel that they must use force or emotion to handle a problem instead of logic and reason. Most people are either consciously or unconsciously aware of this fact. So, you can most impress the people that you are trying to collect money from by appearing so competent in the area of collecting that you don’t need to resort to using emotion or force.

By the way, the fact that remaining polite is best, no matter how much a customer provokes you, does not mean that it will always be easy. I happen to know from much personal experience that it is sometimes not easy at all.

If a customer becomes too abusive over the phone, you always have the option of simply hanging up and turning the dirty, scum sucking, diseased descendent of an outhouse maggot over to a collection agency. BUT DO IT POLITELY.

C. Being polite invites your customer to be polite to you. If a customer becomes rude with you, so you get rude with the customer, so he gets really abusive with you, so you start yelling at him… STOP! Take a look at what is happening here. You are letting the customer control the conversation. You are no longer in control of the situation.

You started off in the conversation talking about how the customer was going to pay you the money that he owed you, which is what you wanted to talk about. And, you have ended up talking about how bad you are, which is what the customer wanted to talk about.

On the other hand, when the customer first got rude with you, if you had remained polite with him, the customer most likely would have continued to be a little rude to you, but the conversation would have stayed under your control. This is a key aspect to successful collecting.

BE CALM — NEVER LOOSE YOUR TEMPER

This has pretty much been covered under BE POLITE. To be honest, I think it is probably too much to expect that you will never loose your temper with a customer who has broken his pay agreements with you. Let’s face it — it’s INFURIATING!

Many, many times you may feel like personally doing damage to the customer. After all, look at the damage he is doing to you! He owes you money, and you really need that money right now! He not only didn’t give you the money on time, but he’s going out of his way to get you really, really upset with him!

He lies to you over and over again. He never returns your phone calls. Instead of doing whatever he can to try to make up for the problems that he’s causing you, he treats you like some kind of beggar who is looking for a handout. When you are working out with him how you are going to get paid, he acts as if you are asking for a special favor!

So, these guys can be really, really, infuriating! But still, you must never let the customer see that you are angry with him. The advice in the previous section under BE POLITE still holds true.

And when you are trying to collect from one of these dishonest customers and you find yourself getting more and more upset, there is one thing that you might think about. You just have to deal with this creep until you collect your money or turn him over to a collection company. He is stuck living with himself for the rest of his life.

BE PROFESSIONAL

The way to BE PROFESSIONAL is to always follow THE RULES OF COLLECTING no matter what the circumstances are. There are good reasons for this.

When you are trying to collect money from a customer that has broken a pay agreement, it is often necessary for you to take control of the situation and more or less tell the customer what to do. Remember, the customer has already not been able to keep his original pay agreement with you, so it is obvious that the he is not completely competent in the area of paying bills.

In the beginning steps of the CUSTOMER COLLECTION SYSTEM you should at first encourage the customer to take as much control of the situation as he can. Often this results in the customer coming up with a way to pay you fairly soon.

But, as time goes on, the less responsible a customer proves to be, the more responsibility you will need to take on to make sure that you do get paid. So, as you go down the steps of the CUSTOMER COLLECTION SYSTEM, you will need to be taking more and more control of the collection process.

On the last step when you turn the customer over to a collection agency or the court system, you are, of course, completely bypassing the customer in every way. Essentially, when you get this far into a collection situation, it has become obvious that the customer is not taking any responsibility for getting you paid, so you must take full control of the matter and take legal action to force the customer to pay you.

Often, as you begin to put more and more control into the situation, the customer may begin to resent your “meddling” in his affairs. And yet, it is extremely important, at least in the earlier stages of the collection process, that you maintain a friendly relationship with the customer. The customer will be much more agreeable to your increasing control of the situation if he feels that you are more professional in the area of collections than he is.

One good way for you to demonstrate competence to the customer is for you to act professionally. Many customers respond extremely well to your suggestions or advice when they have confidence in your ability to handle a situation.

When you maintain a professional attitude with a customer, you will give that customer every reason to believe that you can, indeed, handle his problems as well as your own. He will be more accepting of your increasing control and will not get upset with you.

Also, if you are dealing with a criminal type, he will respect your professionalism and possibly decide that it might be better for him not to keep your money after all.

KEEP A WRITTEN RECORD OF ALL CONVERSATIONS

It is important to keep a written record of all agreements that are made during the time that you are working to collect money from a customer. The easiest way to do this is to have a made-up form that you can take out and use each time you call the customer. Here are some of the things that should be on the form:

A. Job name, address, and phone number.

B. The name of the person who is responsible for paying you. Any and all addresses where he can be found. Any and all phone numbers where he can be reached.

C. What the original pay agreement was and how and when it was broken.

D. Each time you call, note the following:

1. The date and exact time you called and what happened when you called. You may have gotten voice mail, a live person, an unanswered ringing, a busy signal, a disconnected number, or whatever. As an example, if you got an unanswered ringing, note down how many times you let the phone ring before hanging up. Write down exactly what happened.

2. If you left a message, what it was.

3. If you spoke to a person, who he was and what he said, especially any promises about having someone return your call.

4. If you spoke to the person responsible for paying you, what he said. If he made you any promises or gave you any dates or dollar amounts, write them down exactly.

E. Any useful information about the customer or his job that you become aware of between the phone calls.

There are several good reasons that you should keep a written record of what is happening while you are in the process of collecting money from a customer. First of all, the further you go down the steps of the CUSTOMER COLLECTION SYSTEM, the more often the customer is going to lie to you. It can be very useful to be able to tell a customer exactly how many times that customer promised to pay you by a certain date and then didn’t actually pay you.

Another reason is that you can actually see, just by looking at this one form, what the customer has promised and what he has actually done. This can be helpful when you are trying to decide whether or not to move on to the next collection step.

One way to appear extremely professional to the customer is to be able to rattle off in great detail exactly what date and time he made a pay agreement with you and exactly what that agreement was. Once you have done this with a customer, he is unlikely to think that he can get away with taking advantage of your lack of business sense. You are obviously too professional for that.

If worst comes to worst, you may find yourself in the position of having to take a customer to court or you may decide to turn a customer over to a collection company. When that time comes, it will be helpful to have all the broken agreements and other information well documented. Simply keeping brief records while you are talking with the customer or even just noting down that you tried to call him and he didn’t return the call might be the deciding factor in getting you paid.

KNOW THE LAW

In each country, state, and city, there are laws having to do with collecting money. You don’t have to be a lawyer to understand the basic ones. If you want to be successful in collecting money, learn them. It really doesn’t have to take a long time either. Try looking on the internet. The information will be well worth the small amount of effort.

BE PERSISTENT

Collecting money from a reluctant customer can be one of the most unpleasant tasks you will face as a contractor.

If you want to maximize the potential of collecting your money, you will need to be persistent. What you need to do is always take the next step in collecting your money at the time you planned on taking it even though the customer may make this unpleasant for you.

If you have decided to collect your money from a customer, then you must not do a half-way job. You must realize that any customer who has broken his original pay agreement with you is not going to suddenly change into a super fantastic customer who will now pay you at the first possible opportunity. No, he is almost always going to require you to put in extra effort if you want to collect your money. After breaking his original pay agreement with you, he may promise to pay you next Monday. But if he doesn’t pay you on Monday, you are going to need call him again and ask him where your money is.

If you contact this customer on the exact date that he has promised to pay you, he will think that:

1. You must really want the money.

2. You definitely expect him to do exactly what he promises.

3. You will not leave him alone until he pays you.

The combination of these three things will encourage the customer to pay you faster. So, as part of your program to collect money from a customer, you must appear to be extremely persistent, no matter how difficult or unpleasant the collection process is. Remember, if the customer is too unpleasant, you can always turn him over to a collection agency

NEVER CRITICIZE THE CUSTOMER HIMSELF — ONLY WHAT THE CUSTOMER DOES

If you criticize the customer, you may feel much better, but the customer will not. Customers who don’t keep their pay agreements are always on the lookout for an excuse not to pay you. Criticizing the customer will give him the excuse he is looking for. Therefore, criticizing the customer is a bad collection technique. On the other hand, criticizing what the customer does can be used successfully to collect money. Here is an example of this:

WRONG – You’re nothing but a cheat and a liar!

RIGHT — You have broken two pay agreements with me. This is unacceptable.

Because people do not like to think of themselves as being stupid or bad or criminal, attacking the customer will result in an antagonistic customer. Attacking what the customer does allows the customer to change his actions without having to admit that he is a “bad person.” This can sometimes be helpful when you are trying to collect.

BE HONEST WITH THE CUSTOMER

The simplest and easiest way to deal with a customer is to be honest with him. This holds true even when you are trying to collect. Among other reasons, being honest with a customer sets a good example; your own actions encourage the customer to be honest with you. Even if the customer is obviously lying to you, you do not need to sink to his level. A customer can often guess that you are lying, and he can usually tell when you are being honest with him.

There is a kind of power that goes with being honest. When you are completely honest with a customer in all situations, you are demonstrating to the customer that you feel so secure in your ability to accomplish the things that you set out to do, that you have no need to hide anything from him. In the area of collections being honest not only invites the customer to be honest in return, but also shows the customer that you are a confident businessman. A customer who owes you money will be more inclined to pay you if he believes that he will have a hard time taking advantage of you.

NEVER DO ANYTHING ILLEGAL

Never, never, never do anything illegal, especially when you are trying to collect money from a customer. There are customers out there who will actually attempt to trick or goad you into doing something illegal just so that they can get away with not paying you. They are the criminals, not you. I know it can be tempting to take direct action instead of waiting and waiting and waiting for justice to be done, but DON’T DO ANYTHING ILLEGAL.

In the long run, you will be happy that you did not sink to the level the customer had sunk to. Revenge, destruction of property, and physical violence make for interesting books and movies but have no place in business.

In this world, there are people who take something and make it better, and there are people who find something and make it worse. Only one of these types of people will make a good contractor.

NEVER THREATEN TO DO ANYTHING ILLEGAL TO THE CUSTOMER

You might think that you can threaten a customer into paying you, and in some cases, you will be right. After trying every other method, if a customer still hasn’t paid you, he may, in fact, respond to being threatened by you. Just be very, very sure that what you threaten to do to the customer is legal. And be very, very, VERY sure that you never threaten to do anything illegal. One kind of threat can get you paid; the other can get you sued.

When every other attempt to collect money from a customer has gotten nowhere, it’s fine to tell a customer that you are going to take him to court to collect the money that he owes you. It’s quite another thing to threaten to harm him or his business in any illegal way. In a court of law, that’s called extortion.

If you find yourself at the point where you are about to threaten to do something illegal to the customer, remember that the customer will probably end up using this as an excuse not to pay you.

This advice does not apply to you if you are a loan shark, hit man, or someone in the protection racket; but, it generally does apply to anyone with a permanent address.

In contracting, if you are going to threaten a customer, first learn the law. Then, if you must threaten your customer, threaten him with the law. That way, if the customer still doesn’t pay you, you can follow through with your threat without having to worry about getting into legal trouble yourself.

GENERAL CONTRACTORS

Everything written in this chapter so far applies to all customers, from housewives to multi-million dollar corporations. This includes general contractors as well.

There are some additional things that you can do if you are faced with a collection problem with a general contractor. When I talk about general contractors, I am using the term loosely to mean any person or organization who hires you to do a job for one of their customers with the customer paying the general contractor and the general contractor paying you.

First of all, on any General Contractor work, you should put a preliminary notice on the job. I don’t have any idea how this works in your area of business, but learn how and do it. This will allow you to put a lien on the property you performed work on.

The way to collect money from a general contractor is pretty much the same as collecting from other customers with one very important exception. After a general contractor has broken several pay agreements with you and you are at the point where you are beginning to think that he is never going to pay you without some kind of legal pressure, you can go directly to the customer to let him know that the general contractor is not paying you.

Often, you will find that the customer has, in fact, already paid the general contractor for the work you have done, and so the customer had no idea that you had not been paid. The solution is to get the customer to pay you directly for your work and deduct the amount from what he still owes the general contractor. If you go to the customer soon enough, there is a good chance that he will still owe the general contractor some money, so don’t wait too long.

Another way to collect money that a general contractor owes you is to just file a claim against his bond if he has one. If he is a licensed contractor, he should be bonded for a certain amount of money. Often it will be enough to cover what you are owed.

WRITTEN CONTRACTS

There is a general legal principle that any contract between two or more people, whether verbal or written, is legally binding. But when it comes time to collect from a difficult customer, which would you like to be able to bring to court, the verbal contract or the written contract?

As I’ve stated before, PUT YOUR PAY AGREEMENT IN WRITING. I’m not going to beat this to death. It’s your decision. My personal rule is:

IF YOU CAN’T AFFORD TO LOOSE THE AMOUNT OF MONEY YOU HAVE SOLD A JOB FOR, GET A WRITTEN CONTRACT.

These are the basic things that a contract should have:

1. Whatever things that are required by the law to be on the contract.

2. The date.

3. The job location that the contract refers to.

4. A description of the work that you have agreed to do.

5. The amount of money that you are going to be paid for the work.

6. The exact time when you are to receive the money.

7. The customer’s signature and date that he signed the contract.

8. Your signature and date that you signed the contract.

There can be a lot more than this on a contract. The easiest way to get contracts is to simply buy already printed-up contracts and just fill in the blanks. You can also have custom contracts made up for you. If you do, talk to an attorney who specializes in contract law.

THE BEST COLLECTION TECHNIQUE OF ALL -- AVOID CUSTOMERS WHO DON’T PAY

Here is a list of the kinds of customers who are likely to not keep their pay agreements with you. When you run into customers like this, you should do what every really successful businessman has learned to do — avoid them like the plague!

No customer is perfect, but the more a customer demonstrates any of these characteristics, the more likely that you are going to regret doing work for him. As a general rule, if you find yourself wondering whether or not you should trust a customer — you shouldn’t!

Trust your feelings about customers – they are almost always right. Here’s a list of customers to avoid:

CUSTOMERS WHO ARE NOT FRIENDLY

CUSTOMERS WHO ARE NOT COMPETENT

CUSTOMERS WHO DO NOT KEEP PAY AGREEMENTS

CUSTOMERS WHO ARE NOT EASY TO COMMUNICATE WITH

CUSTOMERS WHOM YOU DO NOT LIKE

CUSTOMERS WHO COMPLAIN ABOUT OTHER CONTRACTORS

CUSTOMERS WHO MAKE FUN OF OTHER CONTRACTORS

CUSTOMERS WHO ARE HARD TO WORK WITH

CUSTOMERS WHO SEEM TO HAVE LOTS OF PROBLEMS

CUSTOMERS WHO COMPLAIN ABOUT ANYTHING HAVING TO DO WITH MONEY

Do yourself a big, big favor and avoid customers like this. Really, it could make the difference between doing very well as a contractor and doing very badly as a contractor. If you can learn to recognize and avoid these potentially bad-paying customers before you get stuck doing work for them, you will have greatly increased your ability to succeed as a contractor.

COLLECTION TIPS

DON’T BE AFRAID THAT A CUSTOMER WILL GET MAD AT YOU

What I am about to say should not be used as an excuse to break any of the earlier rules of collecting. If you follow these rules when you are collecting money, you will already be polite and professional when you are dealing with a  customer who owes you money. But, one of the things that you don’t have to worry about is that a customer will get mad at you when you are trying to collect your money from him.

The reason is this: any customer who gets mad at you when you are politely and professionally attempting to collect money from him is a customer that you never want to work for again. As a matter of fact, it would be a good idea for you to avoid doing any new work for a customer who has already  demonstrated an inability to keep his pay agreements in the past.

When a customer owes you money, just do the steps of the CUSTOMER COLLECTION SYSTEM and if the customer gets mad at you for trying to collect money that he should have paid you already, don’t worry about it.

A customer like this will often “get mad” at you in an attempt to make you go away. As a matter of fact, the very fact of getting mad is an indication that you had better put even more pressure on the customer if you ever expect to collect your money.

THE LONGER IT TAKES FOR YOU TO FIND OUT IF IT’S THE TRUTH, THE MORE LIKELY IT’S A LIE

When a customer tells you a lie, he will, of course, try to prevent you from finding out that he has lied to you. The two most common ways that a lying customer uses to cover up a lie are:

A. Using TIME to hide his lie.

B. Using a GENERALITY to hide a lie.

If a customer didn’t have the money that he owed you, he would be unlikely to tell you to come right over and pick up his check. He would be much more likely to tell you that he would pay you in a week or so….

By telling you this, he not only has given himself more TIME to handle the fact that he doesn’t have enough money to pay you right now, he has arranged it so that you don’t have an exact time when he will pay you. He has given you a generality.

To you “a week or so” may mean around seven days. To a customer who has already broken a pay agreement with you “a week or so” will usually mean “one week, two weeks, three weeks, whatever….”

You can avoid this trap by insisting that the customer never get away with giving you a generality, but instead always gives you an exact statement as to what he intends to do. And remember, the further away in time a customer’s solution is, the less likely it is that the customer’s solution will turn out to result in your actually  collecting.

SOMETIMES IT IS JUST EASIER TO EARN NEW MONEY THAN TO COLLECT OLD MONEY

There are times when you would be better off giving up on collecting from a really bad customer and just earning money from new jobs.

Sure the guy is scum. Sure it is completely unjust that an unethical customer can get away with stealing money from you. Unfortunately, even though this is true, there are times when the best way to handle a really awful customer is to simply get as far away from him as possible.

There are times when your continued connection to a really bad customer will end up causing even more damage than he has already caused you by not paying what he owes. If a customer owes you one thousand dollars and it will cost you three thousand dollars in time, effort, and emotional upset to collect the one thousand dollars, the best thing that you can do is just walk away.

You have the option of going on to bigger and better jobs. The really awful customer doesn’t have that option.

THE LONGER YOU CAN AFFORD TO WAIT FOR YOUR MONEY, THE EASIER YOU WILL EXPERIENCE THE COLLECTION PROCESS

After a customer has broken his original pay agreement with you, it usually takes you a lot longer to collect your money than the customer says it will. This is an annoying problem at any time, but if you really need the money, the fact that a customer isn’t paying you can turn into an extreme difficulty.

In many cases, customers who don’t pay you on time will pay you in about twice the amount of time that they originally agreed to pay you in. Whether you call them once or ten times, they will still pay in the same amount of time. This is not to say that it is O.K. that they don’t keep their original pay agreement, but it is nevertheless true that about half the customers who don’t pay you on time will pay you in about double the original time that they agreed to.

Just follow the CUSTOMER COLLECTION SYSTEM. With customers like this, you might get them to pay a little sooner if you really work on it, but it will take a lot of extra effort on your part. So, in about half of your collection cases, the easiest way to collect your money is to just wait for some time to go by and for the new agreed-to date to roll around. These kind of customers will pay you without any effort on your part.

With this in mind, it would be much easier for you to be able to simply wait for these customers to pay you on their own, rather than your having to use up a lot of your time and energy trying to get them to pay you a little earlier.

But can you wait? Do you have enough extra money to be able to afford to wait? If you don’t, then you will often find yourself doing a lot of worrying about money.

You can save yourself a lot of wasted time and heartache if you keep enough money on hand to cover your company expenses while you are waiting for customers of this kind to pay.

It would be simple if all you ever had to do was just wait a little longer to collect the money that customers owe you. Unfortunately, this will only work for half of the customers that owe you money. The other half will require more pressure from you, and if you simply wait for them to pay you, you may never see your money. So how do you decide which kind of customer you are dealing with? Will he pay on his own or will you need to put increasing amounts of pressure on him in order to get paid?

The way to find out what kind of customer you are dealing with is to use the CUSTOMER COLLECTION SYSTEM. Remember, it’s what they do not what they say. Just do the standard collection steps with all customers. If a customer breaks a second pay agreement with you, you will know that he is the kind of customer that will have to be kept on a short leash. Generally, the slow but relatively honest customers will not break a second pay agreement with you.

KEEP YOUR LEGAL OPTIONS OPEN

Sometimes, you will loose some legal right to collect the money that a customer owes you if you wait too long to exercise your legal rights. No matter what a customer tells you, NEVER GIVE UP ANY OF YOUR LEGAL RIGHTS TO COLLECT MONEY FROM A CUSTOMER.

Occasionally, you may run into a customer who deliberately attempts to get you to delay taking a legal action that will ensure your getting paid. His intention is to never pay you, no matter what he says.

Don’t fall into this trap. If he threatens that something bad will happen to you if you take legal action or the necessary steps to ensure your legal collection rights for the future, you will know that this customer is definitely not intending to pay you. In a case like this, you don’t need to worry about the customer getting mad, you do need to worry about your getting paid. So, no matter what the customer says, never give up your legal rights. KEEP YOUR LEGAL OPTIONS OPEN.

THE BEST WAY TO COLLECT MONEY IS TO AVOID CUSTOMERS WHO DON’T PAY YOU

Pretty obvious, right? Nevertheless, it is needs to be said. By the time you will have finished this book, you should be able to recognize most of the customers that you should avoid. But when you are looking for work, you may be tempted to disregard a bad sign about a customer simply because you need the work. Believe me, the last thing you need if you want to improve your business is a bad customer.

The rules about customers and collecting money from customers apply at all times. It doesn’t matter if you have a lot of work or you really need work. Don’t make the mistake of doing work for bad customers at any time. Losing money on a customer will never help you make a profit or build your business.

The way to handle needing more work is to get a lot of good customers. If you want your business to do well, you must learn to recognize bad customers and NOT DO WORK FOR THEM.

The fact that a customer has broken a pay agreement with you does not mean that he is completely dishonest. But, he is probably somewhat dishonest. For our purposes here, let’s define an “honest customer” as a customer that takes complete responsibility for making what he says come true.

Using this definition, if an honest customer makes a pay agreement with you, you can rely on that customer paying you exactly when he said he would. In an extreme case, say if his bookkeeper told him that he had ten thousand dollars in his bank account when he actually had only one thousand, if he found out that he had accidentally bounced a check on you, he would want to fix that problem immediately. He would be very agreeable to your coming over to pick up another check right away. He might even offer to bring it over to you.

Compare this with the CUSTOMER WHO IS NOT RESPONSIBLE. He will be glad to explain why the check bounced, and how bad the accountant is, and how it isn’t his fault. But, he will not immediately take whatever measures are necessary to get you paid. As a matter of fact, in the case of the CUSTOMER WHO IS NOT RESPONSIBLE, how do you know that the accountant actually did make a mistake? Remember: JUDGE NOT BY WHAT A CUSTOMER SAYS BUT BY WHAT A CUSTOMER DOES.

You know that THE HONEST CUSTOMER WHO HAS HAD AN UNEXPECTED SETBACK did have a problem with his accountant, not because he sounded sincere when he explained why his check bounced, but then he immediately paid you. You can recognize an honest customer because what he says will turn out to be what he does. If what your customer says turns out not to be what he does, then he is something less than a completely honest customer.

THE HONESTY SCALE

When you are collecting money, there is a scale that you can use to measure the honesty of customers. Each level of the scale corresponds to one of the TYPES OF CUSTOMERS WHO HAVE NOT PAID YOU covered in the last chapter. It starts at the top with THE HONEST CUSTOMER WHO HAS HAD AN UNEXPECTED SETBACK and ends at the bottom with THE CRIMINAL.

The further down the scale you go, the less honest the customer is. Another way of looking at this is that the further down the scale you go, the more criminal the customer will be. Let’s take a look at each type of customer in terms of his honesty:

THE CUSTOMER WHO HAS HAD AN UNEXPECTED SETBACK This customer is very honest. Whatever the problem is, you don’t really need to put any pressure on him to collect your money; the customer will handle whatever the problem is and pay you as soon as he possibly can.

THE CUSTOMER WHO IS NOT RESPONSIBLE This customer is honest as long as it is convenient for him to be honest. As long as he has the money, he will pay you. But if he doesn’t have the money to cover all of his bills, you will need to make him want to pay you more than someone else.

Unlike an honest customer who really wants to pay you, THE CUSTOMER WHO IS NOT RESPONSIBLE will pay you only because he feels that he has to. If he can find an excuse not to pay you, he will do it every time. You cannot appeal to his sense of right and wrong; you must put enough pressure on him to make him want to pay you rather than not pay you.

THE TIME BANDIT The main difference between THE TIME BANDIT and THE CUSTOMER WHO IS NOT RESPONSIBLE is that THE TIME BANDIT is more calculating in his intention to not pay you. When he made the original pay agreement with you, he knew then that he was not going to pay you on time. He will be a little more sneaky and devious than THE CUSTOMER WHO IS NOT RESPONSIBLE.

So, he is a bit less honest or, shall we say, slightly more criminal. He will pay you when you make it more unpleasant for him not to pay you than to pay you. Since he finds it pretty unpleasant to pay you, you will need to put more pressure on him than any of the customers higher on this scale.

THE ACCUSING CUSTOMER Remember, any honest customer will expect and demand that  you do a good job. What we are talking about here is a customer who is accusing you of doing a bad job when you actually did a good job. The reason that he is doing this is that he wants to put pressure on you to lower your price. This customer has gone way beyond merely avoiding having to pay you.

THE ACCUSING CUSTOMER has a policy of aggressively attacking and driving away people that he owes money to. In other words, THE ACCUSING CUSTOMER is trying to make it so unpleasant for you to collect your money that you give in and accept a less money or simply give up trying to collect any money at all. This kind of behavior is, of course, criminal. You are going to have to be extremely tough and resourceful if you expect to collect full payment from a customer like this.

THE LYING CUSTOMER The lying customer is just that; a customer who lies. People lie because they want to conceal the truth. In this case, the truth is that you are not going to get your money. THE ACCUSING CUSTOMER and the other kinds of customers further up the HONESTY SCALE are actually easier to collect from than THE LYING CUSTOMER. They may be somewhat criminal, but at least they have some sort of plan to handle the fact that they owe you money. If you can somehow get them to really want you to get paid, then they can probably figure out a way to do it.

THE LYING CUSTOMER is too far down the scale even for that. He is so incompetent that the only way he can handle people who demand money from him is to say whatever comes into his head at the moment. He just hopes that somehow they will believe him and go away.

The problem here is that, even if he desperately wanted to pay you, the lying customer is just too incompetent to figure out how to do it. You also can’t help him work out a plan to get you paid because he will never follow through with it.

It’s not impossible to collect from THE LYING CUSTOMER, but don’t expect him to help you in any way even if he wants to.

THE CRIMINAL THE CRIMINAL has decided that he is going to steal money from you. He tells you that if you do a job for him, he will give you a certain amount of money. You do the job for him. He doesn’t pay you. Basically, he has stolen your money. There is a difference between THE LYING CUSTOMER and THE CRIMINAL. The LYING CUSTOMER doesn’t give much thought to the fact that he won’t have the money when you finish the job, while the criminal planned from the beginning on not giving you some or all of your money. Appealing to the criminal’s better nature will never work; as far as you are concerned, he doesn’t have a better nature. The only way to handle a customer like this is through legal methods.

CHARACTERISTICS OF HONEST AND DISHONEST CUSTOMERS

Now let’s take a look at some of the characteristics of the honest customer and compare them to some of the characteristics of the dishonest customer.

THE HONEST CUSTOMER:

1. He is friendly.

2. He is competent.

3. He keeps agreements.

4. He is easy to communicate with.

5. You like him.

THE DISHONEST CUSTOMER:

1. He is not friendly.

2. He is not competent.

3. He does not keep agreements.

4. He is not easy to communicate with.

5. You don’t like him.

If you can remember a really good customer that you would love to do another job for, I’ll bet that he demonstrated the qualities of an honest customer. Now think of the worst customer you ever had. I’ll bet he had a lot of the characteristics of the dishonest customer.

One important thing to understand about the relative honesty of a customer is that while there is no absolutely honest or absolutely dishonest customer, some customers are definitely more honest than others. Also, a customer may be less honest in one way than he is in another. He may pay 100% of your bill but three weeks later than he promised or he may pay exactly on time but work out a way where he pays only 90% of the bill. He is not being completely straight with you, but in different ways.

Similarly, a customer may be friendly, but not very friendly. Or he may be friendly but not very competent. So, except in extreme cases, don’t expect your average customer to be completely friendly or completely unfriendly. He will usually be somewhere in between these two points. The same goes for the level of his competence, his ability to keep agreements, etc.

The way that you can judge the honesty of a customer is to decide how friendly, competent, able to keep his agreements, easy to communicate with, and likable the customer is. The more a customer has of these qualities, the more honest he will turn out to be. The less the customer demonstrates these qualities, the less honest he will be.

Does this seem like a terribly unscientific and perhaps unfair way to judge a customer?  Could be. Of course, I’ve always felt that it’s terribly unfair not to get paid for work I’ve done. Using this method of evaluating the relative honesty of a customer has helped me to avoid many dishonest customers.

There is something that dishonest customers have in common. They will try to find a reason not to pay you. Just like the air in an automobile tire that is under great pressure and relentlessly trying to find even the tiniest crack from which to escape, so the dishonest customer works to locate any kind of excuse for not having to pay you what he owes. This is something that you must be aware of when you are trying to collect money from a dishonest customer.

Now, assuming that you have done a good job, so he can’t complain about that, what other reason can a dishonest customer find not to pay you?

Believe it or not, one of their most common excuses will be that you did something bad to him when you were trying to collect — after he was already late. This makes sense in a crazy kind of way. Since the job is now complete, the only thing left for him to complain about is how you handle collecting the money.

For this reason, you must be careful not to give him any opportunity to use anything you say or do as an excuse not to pay you. With this in mind, it is time to look in the next chapter at a list of rules regarding collecting.

You’ve worked hard and done a good job for the customer, and now it’s time to get paid.

Collecting the money from a customer can be easy or hard, simple or complex. But, there are many things you can do to make it simpler.

One of the main things that you need to keep in mind is that the time to start thinking about collecting the money for a job is not after you have finished the job, but before you have started the job. When you and the customer agree on what the price will be for a job, you must at that time also agree as to when you will be paid.

Now, assuming that you made an agreement with the customer that you would collect the money when you finished the job, and you have now finished the job, the customer should now pay your bill. Right? Right!

And, as long as you did make a pay agreement with the customer before you started the job and the customer is now satisfied with your work, the majority of customers will do exactly that. They will pay you what they owe you.

Unfortunately, there are some customers who will not simply pay their bill. To a greater or lesser degree, you will need to put some kind of pressure on these customers to get them to pay. Exactly how much pressure and what kind of pressure is the subject of this chapter.

There is an old saying that goes something like this:

All people are equal — some people are just more equal than others.

In the contracting business there is another saying:

All customers are honest — some customers are just more honest than others.

This happens to be true. For although it is a rare customer who actually considers himself dishonest, it is also a rare customer who is completely honest. Most customers fall somewhere between being completely honest and being completely dishonest.

Let me tell you what I mean by “honesty” as it applies to customers. When a customer is honest, he tells the truth. If he says that he will meet you at a certain time, he is there on time. If he says he will pay you a certain amount of money at a certain time, he pays you the money on time. If he tells you that the job will be ready for you to do on Tuesday, the job is ready for you to do on Tuesday.

Basically, if a customer is completely honest, anything that he tells you will turn out to be true, every time. Any customer like that is an extremely valuable customer. The more honest a customer is, the more reliable he is. If you can rely on what a customer says, then as long as you are able to make what you say come true, you will be able to organize the job easily, which will result in a high profit on the job.

A customer might be “honest” in many ways, but if he is unreliable in any way that affects your work or getting paid, the result will be the same as if he were dishonest. Let’s look at three examples of this:

A customer named Joe contracts with you to do a job. You do the job and he gives you a check. The check bounces. Joe tells you that a large check that someone else gave him was bad. So, when Joe put that bad check in his bank account to cover the check that he had written you, there was not enough money in his account to cover it.

Another customer named Sam contracts with you to do a job. You do the job and he gives you a check. The check bounces. He tells you that a large check that someone else gave him was bad. So, when he put it in his account to cover the check that he had written you, there was not enough money to cover it.

Another customer named Bill contracts with you to do a job. You do the job and he gives you a check. The check bounces. He tells you that a large check that someone else gave him was bad….

What is the difference between Joe, Sam, and Bill? In Joe’s case, he really did have someone give him a bad check which caused him to unintentionally write you a bad check. Sam, on the other hand, simply wrote you a bad check. He knew from the beginning that he didn’t have enough money in his account, but he was hoping that he would somehow cover the check that he wrote you before you tried to cash it.

And, then there’s Bill. Bill not only knew that the check he wrote you was bad, but that many checks that he had written other people were also bad. Bill, by the way, is planning on moving to another state in the very near future, and he won’t be leaving a forwarding address.

So there are differences between Joe, Sam, and Bill. Joe had every intention of paying you, Sam hoped that he would be able to pay you, and Bill had absolutely no intention of paying you. But the point is, in each case YOU HAVE NOT BEEN PAID.

All three of these customers agreed to pay you when you finished the job. But, in each case, you did not collect the money. As far as your bank account is concerned, these three customers are equally bad.

So, it doesn’t matter how “nice” or “honest” someone is if they don’t pay you. You still haven’t been paid.

At this point, all three customers have broken their pay agreements with you, so in one sense, they are equally “dishonest” customers. But in another sense, they are very different customers, and understanding these differences is very important to you if you want to collect your money.

TYPES OF CUSTOMERS WHO HAVE NOT PAID YOU

All customers who break pay agreements with you are not the same. Here is a list of the kinds of customers who don’t keep pay agreements and the methods used to collect from them.

THE HONEST CUSTOMER WHO HAS RUN INTO A FINANCIAL SETBACK This customer is not a problem for you. Something happened to him that caused him to not be able to pay you exactly when he promised. Fortunately, this kind of customer won’t sleep well at night until he has paid you. Whatever the problem is, he is going to fix it very quickly, and you will be paid as soon as possible.

HOW TO HANDLE There’s really not anything that you need to do with a customer like this. He will explain the problem, he will apologize, and then he will tell you how and when he is going to pay you. It will be quite soon. What this customer tells you will happen almost always does happen, so when the time arrives that he said that he would pay you, he will, in fact, pay you. End of problem.

THE CUSTOMER WHO IS NOT RESPONSIBLE This customer hasn’t paid you yet because he “doesn’t have the money yet.” He doesn’t have the money yet because of one of a thousand reasons, but whatever the reason is that he gives you, the real reason is…that he is NOT RESPONSIBLE. Here are some “reasons” customers of this kind give you when they break a pay agreement with you:

I haven’t been paid yet (so I can’t pay you).

Somebody bounced a check on me (so I  can’t pay you).

I thought I would have more money by  now (so I can’t pay you).

The job cost more than I thought it  would (so I can’t pay you).

I had to pay more money than I thought  I would to someone else (so I can’t pay you).

I thought that I would have collected  more money by now from my customers (so I can’t pay you).

I had an unexpected bill that I had to  pay (so I can’t pay you).

HOW TO HANDLE This type of customer considers himself to be generally honest. It will do you no good to call him a liar and a thief. You may feel that he is a liar because he agreed to pay you, and then he broke his agreement. And you may feel that he is a thief because he got you to do work for him and then he didn’t pay you anything. But he has figured out why it “isn’t his fault” that he can’t pay you.

Somebody else didn’t pay him, so he can’t pay you. So, it’s not his fault. He knows that you have been lied to and stolen from, and he knows that this is a bad thing. The customer thinks of himself as good and honest; therefore, somebody else must be responsible for the fact that you haven’t been paid.

If you tell this kind of customer that he is a liar and a thief, he will get very upset with you because he knows that he is a good and honest person and that it “isn’t his fault.” If you show this customer that you are angry with him, he will feel that you are being unjustly mean and unfair with him. This kind of customer will use the fact that you are angry with him as a further excuse not to pay you. Now it is “your fault” that he doesn’t pay you, because you were “mean to him.”

There is a way to deal with customers like this. Here is what you do:

CUSTOMER COLLECTION SYSTEM

1. LET HIM TELL YOU HIS STORY

This kind of customer always has one. It may be long or short, interesting or boring. Hopefully it will be short and interesting because you must listen to all of it without interrupting him. These stories may start out differently, but they will all have the same ending — somebody did something bad to the customer and now he can’t pay you.

2. SYMPATHIZE WITH THE CUSTOMER

Agree with the customer that somebody did something bad to the customer. Don’t leave this step until you are absolutely sure that the customer knows that you are not upset with him for not keeping his pay agreement with you.

3. GET THE CUSTOMER TO WANT TO HELP YOU

Point out to the customer that although it isn’t the customer’s fault, you also have had something bad happen to you; you haven’t been paid for the job yet. Give the customer a reason why you need the money as soon as possible — you have to pay your wholesale house bill, your workmen, your rent, whatever.

The purpose in this is not to justify how much your bill to the customer was, because your customer is not upset about the amount of the bill. What you are trying to do is demonstrate that you need the money as soon as possible.

Remember, it is very important that the customer understand that you are not blaming him for your lack of money (it’s somebody else’s fault, remember?). Work with the customer on how the two of you working as a team can figure out a plan that will get you paid. Do not leave this step until you are sure that the customer is feeling friendly toward you and truly wants you to get paid as soon as possible.

4. MAKE A NEW AGREEMENT WITH THE CUSTOMER ON HOW AND WHEN YOU WILL GET PAID

Ask the customer this question — SO, WHAT DO WE DO NOW ABOUT GETTING ME PAID? The customer will usually tell you that he will pay you as soon as he can. His answer will generally be in terms of how quickly he can collect money from somebody or he will mention some other resources that he may have in the near future which will make it possible for him to pay you.

Get the customer to commit to an exact date that the customer feels he will definitely have your money. If you can agree to wait until that date, then you are done for now.

The reason you need to get an exact date from the customer is that, often, the customer will not pay you by the date he figured that he would definitely be able to. If the date comes and goes, and the customer still does not pay you, it is time for you to go on to Step Five.

5. AGREE ON A PLAN TO GET YOU PAID

If, in Step Four, the customer was unable to come up with an exact date that you will definitely be paid by, or if the customer gave you a date but you have not been paid by that date, it is time to take the next step in collecting your money.

At this point, the customer will be aware that he is not really doing a good job of getting you paid. If you have done a good job on the earlier steps, the customer will usually be receptive to your suggestions on how to work it out so that you get paid.

Go over what resources the customer has now and will have in the future for paying you. If you are creative, you may find a way to work it out. Maybe he can pay you 25% of what he owes you each week for a month. The rule here is BE FRIENDLY AND BE CREATIVE. What you need to accomplish in this step is to end up with another agreement on when you will be paid the money that the customer owes you.

Once you have established an exact pay agreement, you are done with this step. Hopefully, the customer will keep this agreement. If he doesn’t, it’s time for Step Six. If you have set up an installment pay agreement and the customer has not made a payment on time, immediately move on to Step Six.

6. GIVE THE CUSTOMER A DEADLINE

If you have gotten to this step and the customer has still not paid you, you are going to have to take stronger measures. At this point it is obvious that the customer has not been able to pay you even with your full cooperation and help.

Now you must take a more aggressive approach to this collection problem. Tell the customer that you understand his position, but that he must understand your position as well. You did a job for him, you have expenses as a result of doing the job, and you need the money he owes you to meet those expenses. It is now your turn to assign an exact date that the customer must pay you by.

If the customer hasn’t paid you by this date, call him once more and tell him that he has passed the date which you had assigned him. Ask him if there is any way he can pay this bill. If he has what you think is a workable idea, give him one more chance, but always get an exact pay agreement including the exact time when he will have paid you in full. If the customer doesn’t have any convincing new idea on how to pay you, or if that idea turns out not to work, you must move on to Step Seven.

7. TELL THE CUSTOMER THAT YOU WILL NEED TO TAKE LEGAL ACTION

Nothing you have said or done so far has gotten you paid. It is now time to tell the customer that you are sorry, but, because you have not been paid, you are going to have to take legal action.

The customer may plead with you to give him one more chance. If he seems sincere and you think that there is a possibility that he might actually pay you now, go ahead and give him his chance. Remember to make an exact pay agreement. If the customer fails to keep this agreement, or if he doesn’t offer any other suggestions on how to pay you when you tell him that you are going to take legal action, move on to Step Eight.

8. TAKE LEGAL ACTION

It is time to recruit other people to help you collect this money. There are several options open to you. What you do now also depends on what type of customer you are trying to collect money from. The two main divisions are customers with whom you contracted directly and general contractors (contractors who hired you to do work that someone else originally hired them to do).

If you have contracted directly with a customer, you have options:

A. Take him to court.

B. Turn him over to a collection agency.

C. Put a Mechanics Lien on the customer’s property (at least in the state of Calif., where I do business).

I am not an attorney, nor do I claim to know much about the law in the area of collections, so I am not qualified to give you any legal advice in this or any other legal matter. There are many different laws in each city, county, and state, so you will need to be sure to know them or hire someone else who does know them before you take any legal action against a customer. What I am about to say is only offered as general rules that I have found to hold true over the years regarding collections.

If there is a very fast and easy way to go to court to collect the money, like small claims court, do it, as long as you have very convincing proof in writing that can be quickly and easily understood by the judge.

Other than this one exception, just turn your collections over to the best collection agency that you can find. It will take as a fee a large percentage of what it collects; but, believe me, it will be a fee well-earned. Remember, you already spent lots of time and energy trying to collect from this customer before you turned him over to a collection agency, and you still weren’t able to collect. So, if the collection agency can get any money out of the customer, consider yourself lucky.

By the way, there is a way to avoid the cost of a collection agency. If it’s legal where you do business, you can put a statement in your written contract that the customer will pay any additional expenses arising out of the collection process ( aren’t you glad you have a signed contract with the customer now?). Now you can tack on the additional expense charged to collect the money, and you will get 100% of the original amount owed you.

While everything concerning regular customers holds true for general contractors, there may be an additional legal action possible against a general contractor. If the general contractor has a contractor’s license, he may also be required to have a bond. You should be able to get the name of his bond company from the governmental agency which issues the contractor’s licence.

Call up the bond company and explain that you want to file a claim on one of its contractors. It will send you forms to fill out and then, hopefully, will pay you.

If you feel the bond company should properly cover this bill and it’s dragging its feet, you may want to put on some pressure.

If the bond company says that it isn’t going to cover the contractor’s bad debt, it should be able to tell you the reason in a way that makes sense to you.

While collecting money from a bond company can be time consuming, it is not very complex. So, you probably can take this action without hiring an attorney.

Finally, if it’s legal in your area of business, you can put a lien on the customer’s property and just forget about it until the property is sold or re-financed, at which time you will be contacted by the escrow or loan company. They will usually offer to pay you what is owed. Helpful tip: Don’t sign over your lien rights UNTIL YOU HAVE BEEN PAID IN FULL.

Also, at least in my business area, you can add a hefty per-month interest rate to the original amount you lien the property for, which is nice.

Now let’s look at some other kinds of customers who don’t pay you and how to handle them.

THE TIME BANDIT

This customer will tell you that he is happy with your work and that he wants to pay you. The reason this customer will give for not paying you is TIME. You are going to have to wait to get your money, and there is nothing that your customer can do about it. Here are some “reasons” that TIME BANDITS will give you for not keeping their pay agreements with you:

I forgot my checkbook (so you’ll have to wait to get paid).

My — (boss, secretary, office manager, controller, business manager, partner, husband, wife, etc.) — hasn’t  (written, signed, approved, co-signed, printed, etc.) - your check yet (so you’ll have to wait to get paid).

We haven’t gotten your check back from our main office yet (so you’ll have to wait to get paid).

I can’t find your bill — please send me another one (so you’ll have to wait to get paid).

TIME BANDITS would like you to believe that they are keeping their pay agreements with you. It is only a “misunderstanding” on your part if you think that you should have your money on the exact date or time that the customer originally agreed to pay you.

As an example of this, let’s suppose that a contractor has an agreement to get paid on the fifteenth of the month. The fifteenth comes and goes with no payment from the customer. So, the contractor calls up the customer and asks where his money is. The customer says that he submitted the contractor’s bill to his New York office two weeks ago and that the contractor should be getting a check “any time now.”

If the contractor reminds the customer that there was an exact agreement that the contractor would be paid on the fifteenth, the customer is liable to say that this was only an estimated time because the customer figured that it would take about two weeks for the home office to process the contractor’s check.

Basically, the contractor is being told that the customer has kept his pay agreement with the contractor, and that it is only a little time problem that has caused the contractor not to be paid. The customer’s solution is that the contractor should wait.

HOW TO HANDLE Often, customers like this will tell you that they have little or no control over some person or organization that is responsible for getting you paid. If he tells you this, you need to find out exactly who this person is and how to contact them. Once you do contact the person who is responsible for getting you paid, simply use the CUSTOMER COLLECTION SYSTEM outlined earlier in this chapter starting at Step Three.

THE ACCUSING CUSTOMER

This customer says that he doesn’t want to pay you because you have been bad. He claims that you were bad because:

You didn’t do what the customer wanted.

Your workmanship was poor.

You broke something.

You were late.

You were early.

Something that you did improperly cost him money.

You had a “bad attitude.”

Etc., etc., etc…

Now, the first thing that you need to do with a customer like this is be sure that you did do a good job. If you did, you are in a much better position to deal with him. What this kind of customer wants is a reduction in the price of the job, and if there is anything about the job that is not perfect, you are definitely going to hear about it.

If there is any justification for the complaints made by the customer, the fastest and easiest way to resolve the problem may be to simply fix the problem. Another way to resolve the customer’s complaints, perhaps the way the customer is hoping for, is to discount the price of the bill.

Remember, ten or twenty percent off a bill still leaves you most of the money. If you can’t come to some kind of agreement with the customer, you are likely to go to a lot of trouble to collect probably even less money from him later on. He is usually well aware of this fact, and he will use it against you when he is “bargaining” for a lower price.

So, you see, it doesn’t really matter if the customer’s claims are true or not. What really matters is that the customer wants to use the fact that it is hard to collect from him as a way to get you to lower your price.

If a contractor has done a bad job, even an honest customer will not want to pay a contractor. However, an honest customer will pay a contractor who quickly and cheerfully corrects the job.

It is different with THE ACCUSING CUSTOMER. It will be extremely difficult for the contractor to fix “damage,” whether real or imagined to the satisfaction of THE ACCUSING CUSTOMER. This kind of customer doesn’t really want the problem to be fixed. He wants there to be a problem so that he can justify a lower price.

HOW TO HANDLE If there truly is a problem with your work, before you do anything else, be sure to fix it. If the customer is still complaining and still doesn’t want to pay you, ask him what he thinks should happen now. At this point, you are doing the CUSTOMER COLLECTION SYSTEM, starting at Step Four.

THE LYING CUSTOMER

There are customers out there who think that the best way for them to solve their problems is simply to lie. This is especially true when you are trying to collect money from them. Here are some examples of things that THE LYING CUSTOMER will tell you when he owes you money:

You never sent me a bill.

I lost your bill.

I already sent you a check a while ago.

I’ll send you a check tonight.

I have your check right here.

(And of course the all time favorite) The check is in the mail.

By the way, it’s really true; customers actually do tell you that THE CHECK IS IN THE MAIL. The question is, how do you tell when the customer is lying and when he is telling the truth? How do you know that the check isn’t in the mail?

The easiest way is to simply wait to see if the check arrives in the mail. If it doesn’t, the odds are at least 95% that the customer is lying.

Think about it — how often do you send something in the mail and it doesn’t arrive? Sure, it can happen, but what are the odds? So, if the odds are only 5% that your check was lost in the mail, the odds must be 95% that the customer is lying.

Still, the customer may be telling the truth. Here is a rule that you can use to see if a customer is telling you the truth:

WHEN COLLECTING MONEY FROM CUSTOMERS, JUDGE NOT BY WHAT A CUSTOMER SAYS BUT BY WHAT HE DOES

In this case, what you could do is call up the customer and explain that you didn’t receive the check that he sent you. No matter what he says, tell him that you would like him to cancel the original check and make out another one and that you would like to come pick it up rather than having him mail it. No matter what he says, if he does actually agree to your plan and he does give you a check, and the check does clear at the bank, then you have a truthful customer. If anything else happens where you don’t end up with the money, then you are dealing with THE LYING CUSTOMER.

There is both a good and a bad aspect to a customer lying. The bad thing about a customer lying is that you can’t rely on anything the customer says. This includes any pay agreements that the customer makes with you.

Fortunately, there is also a good thing about a customer lying. When a customer lies to you about paying your bill, he is almost always admitting that he agrees that he should pay you the money. This is a very important part of the collection process. Let’s look at an example of this.

A contractor calls up a customer and asks the customer where his money is. The customer tells the contractor that “the check was sent out yesterday.” Now, maybe it was or maybe it wasn’t, but since the customer told the contractor that he had already sent the check, the customer cannot now claim that he was dissatisfied with the contractor’s work or the amount of the contractors bill. If the customer was not satisfied, why did he send the check?

From that moment on, it can never be argued that the contractor doesn’t deserve the money. The only thing that now needs to be resolved is when the contractor is going to receive the money that he deserves.

Customers who lie have this in common — they try to avoid trouble by pretending something is other than what it is. And if they will tell you one lie, they will tell you many.

Once you have determined that you are dealing with THE LYING CUSTOMER, you must, first of all, decide that you can no longer believe what he says. I know that this sounds obvious, but THE LYING CUSTOMER can be very convincing. When a customer is talking about paying you money, you will be tempted to believe him even if he has lied to you several times in the past. What you must do is stop listening to what he is saying and start looking at what he is doing.

Also, since THE LYING CUSTOMER is usually lying because he wishes to avoid trouble, you can often collect your money from him by demonstrating that lying causes him more trouble than just paying you.

Often, this kind of customer owes money to other people as well, and he is not just lying to you, but also to the others. If this is the case and THE LYING CUSTOMER thinks that you will give him the most trouble, he will pay you first. If you rapidly and competently handle the customer as outlined below, you will have a good chance of being at the front of the line.

HOW TO HANDLE   You handle a lying customer by starting at Step Four of the CUSTOMER COLLECTION SYSTEM. Remember to judge your decision as to when to move on to the next steps not by what the customer says, but only by what the customer actually does.

THE CRIMINAL

This kind of customer has no intention of ever paying you. His plan is to get you to do a job for him for no money, or sometimes, much less than the agreed-to price. Of course, he will not just come right out and say that his intention is to steal from you. What he will do is pretend to be one of the other types of customers that don’t keep their pay agreements. So, he will appear to be one of these other kinds of customers:

THE CUSTOMER WHO HAS HAD AN UNEXPECTED SETBACK

THE CUSTOMER WHO IS NOT RESPONSIBLE

THE TIME BANDIT

THE ACCUSING CUSTOMER

THE LYING CUSTOMER

How do you tell the difference between one of these kinds of customers and THE CRIMINAL? Fortunately, you don’t have to.

Let’s take another look at a rule of collecting money from customers:

WHEN COLLECTING MONEY FROM CUSTOMERS, JUDGE NOT BY WHAT A CUSTOMER SAYS BUT BY WHAT HE DOES

In this case, when you are using the CUSTOMER COLLECTION SYSTEM, it is not particularly necessary for you to identify what kind of customer you are dealing with including THE CRIMINAL. Just doing the steps one after another will handle any kind of customer there is. With this system, no matter what step you are on, the door is always left open for the customer to pay you. So, if you have gone through all the steps with a customer and he still hasn’t paid you, it doesn’t really matter whether or not a customer is “a criminal” or just too incompetent to come up with the money. The point is YOU HAVE NOT BEEN PAID. No matter what the customer says, what the customer did was not pay you.

So, by the time you get to the last step of the CUSTOMER COLLECTION SYSTEM, if a customer hasn’t paid you the money that you are owed, then that customer might as well be a criminal because he is certainly acting like one.

When a mugger points a gun at you and robs you of a hundred dollars, your relationship with him has caused you to get upset and loose one hundred dollars. When a customer doesn’t pay you the five hundred dollars that he owes you, your relationship with him has caused you to get upset and loose five hundred dollars.

Also, you will find that the customers that you have to take down to the lower steps of the CUSTOMER COLLECTION SYSTEM will all begin to have more and more in common with each other. They will take up lots and lots of your time. They will lie. They will break many, many agreements with you. They will be harder and harder to reach by phone, and when you do finally get to them, you will feel worse after talking with them than before. They will be extremely difficult to get specific information from. They will complain that you are bad in some way or in many ways. In short, you will find these customers very unpleasant to deal with.

When you find yourself with a customer who has broken a pay agreement with you and he starts acting like this, save yourself a lot of grief and go through the collection steps QUICKLY. As a matter of fact, the more unpleasant and difficult that you find the customer, the faster you should move down the steps of the CUSTOMER COLLECTION SYSTEM. Then, just turn the guy over to your collection company, lien his property, or take some other kind of legal action.

I’ve never been able to figure out if this kind of customer acts so obnoxious and unpleasant as a method of driving away bill collectors or if he is genuinely as repulsive as he seems. Maybe it’s a little of both. At any rate, the faster you are rid of this guy, the better.

Remember, the majority of customers will keep their pay agreements. That is because the majority of customers are basically honest. And it is only when a customer has not kept his original pay agreement that you need to use the CUSTOMER COLLECTION SYSTEM. So, as a general rule of thumb, the further down the steps you need to go with a customer in order to collect your money, the less honest that customer will turn out to be.

The purpose of this chapter is not to teach the technical skills of your trade; it’s to tell you how to apply the technical skills that you already have in a way which will make you a profit.

To do well as a contractor, you will need to have both technical skills and administrative skills. By “technical skills,” I mean the nuts and bolts of how to paint, do carpentry, wire a house, etc. By “administrative skills” I mean the skills necessary to manage the activities of a job in such a way that you end up with both a happy customer and a profit.

A painter could have tremendous skill in painting, but if he were so incompetent as a businessman that he lost a customer’s phone number and address, he would not be able to do the job. On the other hand, a painter could sell a customer a job, but if he did a poor painting job, the customer might not pay him. So, having technical skill only, or having administrative skill only, will not do. You must be competent in both.

There are two rules about this:

1. TO DO WELL ON A JOB, YOU MUST HAVE THE TECHNICAL AND ADMINISTRATIVE SKILLS NECESSARY TO DO THE JOB PROPERLY

2. A PROPERLY DONE JOB RESULTS IN A HAPPY CUSTOMER AND A HAPPY CONTRACTOR

You don’t have to know everything about your trade to be a successful contractor.

An electrical contractor doesn’t need to know how to wire up a nuclear power plant in order to work on houses. And that same electrical contractor doesn’t need to have all of the administrative skills necessary to run a thousand man company if what he has is a five man company. But, if that electrical contractor is going to be successful, HE HAD BETTER KNOW AN AWFUL LOT ABOUT DOING ELECTRICAL WORK IN HOUSES AND RUNNING FIVE MAN COMPANIES!

The point here is that before you take on any job, be sure you have both the technical skills and administrative skills necessary to do that particular job properly.

Assuming that you are competent in the technical skills of your trade, you are ready to ask yourself this question – WHAT ARE THE ADMINISTRATIVE SKILLS NECESSARY TO DO A JOB ?

Here are the basic technical and administrative actions of DOING THE JOB:

1. GET ALL THE INFORMATION NECESSARY FOR YOU TO DO THE JOB

2. SCHEDULE THE JOB

3. SEND THE CORRECT MANPOWER TO THE JOB

4. SEND THE CORRECT MATERIALS TO THE JOB

5. DO THE WORK

Notice that the first four actions of the job are administrative. Only the last step, DO THE WORK, is primarily a technical activity. This is an important point to understand, because no matter how properly you can DO THE WORK, you are not likely to make a profit on that job unless you can properly do all the actions needed to completely DO THE JOB.

Let’s examine each of these five points and see what is necessary to do them properly:

1. GET ALL THE INFORMATION NECESSARY FOR YOU TO DO THE JOB

Normally, you will get this information while selling the job to the customer and immediately after selling. Here are some of the things you will need to know if you want the job to go smoothly:

A. Exactly what the work will be.  You should already know almost everything about the job because you got that information when you were figuring out how much to charge the customer. However, now that you have actually sold the job, take a moment to go over with the customer any and all questions you or the customer may have about the work. Now is the time to be sure that both of you clearly understand the scope of the work involved and how much that work is going to cost.

B. Where to find the job and where to find the customer. Get the job address. Get the billing address. Get the customer’s home and office phone numbers. Also get the phone number at the job site if it is different than the home or office number.

C. Where to find any other people related to the job. Architects, engineers, inspectors, next door neighbors, apartment managers, other contractors on the job — if you think that you are going to need to talk with any other people related to the job, get their phone numbers. If you need to get these numbers from the customer, the time to do this is when you are talking with him, not when you are looking for him so you can to get one of these numbers but can’t find him (probably because you don’t have his right phone number!).

It’s not enough to get the proper and necessary information about a job; you must be able to keep the information in such a way that you can get to it again later.

The best way to do this is to make up and use a form. Put all the important information on it that you need. You can add to it as the job progresses. If you put all of the information in one place, and if you have a way to easily find the form when you need it, you will be in good shape.

2. SCHEDULE THE JOB

Make an exact agreement with the customer as to when you will start the job and how long the job will take. Then, make sure that both of you keep this agreement. That’s really about all there is to it.

If, for some reason, you are not going to keep your scheduling agreement with a customer, AT THE EARLIEST OPPORTUNITY let the customer know so that you and the customer can reschedule the work for another time. Not telling the customer until the last minute or not telling the customer at all can result in a very annoyed customer!

Also, if you need the customer or another contractor to be at the job site so you can do your work, it is a good idea to confirm that they are definitely going to be there before driving out. In this way you can avoid an unnecessary and costly trip.

3. SEND THE CORRECT MANPOWER TO THE JOB

The name of the game here is to do the job as efficiently as possible. The less you spend on labor, the more money you will have left over as profit. This does not mean that you should cut any corners doing the work or pay your employees badly. It does mean that you and your employees must strive to do the work as correctly and quickly as possible. Sometimes, two men working one day will cost less than one man working two days. Sometimes, it is the reverse. You will have to look over the available manpower at your disposal and decide how best to handle each job.

4. SEND THE CORRECT MATERIALS TO THE JOB

It is obvious that you will need the correct materials for the job, but it is sometimes missed that when you get those materials to the job site can greatly affect your profit.

One of the biggest mistakes contractors make in the area of materials is not having enough stock on their truck when they come to the job site. They are then forced to waste valuable time driving somewhere to get the material that they need instead of concentrating on getting the job done.

Another common error contractors make is not ordering the material they need early enough to get the job done on schedule.

There are many errors of this nature that can be made. Fortunately, if you are on the alert for them, potential problems of this sort can generally be spotted in advance.

5. DO THE WORK

Properly doing the work requires technical skill and an intention to do the work correctly. Not much more needs to be said about this. The only thing I’ll add here is that, if you want to maximize your profit on a job, do it right the first time. Doing a job twice and getting paid for it once is not a very good way to make a profit.

After all the work has been done on a job, there is one last thing necessary for the customer to feel that the job is complete. He will want to see that the job site is cleaned up. It is fine if he has already agreed to handle the necessary clean-up. But if not, take the time to clean up any debris. Leaving a job site slightly cleaner than when you started your work almost always results in a happy customer.

Then go collect your money from your happy customer.

The first step of getting the customer to agree on price is telling the customer how much you will charge for the job. This is relatively simple. Just say — I will do your job for       .

The customer will generally do one of these ten things:

1. Tell you to do the job.

2. Tell you he already has a better price from someone else.

3. Tell you that he thought the job would cost less.

4. Tell you that he thinks the job should cost less.

5. Tell you that he wants to get other bids and then decide.

6. Tell you that he will think it over.

7. Tell you that he wants you to do the job and that he will call you back when he is ready for you to start work.

8. Ask you if you are sure you have taken into consideration all of the work that he needs.

9. Say “Thank you,” and then hang up the phone or walk away from you.

10. Ask you to lower your price.

Your ability to handle the customer at this point is, to a large degree, going to greatly affect how well you do as a contractor. After all, if no customers want you to do their jobs, you will be out of work in a hurry. However, if a large percentage of the customers who originally contact you end up by wanting you to do their work, you will have a very good chance of becoming a successful contractor.

Even if a customer doesn’t immediately agree to the price, you may well end up doing the job. There are many ways to turn a doubtful customer into one who definitely wants you to do his job.

Let’s take a look at each of the ten things a customer might say to you and see what they mean. Also, let’s examine some ways you can respond.

1. THE CUSTOMER TELLS YOU TO DO THE JOB

What he means: The customer wants you to do the job.

How to respond: Do the job!
2. THE CUSTOMER TELLS YOU THAT HE ALREADY HAS A BETTER PRICE FROM SOMEONE ELSE

What he means: The customer has gotten a better price so why should he pay you more?

How to respond: O.K. so the customer might have been given a better price from another contractor, but if he pays you more, will the customer actually get a better value? Could you do the job faster or better? Could you start the job sooner? Was the other contractor’s price
lower because he wasn’t going to do as much work? What about materials — is your price higher because you are going to use better materials? Ask the customer these questions. Often, the answer to one or more of these questions is yes, and you can end up doing the job for him.
3. THE CUSTOMER TELLS YOU THAT HE THOUGHT THE JOB WOULD COST LESS

What he means: The customer is surprised and unhappy that it will cost so much for you to do the job.

How to respond: Agree with the customer that the job is expensive but also explain that your labor, material, insurance, phone bill, etc., all are outrageously expensive these days and that you need to charge this price to make a profit.

Often, customers have no idea what the job should cost and are genuinely surprised. Another reason a customer might say the job should cost less is because he thinks that by telling you this, you might give him a better price.

If you have told the customer about your own operating expenses and he still seems unhappy, tell him what you estimate the material will cost and what the labor will cost.

Tell him how long you think the job is going to take. Sometimes the customer will have greatly underestimated this. Go over with the customer how long various parts of the job will take individually and then add them all up to show the customer how you arrived at your time estimate. Often, if you can explain this to the customer in a pleasant way without being defensive, he will decide that the price you originally gave him was, in fact, a fair one, and he will now agree that you can do the job.
4. THE CUSTOMER TELLS YOU THAT HE THINKS THE JOB SHOULD COST LESS

What he means: Same as #3 above except the customer is saying that he knows your price is too high.

How to respond: Same as 3# above. Additionally, since the customer seems so positive about it, ask him if he already has another price on the job from someone else.

If the answer is yes, handle the customer as in #2 above.
5. THE CUSTOMER TELLS YOU THAT HE WANTS TO GET OTHER BIDS AND THEN DECIDE

What he means: Either he wants to get other bids and then decide or he already has a better bid.

How to respond: In a friendly way tell the customer that this is a good idea. Your attitude should be that since you know that your price reflects the best value, you have confidence that your price will compare favorably with others. Remember, customers don’t just look at price, they look for the best value.

Also, invite the customer to call you back if he has any questions about your bid or even the bids of other contractors. Tell the customer that you will be glad to go over the various bids with him to see if they all are for the same amount of work and also to see if the materials are the same. Sometimes, after you tell a customer this, he will immediately decide to give you the job.

Sometimes, the customer will immediately tell you that he already has another bid, and he will go over it with you. Or, he may call you back later and want to go over the other bids he has gotten. When you are going over the bids, you once again have a golden opportunity to demonstrate how honest, friendly, helpful, and competent you are. Often this will get you the job.
6. THE CUSTOMER TELLS YOU THAT HE WILL THINK IT OVER

What he means: Same as #5 above or, after hearing how much the job costs, the customer has just decided not to do the job at all, or he’s going to get another bid. Basically, it means, NO! Very rarely this customer, after getting one or more additional bids, will call you back. But, at least in my experience, not very often.

How to respond: This customer will not respond to the same handling as in #5 above. In fact it is unlikely that he will respond to anything at all. Simply say thank you and good-bye.
7. THE CUSTOMER TELLS YOU THAT HE WANTS YOU TO DO THE JOB AND THAT HE WILL CALL YOU BACK WHEN HE IS READY FOR YOU TO START THE WORK

What he means: When a customer says this, he either means exactly what he says or he means exactly the opposite — that he doesn’t want you to do the work and he will not call you back.

How to respond: Tell the customer that you are happy that he wants you to do the job. Ask him when he thinks the job will be ready to start. As a general rule, the more definite his answer is, the more likely you will end up doing the job.
8. THE CUSTOMER ASKS YOU IF YOU ARE SURE YOU HAVE TAKEN INTO CONSIDERATION ALL OF THE WORK THAT HE NEEDS

What he means: The customer is surprised that your price is so low.

How to respond: Believe it or not, what you must now do is prove that it is O.K. for your price to be so low.

For whatever reason, the customer is afraid that your price is too low. This customer is clearly more concerned with value than price. He is concerned that you may not do a good enough job at the price you quoted him. So what you must do is convince the customer that you are a reliable and competent contractor. Go over the job with him again just as in #3. This time, however, you must show the customer that it is not necessary to charge more than your original price.

Also, it is possible that you did, in fact, miss something. If this is the case, apologize to the customer, raise your price, and compliment the customer on his honesty. If there is nothing wrong with your original price, however, DO NOT RAISE YOUR PRICE. Remember, you are trying to convince the customer that you are a good contractor. If he feels that you are taking advantage of him in some way, he is not likely to want you to do the job.
9. THE CUSTOMER SAYS THANK YOU AND THEN HANGS UP THE PHONE OR WALKS AWAY FROM YOU

What he means: When a customer does this, he has completely dismissed you from any possibility of doing his job.

How to respond: Fortunately, you don’t have to do anything. The customer has already broken off communication, and I would advise you to keep it that way. I have learned from experience that this is not any kind of customer that you want.
10. THE CUSTOMER ASKS YOU TO LOWER YOUR PRICE

What he means: The customer wants you to lower your price.

How to respond: Just because a customer asks you to lower your price doesn’t mean he won’t accept your original price. Ask him this — What are you thinking? Depending on what he says, you may be able to work something out. Some customers think that it is a standard business practice for a contractor to give a higher price than he really wants and then lower his price if the customer asks him to.

What it all boils down to is how much you want to do the job and what price you want to be paid to do it. Don’t let a persuasive customer talk you into any agreements that you feel uncomfortable with. As a matter of fact, these customers are likely to be poor customers anyway, so don’t ever be afraid to tell the customer that you will not lower your price.

YOU DON’T NEED TO GET EVERY JOB

At this point I’d like to point out that there are many customers out there who you should not do business with. Remember, what you are trying to do as a contractor is MAKE A PROFIT. No matter what a customer says or does, the bottom line is — DID THE CUSTOMER MAKE YOU A PROFIT? So, when you don’t get a job from a particular customer, it is always possible that you might actually be better off not getting it.

If you can’t come to an agreement with a particular customer, don’t worry. There are lots and lots of good customers out there looking for good contractors, and they are willing to pay you well for your services.

AGREE ON EXACTLY WHEN YOU WILL BE PAID FOR THE JOB

Let’s assume that you and a customer have agreed that you will do the job for a certain amount of money. There is still one more agreement that you must make with the customer. YOU MUST AGREE ON WHEN YOU WILL BE PAID FOR THE JOB.

The time to do this is after you and the customer have agreed on how much money you will get for the job and before you do the work. This can be a simple step, such as agreeing that you will collect a check as soon as you finish the job. Or it can be a more complex arrangement, where you receive progress payments as the job advances. Whether simple or complex, ALWAYS MAKE AN EXACT AGREEMENT ABOUT WHEN YOU WILL BE PAID BEFORE YOU START THE WORK.

If you wait to discuss the pay agreement until after you have completed the job, you may find that it is now harder to collect the money.

Think about this for a minute — imagine that you have just given your customer a bill and you are now expecting him to write you a check. But he doesn’t write you a check. Instead, he tells you that he thought he had thirty days to pay the bill, or that you need to send the bill to some far-away company, or that he can’t pay the bill because his business partner (who happens to be in Ireland) needs to approve payment before he issues you a check. Or, or, or, or, or, or,…. Get the idea?

Here are two good reasons for making an agreement as to when you will be paid for the job before you start the work:

1. The customer will more easily agree to your payment terms if you have not yet started the work.

2. If you can’t reach a pay agreement that you are both happy with, you still have an opportunity to walk away from the job.

There are many contractors who seem to have a reluctance to discuss with a customer exactly how much the job will cost or exactly when the contractor will be paid. Fortunately for contractors, one of the best ways to separate good customers from bad customers is to see how willing customers are to make exact agreements about money. Because good customers plan on keeping the agreements that  they make, they want to know exactly what those agreements are.

A good customer appreciates pleasant and straightforward communication about any aspect of the job, including how much the job will cost and when you want to be paid. So, if you find that a customer is getting upset when you talk about how much the job will cost or when you will be paid, ask yourself this question — Do you really want to do work for this customer?

PUT AGREEMENTS WITH CUSTOMERS IN WRITING

If you want to save yourself countless future problems as a contractor, put your work descriptions, price and payment agreements with customers in writing and get the customer to sign that agreement before you do the job. There are countless reasons for doing this, all of them good.

The same advice, by the way, goes for additional work orders to existing contracts. Never do additional work that you want to be paid extra money for without first getting a signed agreement.

And now, guess what? You have covered all the basics on how to find customers and get work. Congratulations! You are now well on your way to learning how to make good money as a contractor.

Once you have determined what the customer needs and wants, and before you tell him what the job is going to cost, there is one other very important thing that you must do. YOU MUST MAKE SURE THE CUSTOMER KNOWS THAT YOU CAN DO THE JOB.

The customer must be convinced that you are both willing and able to do the job. From a customer’s viewpoint, you may be willing to do his job, but are you competent enough to do the job?

When they are talking to you about a job, all customers want to get the answers to two basic questions:

1. HOW MUCH WILL THE JOB COST?

2. WILL THE JOB BE DONE PROPERLY?

Customers will almost always ask you the first question; they will almost never ask you the second question. But a very important thing to understand is that, as far as the customer is concerned, getting the job done properly is more important than what the job costs.

You might think that if a customer were so concerned with getting the job done properly, he would not only find out what his job was going to cost, but he would also try to establish whether or not you were competent to do the work.

Well, that is exactly what customers do, although this point is missed by many contractors. From the first minute you start talking with them, customers are comparing, evaluating, weighing, and judging you. Everything you say, how you say it, and how the customer feels about it is all being analyzed at all times by the customer.

The customer may be partially or wholly unaware that he is doing this, but by the time he is ready to make a decision as to whether or not he wants you to do the job, the customer will have formed a definite opinion of you and your ability to do his job properly.

You see, the customer is interested in value. When a customer asks you what a job will cost, he wants to find out the least amount of money you will charge to do the job properly. Before a customer ever decides that your price for the job is right, the customer will first have to decide if you will do the job properly.

Here are some of the things that customers respond to well when they are evaluating how competent a contractor is:

1. THE CONTRACTOR IS HONEST

2. THE CONTRACTOR IS KNOWLEDGEABLE IN
HIS TRADE

3. THE CONTRACTOR IS ORGANIZED

4. THE CUSTOMER IS ABLE TO COMMUNICATE
WELL WITH THE CUSTOMER

5. THE CONTRACTOR IS HELPFUL

6. THE CONTRACTOR IS COURTEOUS

7. THE CONTRACTOR KEEPS ALL AGREEMENTS
WITH THE CUSTOMER

8. THE CONTRACTOR DOESN’T COMPLAIN ABOUT
BUILDING INSPECTORS, OTHER CUSTOMERS,
OR OTHER CONTRACTORS

9. THE CONTRACTOR WANTS TO DO WHAT’S
BEST FOR THE CUSTOMER

10. THE CUSTOMER LIKES THE CONTRACTOR

There is no particular order of importance to this list. As a matter of fact, each customer has his own personality, and so each customer will judge the importance of the points on this list differently. But, if you can demonstrate all of these characteristics to every customer, it is almost certain that all customers will consider that you are competent to do their job.

Remember that when a customer contacts you about a job, the first thing you need to do is to FIND OUT WHAT IS NEEDED AND WANTED. While you are doing this step, you have a golden opportunity to demonstrate these qualities to the customer.

Are you courteous? Are you easy to communicate with? Do you seem to know what you are talking about?

Let me tell you something you may not have realized about customers. EVERY CUSTOMER HAS A PROBLEM AND HE WANTS YOU TO SOLVE THAT PROBLEM FOR HIM.

The problem that all customers have is this — they have a job which needs to be done, but they don’t want to do the work themselves. When they call you, they are asking you to solve this problem by doing the work for them. In exchange for doing the work, they are willing to pay you money. Now even if the customer has no idea how to do the work himself, he will still want you to do the job the way he would if he did know how to do the work.

If you can convince a customer that you will do his job the way he would if he could, you will have come a long way toward getting that job.

That is why it is so important when you are talking with customers to demonstrate the ten qualities listed above. Only when a customer has decided that a contractor is honest, reliable, knowledgeable in his trade, etc., will he be interested in knowing what the job will cost.

So the rule to use with any customer is:

BEFORE TELLING A CUSTOMER WHAT A JOB WILL COST, ALWAYS MAKE SURE THE CUSTOMER KNOWS THAT YOU ARE ABLE TO DO THE JOB

Since a customer will rarely inform you when he has decided that you are competent, it is going to be up to you to find out. The best way is to start by simply telling the customer — I CAN DO THAT JOB FOR YOU.

Generally, what the customer says next will show you whether or not the customer has confidence in you. If it is obvious that the customer agrees with you, fine. But if the customer doesn’t immediately indicate that he believes you, ask him — DO YOU HAVE ANY CONSIDERATIONS ABOUT MY DOING THIS JOB FOR YOU?

Almost always, if the customer does have a consideration about your doing the job, he will tell you, and you can work this out with him. Often, just asking him the question will impress a customer enough to improve his evaluation of you as a contractor. After all, you must feel pretty confident about yourself as a contractor to ask him this question, right? Many, many times I have turned a doubtful customer into a positive customer by asking that one question.

If the customer won’t answer this question or if you suspect that he is hiding something from you, I would advise that you get rid of him fast. After all, what is he trying to hide?

Once you have determined that a customer is satisfied that you will do a good job for him, you will be in a good position to tell the customer what the job will cost. This will be covered in the next chapter.

Before you start a job for a customer, you need to find out exactly what the customer needs and wants. It is important that you understand the difference between needing and wanting something. A customer generally has a pretty good idea of what he wants, but one of your responsibilities as a contractor is to make sure that he also gets what he needs.

Here are some examples of jobs that a customer might want:

* A painter is asked to paint a wall blue.

* A plumber is asked to fix a leak.

* An electrician is asked to repair a short circuit.

In the first example, the painter knows what the customer wants, but does he know what the customer needs?

If the painter asked the customer why he wanted to have the wall painted blue, the painter would find out that the customer wanted to cover up some graffiti sprayed on the wall. With this information, the painter could tell the customer about graffiti-resistant paint. If the customer used it, spray paint could simply be washed off the wall instead of having to continuously repaint it. The customer still gets what he wants, but he also gets what he needs. The painter is going to have a very happy customer.

In the second example, the customer with the leak knows that he wants the leak fixed. He doesn’t know that he has the option of using either plastic or metal parts, and that plastic parts will save him money. It is up to the plumbing contractor to advise the customer of this. They can decide together if the customer needs metal parts or if the less expensive plastic parts can be used. Whatever material is used, the plumber is going to have a happy customer.

In the example of the short circuit, the electrician can simply re-set the circuit breaker, see that the power is back on again, and collect his money. The customer got what he wanted because his power is now back on. But did the customer get what he needed? In this case the electrician should have told the customer that there were too many things plugged into that circuit breaker and that it could blow again. The customer needed another circuit installed. He needed to remove some of things that were on the old circuit breaker and connect them to the new circuit.

It may be that the customer chooses to not follow the electrician’s advice. If the circuit breaker does trip again, it is likely that the customer will now follow the electrician’s advice. It is also likely that he will now want that electrician to do the job. After all, he has already proven that he is a good electrician. He gave the customer good advice, didn’t he?

On the other hand, if the electrician never told the customer what was needed to really fix the problem and if the circuit breaker tripped again, the customer would think that the electrician was not good. He would be an unhappy customer. Even though the electrician had given the customer exactly what he wanted, he hadn’t given the customer what he needed.

So, it is not enough to merely give a customer what he wants; you must give him what he needs as well.

There is a simple way to figure this all out. Just ask yourself what you would do if you were the customer and you wanted a really good job. Then, just tell the customer what you think he should do. Sometimes what you advise will actually cost the customer less. Believe it or not, I have many times advised a customer not to do a job at all.

Sometimes a customer really wants my company to do work that I have advised him against doing. I will do the work for him as long as it is legal and as long as it is safe.

The important thing to remember is that after you do, or occasionally, don’t do a job, you will have made either a happy customer or an unhappy customer.

It is the accumulation of happy customers over the years that will ensure your success as a contractor. Making sure that your customers get both what they need and what they want will make them happy customers. And having happy customers will make you a very happy contractor.