Tuesday, June 24, 2008

7 Habits of Contractors Who Lose Money…and How to Break Them

Avoid these costly mistakes and increase your profits and peace of mind

The “Gentlemen’s Agreement” – A Handshake and Your Word

Your word may be your honor, but a written agreement is the only way to be sure all parties share a mutual understanding regarding their payment and performance obligations. Additionally, if you are contracting directly with a consumer for a residential project, California law requires that the contract be in writing and meet specific statutory requirements. Bottom line – get it in writing!

Using Contracts that Fall Short of the Legal Requirements

If the work you are performing falls under the requirements for California Home Improvement or Service & Repair Contracts, the document you use must conform to the letter of the law. The CSLB has issued citations to contractors who fail to meet the requirements, and many contractors have found themselves on the losing end of a CSLB arbitration as a result of their deficient documentation.

Not Getting Every Change Order in Writing

As with the original contract, each and every Change Order should be in writing. A handshake, pinky promise, or blood brother pledge is not sufficient to protect your ability to collect the money you have worked so hard to earn.

Failing to Invoice Immediately

The passage of time creates a certain “amnesia” – both for you and for your customer. If you fail to invoice immediately, you risk forgetting exactly what work was completed or materials used; or worse – you forget to bill the job entirely. And if two months have passed since you wowed your customers with that remodel project, how do you think they will feel when they get a hefty bill in the mail? If possible, collect payment on-the-spot. Otherwise, be sure to invoice for progress payments as they become due, and send out a final invoice by the next business day after the project is completed.

Failing to Serve a Preliminary 20-Day Notice

If you are a subcontractor on the job and do not serve a Preliminary Notice within 20 days of when you start on the project, you risk losing your right to certain remedies, including the Mechanic’s Lien. And if you’re concerned that it may upset the property owner or make the prime contractor “look bad,” just remember that California law actually requires subcontractors to serve a Preliminary Notice on every job that exceeds $400.

Don’t Worry – They Will “Take Care of You” on the Next Job

How many times have you heard that one? “My bookkeeper is cutting you a check. You should have it next week. Just finish up this project real fast. We have a [you choose – any tantalizing project here] we want you to bid, and we promise we’ll use you on that job.” If they aren’t paying you for the current job, do you really want to chase them for payment on multiple jobs?

It Isn’t Good “Customer Service” to Record a Mechanic’s Lien

Your work is done. You’ve paid your employees and covered the supply house bill. You have, at most, 90 days (sometimes as short as 30 days) to record a Mechanic’s Lien. If you miss the deadline, you lose your lien rights. While taking care of your customers is an admirable trait, taking care of your own business is an essential trait. The mere recording of a Mechanic’s Lien often helps to “persuade” payment from a foot-dragging homeowner. You simply release the Mechanic’s Lien after payment is received. (If payment is not received, be sure to file your lawsuit to foreclose the Mechanic’s Lien within 90 days of the date it was recorded.)

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