To Solve Your Cash-Flow Challenges Help Your Contractor Customer Solve Theirs
By Shawn McCadden CR, CLC, CAPS
At the upcoming LBM Expo
, I have been given the opportunity to help both LBM dealers/reps and their contractor customers solve a mutual, and very common, business challenge: bad cash flow. I consider it an opportunity for two reasons. First, because our business and personal lives are so much better and less stressful when we can feel confident about meeting cash-flow requirements. The second is because, and this rarely happens, I will have both in the room at the same time. By helping both see the causes of contractor cash-flow challenges, and how those challenges mutually affect both the contractors and their vendors, my opportunity is to help you work together to find ways to solve each other’s challenges.
In addition to identifying why cash flow challenges happen, we will be exploring a variety of ways dealers and their staff can proactively help their contractor customers work on and improve cash flow. Below are just a few of the topics and concepts we will explore and expand on at the seminar scheduled for Wednesday, Feb. 14, 12-1:30 p.m. My opportunity gets bigger if you bring your customers. I hope I will see you there and that you will bring at least one contractor customer with you.
How Good Cash Flow Can Be Mutually Beneficial
When everyone has good cash flow, both customers and vendors can pay their bills on time. This alone can lower the cost of doing business for both. With good cash flow there is little need for an interest bearing line of credit. By eliminating that expense both can increase their profits, and if needed, be more competitive in the marketplace. Paying bills on time also protects and can improve both businesses’ credit score.
Being able to pay on time is great, but paying early can be mutually beneficial too. Sure the contractor can take advantage of net 10-days discounts to save money. Even though it may cost the vendor money to offer the discount, discounting should already be a planned cost of doing business. If it is, the discounts lead to improving the cash-flow of the vendor so the vendor can negotiate early payment terms with manufacturers and distributors. Plus, the longer a vendor or contractor waits to get paid, the more likely they will not get paid.
Help Them Know and Use the Right Vernacular
Helping contractors understand and use the right terms and match the right definitions to those terms is a great way to get started helping contractors improve cash flow and become business professionals. Follow me here. The vast majority of smaller-size contractors lack understanding of business financials and therefore how to properly price the work they sell. For example, they offer estimates to their customers. Well that’s not an estimate, it’s a price. The estimate is technically the contractor’s best educated guess on what the project will cost the business to produce it. The price is what the business needs to charge the customer to cover job costs—as well as overhead and profit. Without knowing or adhering to the difference, ignorant contractors will typically estimate jobs with a bogus and unmeasurable mix of estimated costs, overhead and profits sandwiched together. With this approach they will not be able to accurately job cost to know if they are estimating jobs correctly as well as covering overhead and profit adequately. Therefore these contractors may continuously underbid jobs for years, robbing the jobs they haven’t started yet to pay for the ones they are finishing.
As we will clarify in the seminar, undercharging does not lead to cash-flow problems, it leads to running out of money. I bet this happened to many of your customers when the recession hit and job deposits stopped coming in. We will also clarify that a line of credit is not meant to pay bills because you undercharged, but rather should only be used to address true cash-flow challenges, and then paid off right away when the money comes in.
Being Firm About Collecting Money Shouldn’t Make Them a Hard Ass
I hear all the time from contractors that they are afraid to be firm about collecting money because they are afraid the conversation will cause the customer to consider them to be a hard ass. And, sometimes they may be right. At the seminar we will talk about how to establish and write payment schedules that cause positive cash flow throughout the job. But, to make sure the customer will respect and adhere to the payment schedule, we will explore ways to write and then explain the payment schedule to the prospect before we let them sign and become a customer. In fact we will discuss how a strategically determined payment schedule, and making payments on time, can be mutually beneficial for the contractor, vendor, and customer. Simply put, establishing and agreeing to the rules before the game begins can attract the right customers and deter those looking to delay or avoid paying their bills.
Provide the Right Customers with Assistance and Guidance
Facts are that 70% of our population are considered traditionalist: They keep doing what they have always done and aren’t about to change anytime soon. On the other hand, 30% of the population is looking for a better way to do things; they just want and need to be confident before they make a switch. Consider this and reserve the investments of help you are willing to offer for those contractors who show a desire to change and improve. If you are trying to figure out who is who, just ask your contractor clients to share what they have done to improve the business side of their business over the last year. Contractors are known for having the gift of gab. Trust me, if they have been working on things they will be proud and ready to tell you all about them. Many of the 70% will just look at you like a deer in the headlights or tell you they are just too busy working on jobs to work on their businesses.
Money may not always make us happy, but not having enough money can definitely make us sad. I hope you will attend, and I hope I can help make you and your contractor customers happy. As you decide which of your customers you will bring with you I suggest you seek the 30% I mentioned above. Another thing about that 30% is that once they find a reliable and trusted source of information, they become faithful and seek more info. Will you be ready?
About Shawn McCadden
Shawn McCadden is one of the most prominent figures in the remodeling industry. He obtained his builder’s license by age 18; founded, operated, and sold a successful employee-managed design/build firm; co-founded the Residential Design/Build Institute; and went on to become director of education for a major national bath and kitchen remodeling franchise company. Today he speaks frequently at industry conferences and trade events, consults with remodeling companies, blogs, and writes an award-winning monthly column for Remodeling magazine. Shawn also consults with construction-related product manufacturers and suppliers, helping them understand, find, educate, and better serve remodelers in mutually beneficial ways.