This is not a pleasant article to write, because it has to do with failure. But don’t equate failure with being a loser. Thomas Edison failed with thousands of different filaments before finding one able to sustain the light of an incandescent bulb, and he most certainly wasn’t a loser. If there is a positive spin to all I have to say here, it’s that in tough times like these, going out of business may be the best thing that can happen to many contractors. They would be doing a favor for themselves as well as competitors.
Many contractors who have gone into business for themselves never should have done it in the first place. Sometimes the desire to be one’s own boss trumps the stark fact that many contractors don’t have a clue about how to run a business and neither the time nor energy to learn. Many got started when there was more work in a particular market than contractors available to handle it. You don’t need a lot of business savvy to make a go of it during boom times, you just need to be around and work will find you. That’s the way it was in many places around the country until the last couple of years.
Now that work has dried up in those places, only the strong survive, and even some of them are struggling. That’s because weak competitors tend to weaken an entire market. More contractors bid for fewer jobs, which drags pricing down to a level where it’s impossible to turn a profit.
Cash Flow Junkies
Pretty soon they face a vicious cycle in which cash flow supersedes not only common sense but also simple arithmetic. No matter how they crunch the numbers, they can’t find a way to make a profit on a given job by submitting a bid you know will be insufficient to meet all their costs. Never mind that the job in question will simply add to expense obligations in the coming months. They’ll worry about that down the road. Right now they have creditors breathing down their neck and next week’s payroll to meet, so like a junkie needing a fix, they’ll do anything for a short-term cash infusion.
This is how a lot of failing contractors think, which has a lot to do with why they’re going under. Even worse are those who don’t think it through this much. They don’t even bother to crunch the numbers. They’ll just do whatever it takes to land any job around without a clue whether it makes economic sense. Work is work. I’ll leave it to my spouse to figure out the bookkeeping!
Clueless contractors tend to hang around longer than they should, and along the way they make things miserable for competitors, suppliers and hapless employees. They make themselves miserable, too, along with their families. It’s hard to enjoy your work when you see many more dollar signs on the expense side of the ledger than on the income side; when liens and lawsuits occupy more of your time than estimating and supervising jobs; when you’re deferring your own paycheck in a struggle to keep those of key employees from bouncing.
And, it’s hard to enjoy your life when you don’t enjoy your work. Problems at the shop have a way of triggering arguments with the spouse. Deep down you may still love your kids, but when you come home stressed out, children acting like children can get on the nerves. You probably don’t sleep well and you’re too busy putting out fires all day long to eat anything except junk food on the run, all of which can cascade into health problems.
Closing up shop is never a simple decision. Carrots keep dangling in front of you. If only a couple of customers pay up what they owe … one plum job is all it would take to back on your feet. Besides, you’re pretty tight with the manager of a supply house who’s willing to carry you for a long time. (What choice does he have, since you’re into them for so much already and they risk losing it all if you go under!) You still do good work and have many years of trade experience, goes the thinking. If you can just hang on a while longer till things turn around … .
Plus, before shutting down you first want to try to sell the company. This can drag on for many months or even years before the message burns in that you don’t have a marketable business. You can recapture a few bucks liquidating tools, equipment, inventory and vehicles, but contractors always are stunned to find out that nobody is willing to pay much for a business entity whose main asset is the owner’s know-how.
Now for the Good News
Here’s the good news - they are willing to pay for that know-how. It’s ironic that failed contractors, the same people who make life miserable for them as competitors, offer one of the best solutions to the most pressing problem facing the better contracting firms. They are desperate for skilled mechanics, estimators and project managers, and most contractors who have owned a business, even a failed one, have mastered those aspects of the trade. Odds are good there are jobs waiting for you out there offering better pay and benefits, and with far fewer working hours and aggravations, than you had working for yourself.
There may even be a way to profit from your current business. Most contractors don’t have many assets outside of their know-how, but if they have a solid customer base, that’s worth something, although it’s hard to put a value on it. If it’s just a list of customers who’ve done business with you in the past, that’s not worth much more than one of the lists you can buy from marketing brokers for a few hundred bucks. But if you’ve developed solid business relationships with people you can persuade to do business with the company that hires you, you should be able to negotiate some kind of sales commission or finder’s fee arrangement.
The deal would go something like this: You have a list of customers that did business with you in the past, and your new employer has a customer list as well. Compare lists and scratch off those you have in common. Then negotiate with your new employer a payment for jobs landed through your intervention with people on your old customer list who do not appear on your present employer’s customer list.
It’s called incremental business development, and if you have decent powers of persuasion you can carve out a niche for yourself as a super-sales rep for your new employer - with handsome supplemental earnings along the way.
Even if this scenario doesn’t pan out, you still need a regular paycheck, and you still have marketable skills. So, if your business is not going the way you hoped it would, isn’t it time to ask yourself, is it time to close up shop?