How To Get Started Right – TIPS
I = Income
We are not in business without Customers. Our New Customers become Existing Customers. Once the job is completed (last month / last year) they become our Previous Customers.
You may have started out being a “Hobby” – Something you liked to do that created a little spending money for the Little Extras / Vacation Fund / Christmas Fund / Special Purchases (TV / Boat / Car)
Reasons To Make A Change and Get More Serious About Your Business: It starts making a little More Income / The Reduction in hours or loss of a job may move the activities from the “Hobby” to “Business Stage” Gross Income (Sales Price) is the price set between Buyer / Seller as value of services performed. Net Income is the amount leftover after all the direct / indirect expenses are paid. Net Loss is what is on paper and in the checkbook after a job has costs above and beyond income.
From the Contractor’s View
- Who Am I?
Builder / General Contractor / Specialty Contractor / Service & Repair
- What Type Of Work Am I Doing?
New Construction / Commercial / Residential / Service & Repair
- Who Is My Customer?
What Now! I just want to go to work! Answer Is Yes
– Before You Get Started Let’s Answer Just A Couple Of Quick Questions
- Who Called and What Did You Tell Them?
This adventure has moved from a “Hobby” to a “Business” Did you start a folder for all those forms that are starting to come in the mail… One of them is from the Washington State Department of Revenue (TAXES)
As part of the Bidding / Estimating / Scheduling / Doing The Work / Collecting The Money you need to understand a few of the basic rules.
New Construction – Depending On The Type of New Construction the following may apply.
- Builder / General Contractor may issue a resale certificate
- Builder / General Contractor may be required to pay sales tax on each invoice
- Builder / General Contractor may hold retainage
- Builder / General Contractor may require complex pay application before paying
- Builder / General Contractor may require bill on 25th promise payment following 10th
- Builder / General Contractor may require conditional / unconditional lien release
- Builder / General Contractor may stay on schedule for the entire project
Commercial – Depending on the type of commercial, your individual trade and location
- City / County almost always will require additional review before issuing a permit
- City / County almost always will require the project be permitted by each trade
- City / County almost always will require mechanical trades to have higher certifications
- City / County almost always will require “something extra” to be done
- Owner / Property Manager will almost always require complex pay application
- Owner / Property Manager will almost always take their time about paying
- Owner / Property Manage may require retainage
Residential – Depending on the size of the project owner maybe actively involved
- Depending on the size / scope the number of permits that maybe required
- Depending on the size / scope on how the invoice and payments are structured
- Depending on the size / scope of project – When Do You Ask For A Customer Deposit?
- Depending on the size / scope of project – When Do You Ask For A Customer Draw?
- Depending on the size / scope of project – Do You Present a Formal Progress Billing?
- Depending on the size / scope of project – Do You Hire Specialty Contractor?
- Depending on the size / scope of project – When Do You Issue Lien Release?
Service & Repair – Usually emergency driven and price shopped “After The Work’s Done”
- Depending on the type of service city / county may require additional certifications
- Depending on the type of service it may lead to a larger remodel / repair project
- Depending on the type of services work is usually paid in full at the completion of the work
- Depending on the type of service it may lead to a reoccurring activity (maintenance)
- Depending on the person who shows up it may lead to additional new work to be done
- Depending on the skill level / efficiency / quality may limit warranty / call backs for “Fixes”
- Depending on the type of service provided / location on the property if it has sales tax.
Invoicing is all about presenting the agreed upon price in a format that the customer is able to easily understand and be willing to paid promptly. It’s all about getting a fair price for the work performed and payment in a timely fashion. The type of invoice presented varies from size of Job and Job Type.
In New Construction and Commercial the closer to the Owner / Property Manager / Direct Pays From The Bank the more detailed the invoicing requirement. Big Dollar Amount On Invoice = More Details
Large residential remodels owner / professional project managers acting on behalf of the owners
May nick / pick and ask for copies of all bills before authorizing payments on invoices presented.
- Residential Large Remodels – Formal Pay Application is preferred
- Residential Small / Mid-Sized Remodels – QuickBooks Invoice accepted
- Service and Repair – Carbonless Invoice presented for payment at time of service
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About The Author:
Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. http://www.fasteasyaccounting.com/sharie-dehart/