Succeeding in Your Business: Cheat me once, shame on you; cheat me twice ...

By Cliff Ennico 

Spring has sprung, and with the arrival of flowers, bunny rabbits and taxes come a trove of emails from building contractors proving beyond a doubt that “April is the cruelest month” for many small-business owners.

“I recently had an addition put on my house and I became very friendly with our contractor and his son. While our contractor was great at doing his job, by his own admission he wasn’t very good at running his business. We had to wait forever to get an invoice out of him, and at the end he confided that he had lost money on our project. I’m thinking of suggesting that I join them as a partner. I would be their ‘business manager’ doing all the estimates, budgeting and billing. We would take on projects by a ‘team decision,’ and the contractor and his son would do the actual work on each project. Do you think that’s a good idea?”

I think just about anyone who’s ever had work done on their house fantasizes at some point about getting into the construction business. Those of us who work with our brains often envy those of us who work with our bodies, and vice versa, as “the other person’s grass is always greener.”

But you should be careful lest your emotions get in the way of common sense. Your contractor may admit now that he’s not great at business, but how will he feel when:

— He really wants to take on a particular job, but you don’t think it’s a good idea from a profit point of view?

— You feel he should use fiberboard instead of knotty pine on a particular job to keep the costs down, and he disagrees?

— The father is heading toward retirement and his son wants to play a bigger role in making the business decisions than his father did?

Just about every one of my contractor clients who’s hired “business managers” has ended up firing them because “they started telling me how I should do my job.” If you do go forward with this, make sure that the three of you form a limited liability company with an airtight operating agreement (similar to a partnership agreement) giving you the final say on all business decisions and that you specifically include a clause permitting the father and son to buy you out for fair value in the event the three of you don’t see eye-to-eye on a regular basis.

“Well, it’s happened again. Another self-centered, manipulative, narcissistic general contractor has decided to delay his payments to myself and seven other hardworking subcontractors by an unknown quantity of time. The reason? He just doesn’t want to pay us until he has some more sales. This from his front office man, who is quitting tomorrow as he is tired of having no control over paying honest, hardworking people.”

First, let me say that I feel this guy’s pain: It really hurts when you knock yourself out on a construction job and the general contractor starts playing games after you’ve finished your piece of it. But I’m not 100 percent sympathetic with his plight. In my experience, when a homeowner or GC starts delaying payments and otherwise playing games with you, you are almost always partly to blame for not being on top of things. As the delay in payment is “happening again,” this isn’t the first time this guy has had trouble with GCs (or this particular GC). As we used to say on Wall Street, “cheat me once, shame on you; cheat me twice, shame on me.”

In this case, either there was no written contract with the GC specifying when payment is due, or the GC’s contract said that payment is due “upon completion of construction” without specifying exactly when the construction was “completed.” It should have been made clear that payment in full is due “upon completion of construction but in no event later than 30 days after the issuance of a Certificate of Occupancy” for the home in question. That way the GC has no wiggle room to play around with.

The subcontractor should send the GC a letter by certified mail stating: 1. that no further work will be performed until all past due payments have been made, 2. that all payments must be made within 10 days to avoid legal action, and 3. that if payment is not received within the 10-day period, a “mechanic’s lien” will be placed on each home the subcontractor has worked on. Placing a mechanic’s lien on a new construction project will prevent the homeowner or developer from ever selling the house, and the GC won’t get paid until the lien is lifted, so the threat is certain to get his attention.

Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series “Money Hunt.”

COPYRIGHT 2021 CLIFFORD R. ENNICO.
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