Struggling Sub-Contractor

A good friend of mine, let's call him Jerry the plumber, has been struggling to be profitable. Jerry is a great plumber and has a pretty good crew who he tries to keep working so he does not loose them. He always has steady work and is always busy except that he spends a lot of time working next to his crew and very little time managing the business. This as you can imagine has caused a very big problem as he seems to only work for one client. Lets call this client Mr. GC. Now Jerry and Mr. GC have a pretty good relationship and work well together but Mr. GC's business is all about profit and sometimes at the expense of his subs. Mr. GC is not a bad GC quiet the contrary he is well respected and well liked by his clients and his sub-contractors. Jerry the plumbers issue is that the monthly payments usually take longer than 30 days to materialize, leaving jerry boot strapped to make ends meet. So what is Jerry the plumber to do?

Here are a few suggestions that could help Jerry get his business on a more sustainable path:

1. Re-evaluate the Client Relationship

While Jerry’s relationship with Mr. GC is good, it might be beneficial to address the issue of payment terms directly. Jerry could:

• Negotiate Better Payment Terms: Jerry could try to arrange shorter payment cycles or ask for partial payments upfront, especially if work is large or ongoing. This will help with cash flow.

• Formalize Payment Agreements: If not already done, Jerry could set up formal contracts with clear terms on payment schedules. This ensures that expectations are set in advance and can be enforced more easily.

• Consider Late Payment Penalties: To avoid getting stuck in a long payment cycle, Jerry could introduce clauses that charge interest on late payments. This gives clients an incentive to pay on time.

2. Delegate More Management Responsibilities

Jerry seems to be too involved in the day-to-day work with his crew, which leaves him with little time to manage the business side. It may be time to consider delegating some responsibilities:

• Hire or Promote a Manager: If the crew is big enough, it might be worth hiring or promoting someone within the crew to oversee the daily operations. This would free up Jerry to focus on managing the business side (such as finances, sales, and client relations).

• Use Technology to Streamline Operations: Implementing software for invoicing, scheduling, and tracking payments can reduce the time spent on administrative tasks and allow Jerry to focus on growing the business.

3. Expand Client Base

While Jerry may have a great relationship with Mr. GC, relying too heavily on one client is risky. If Jerry’s business continues to be reliant on just one customer, it can lead to cash flow problems and the inability to weather business slowdowns or disputes. Jerry could:

• Seek Out Additional Clients: Building a more diverse client base will spread the financial risk and help keep the business healthy. Jerry might consider marketing, word-of-mouth referrals, or leveraging past work to gain new clients.

• Create Service Packages: Offering service packages or maintenance agreements could help generate a more steady stream of income, especially for smaller, ongoing jobs.

4. Consider Financing Options

Given that Jerry is bootstrapped and struggling with cash flow, he could explore financing options that provide short-term relief:

• Invoice Factoring: If the issue is waiting on payments, Jerry could consider invoice factoring. This involves selling unpaid invoices to a factoring company at a discount in exchange for immediate cash flow.

• Short-Term Business Loans or Lines of Credit: If Jerry’s business is viable, he may be able to obtain a short-term loan or a line of credit from a bank or financial institution. This could help with working capital to keep things moving while awaiting payments.

5. Financial Planning and Cost Management

Jerry might need to sharpen his financial management skills to stay profitable:

• Review Expenses: Jerry should take a hard look at his business’s expenses and see if there are areas to cut costs. Could the team be more efficient? Are there any tools or supplies he’s over-purchasing?

• Profit Margins: Jerry could also work with a financial consultant or mentor to assess his pricing strategy and ensure that he’s charging enough to cover his costs and make a reasonable profit.

• Create a Cash Flow Forecast: Jerry should keep track of cash flow, not just income, but when expenses come due and how long it typically takes for payments to come in from Mr. GC. This can help him better manage when and where to allocate resources.

6. Build a Buffer for Emergencies

Another important thing Jerry could do, once his finances stabilize, is build a cash reserve or buffer for months when business is slower, or when payments are delayed. This would give him a cushion to absorb the pressure during slow periods.

7. Seek Advice from Other Contractors

Jerry could benefit from networking with other contractors, especially those who have dealt with similar payment delays. Others may have insights or strategies on how to improve cash flow, get clients to pay more promptly, or even how to set up more predictable payment systems.

By addressing the payment issues, streamlining operations, and diversifying his client base, Jerry could put his plumbing business on a stronger, more sustainable path. While working hard alongside his crew is admirable, balancing that with strategic management and business practices is key to profitability in the long run.