Trying to be a great leader can be like trying to catch lightning in a bottle. You can’t force it to happen. For many people, the mere act of trying to be a great leader — whether among your family, friends, employees, or colleagues — results in exactly the opposite. Leading is done through your actions and being who you say you are!

It seems counterintuitive, especially in a stereotypically alpha industry like construction, but one key quality of being a leader is your ability to be vulnerable.

Benefits of Being Vulnerable

Why should you embrace vulnerability?

Being vulnerable signals to others you value their trust and feedback. Trying to always appear as the dominant person in the room doesn’t always get results. In short, being vulnerable means understanding the other person’s point of view before being understood. Taking the time to listen — really listen — to the other person before responding with your own thoughts, opinions or agenda is a great way to start introducing vulnerability in your leadership style. When a strong leader embraces vulnerability in their approach they focus on solving problems and helping others achieve shared goals.

Here’s how showing vulnerability often plays out:

Employees feel more comfortable bringing you questions, which means they can learn faster and minimize mistakes.

Employees, contractors, clients, and others feel safe and valued, which increases loyalty and trust.
Other people will begin opening up to you, which allows you an opportunity to better understand and help them in ways you wouldn’t have known about before.

This approach may be a bit different at first, but over time, you’ll find that it takes less energy to listen and you’ll get better results than a defensive approach. And the result of showing vulnerability consistently actually leads to greater confidence for you as the leader in the long run!

Vulnerability is the Key Ingredient for Confidence

Have you heard of a B.S. detector? Just about everyone has one. It goes off when things are too good to be true.

Someone who claims to be able to do anything and everything, who always agrees with you, and who always has the answers to everything is not vulnerable. They’re full of it. You KNOW just by the way they talk and carry themselves that there’s something they’re not telling you, or that they’re missing something important because they’re trying so hard to impress you. No one has all the answers, and at some point, you can bet that those falsehoods will come through.

When you’re being straightforward about your vulnerabilities you actually show more confidence, not less. You stop worrying about hiding what you don’t know and focus on highlighting what you do.

True Confidence Drives Sales

Consider this instance: You’re the owner of a construction company that is typically a 1st tier subcontractor to a General Contractor. It is your goal to attract and retain successful General Contractors that you want to work with. Here are two approaches during a meeting with one of these potential GCs. Which one might improve your reputation and lead to long-term success for the company?

Your primary focus is on the overall price and you say, “I’ll get the job done in half the time for way less money than those other guys!”

“Yes, our bid may be higher than our competitors, but I’ve taken into account X, Y and Z factors that others probably haven’t already accounted for, and this will ensure we stay on schedule and everything gets done right. How do I know? Because I’ve made those mistakes before and I’ve learned from them.”

The first approach is cocky and filled with empty promises. Even if awarded the job, the general contractor may approach each billing with a particularly critical eye — encouraging the project manager and billing department to be extra cautious before approving payments or accepting proposed change orders. In the long term, this approach is destined for failure, conflict, and no repeat business opportunities.

The second option is humble, vulnerable, and confident — all at the same time. Having a hard conversation that your competitors are too scared to have can show value to the General Contractor. It sends a clear message: This person is experienced and is going to tell the truth even if it means losing the bid.

The thing is, the most confident people are willing to talk about their mistakes. Because they’re not LIVING in them. They’ve learned from them, and they’re not afraid to talk about it. They’ve learned by being vulnerable.

In a sales scenario, those who display confidence and empathize with the customer normally close the deal. The salesperson listens carefully to what the customer wants or needs and then coaches and guides the potential client to an outcome that they can be happy with and the salesperson can deliver on.

A good rule of thumb: A customer doesn’t have to know everything about what the salesperson is talking about, they simply need to know that the SALESPERSON knows what they’re talking about. (Again, the key is honesty and trust.)

You don’t know everything about your industry, your customers, or your employees. Being straightforward about your experiences, struggles and accomplishments — and open to hearing about theirs — gives you a chance to provide them with true value, or adjust your product to better meet their needs.

Rarely will someone open up to you or fully trust you if you don’t first practice vulnerability.

Leadership and Vulnerability

Vulnerability and all the qualities that go along with it can make a huge difference for your life, both personally and professionally. Exhibiting vulnerability through honesty, active listening, and transparent communication makes you a better boss and leader. It fosters respect and loyalty. It builds trust and strong relationships with clients, vendors and other external partners you come into contact with.

And when something does go wrong and you own up to the problem, you’ll find that people believe you when you say you’re going to make it right.

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If you build your website to drive business, it can. You may be thinking, “I construct buildings, not websites,” but getting this essential business asset up-and-running isn’t as difficult as you may think. If you don’t have one, or yours hasn’t been updated in years, we’ve compiled a guide of tools and resources to get your company’s online storefront current.

Content Is King

From search engine optimization (SEO) to driving calls to action, your website is only as good as the information you give your clients. There are necessities, and there are some things that can only elevate your online presence. Make your content––in this order––easy to understand, informative, and engaging. 

Pages You Have to Have

Homepage: Your homepage is like the cover of your construction autobiography. This is a chance for you to give an overview of your brand, your mission, and why folks should work with you instead of your competition.

Contact: This one is pretty self-explanatory. Don’t make your customers hunt and peck to reach you. Make sure your phone number, contact forms, and emails are easily accessible throughout your site.

Services: Expand on your specialties and what you can offer for each project. Use synonyms and alternative keywords for your business’s services so your site will populate on search engines.

Work/Portfolio: The proof is in the pudding. Your clients want to work with professionals who have a history of a job well-done. This is your chance to show beautiful photos of completed work with descriptions on the scope of each project.

About Us: What makes your company special? How long have you been in business? Why should someone trust you with their budget? This is a great place to expand on your company’s history, accomplishments, and experience. 

Nice to Haves

Video: Consider a video message to a future general contractor on your home page. This is your chance to introduce your business and separate yourself from the competition. Keep the video under two minutes and speak to your audience as you would during a pitch. List why your organization is the right fit, what clients can expect from your business and your employees, and expand on the quality of work and innovation you will deliver.

Blog: This is a great space to share tips and tricks for your customers and trending news on your industry. Write press-release style articles on your latest projects, introduce new team members, or announce groundbreakings. Blogs all contribute to the SEO content of your website and help more searches lead to your site.

Careers: If you are constantly hiring subcontractors or project managers, this is a great page to direct those looking to apply for work, collect applications, and expand on your company culture.

Safety/Standard Operating Procedures/Core Values: As a commercial construction business, it’s important to explain why your organization excels at not only quality work, but the safety and treatment of employees. Allow your clients to see the professional level of labor and care that your business would apply to any project.

Client Testimonials: No one can brag on your business quite like a happy customer. These can be tucked into different pages of your site, displayed on your footer or homepage. Get as many client reviews as possible and utilize these within your future blogs and social posts as well. Here are some great examples of what makes an effective testimonial.

Creating Your Website

There are a ton of all-in-one solutions for domain purchasing, website design, and website hosting. Many of these offer free trials so that you can drag-and-drop your logo, pictures, headlines and paragraphs where you want them, with on-demand customer support ready to help when you need it. Some of the most widely used web design platforms include Squarespace, Weebly, Wix, WordPress or Google Sites. Pricing can vary from low one-time fees to monthly subscriptions.

Selecting a Domain

Your domain is your url––your address––to your website. The “your business” in www.yourbusiness.com. Make sure yours is unique to your business and is easy for your customers to type and remember. Consider how it will display on your print materials and advertisements.

Using Templates

The layouts provided with the out-of-the-box website solutions make piecing together your website information super-easy. Pre-designed sections allow you to effortlessly edit and upload your content without knowing any programming languages or coding. Most templates are mobile-friendly and adjust to small screens without any extra steps from you.

Working with an Agency

Websites are like cars. The standard package is fine for most businesses. The all-in-one website solutions can give you a crisp, clean website, but if you’re looking for customization and something to make you stand out from your competition, an agency may be the way to go. Web designers and developers know the best practices and standards to ensure your site is accessible to all of your customers. Copywriters can ensure your information is engaging and SEO-friendly.

If you’ve enjoyed this content on growing your construction business, you’ll love our newsletter: Built for Growth. You can subscribe with just your email. Click here to subscribe! 

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Construction Management Apps That…

What should you do when a General Contractor refuses to pay? This is an all too frequent situation we hear about from our subcontracting clients. The consensus is clear: Everything would be a whole lot easier if the general contractor would just pay on time. Does it ever feel like they’re almost trying to make your job even harder than it is?

Remember, You’re On the Same Side.

I’m going to level with you. Most subcontractors with this mindset are leaving out an essential fact: The general contractor was hired to get the job done, and they hired you to perform work needed to get that job done. Remember, the Owners must make payment to the GC’s before they can pay you! Rarely are they sitting on your money and just choosing not to pay you.

In short: You’re in it together.

Think about that. The work gets done right, and you both get paid. The General Contractors don’t want to stand in your way, because that wouldn’t do either side any good. The GC wants to pay you the money for your work, even though it might not feel that way.

Are there bad GCs out there? Yes, but they are very, very rare. It’s unlikely a General Contractor refuses to pay you out of sheer spite. For the most part, the General Contractor wants you to perform the work, complete the project, and be ready for the next one. Your performance is the GCs #1 concern.

The General Contractor wants to invoice the project; you want to invoice the project. The GC believes in your ability to do the work — that’s why they awarded you the job. Everybody wants this project to be successful. You share a goal. 

So, rather than complaining about it, wishing this wasn’t the case, or fighting with a GC, face the problem head-on.

Solve the Business Problem.

So let’s take a step back. You’re still in a situation where you are owed money that you need.

You’re in the middle of a dispute, a change order, or a similar issue, and the general contractor is holding your payment back. Think about it from their perspective in order to find a solution.

If you remove the anger and financial fear from the situation, you will find a cleaner route to solving this problem. Remember that no matter the solution, you’ll need to follow through on your end of the deal, staying focused on the details and deadlines that you and the general contractor agreed upon in your schedule of values and contract.

Be clear, be honest, and focus on the solution, rather than trying to place blame. This isn’t a matter of Good vs Evil, or Right vs Wrong. The vast majority of general contractors aren’t going to just refuse to pay their subcontractors.

Going forward, are you creating this stress for yourself? Is there a better way? Yes, there is.

Solve for the Future by Planning Ahead.

Subcontractor disputes with general contractors often arise as a result of a misunderstanding or misalignment between two things: Change Orders and / or the Schedule of Values.

Change Orders

Did you do a bunch of work on a change order? Change orders get paid when they’re documented, signed by both parties and approved by the owner. You must understand when you do any work outside of your scope without a signed change order, you are at risk. That’s okay if you’re trying to build a relationship and show value. But do your due diligence. At a minimum, put it in an email to the following effect: “I was asked to perform X, which is outside of the current scope. If you agree, I’ll send a change order and get started right away.”

If they ask you to do work and there is a disagreement as to whether it’s in the current Schedule of Values, then you need to get a change order immediately or come to an agreement with the GC before you start the work or realize you are at risk of not being paid for it. It may be an uncomfortable conversation, where you feel like you’re pushing back on a project manager that you want a good relationship with. But it doesn’t need to be that way. Approach your general contractor or project manager with the mindset that you’re in it together. You both want to be paid, and you need the proper paperwork documentation in place just like they do, in order to avoid issues down the road. After all, disagreements, later on, won’t do either of you any good.

Schedule of Values

Your Schedule of Values needs to align with your job costs. You need to be able to invoice at least as much as your costs are every month. For example, if you have $100,000 in job costs in the first month, you need to know if you are going to complete and bill $100,000 worth of work? If you don’t account for these details and have the ability to stick to your Schedule of Values, you will likely find yourself coming up short.

Unfortunately 99% of the time, subcontractors find their relationship with their general contractor turns sour due to financial strain and stress. Proper planning, communication and having the right resources will be your safety valve in those situations. Completing a Project Cash Flow projection for each job during the bidding process can help you to stick with your Schedule of Values and foster a positive relationship with the general contractor.

Click here to download a free project cash flow sheet

Click here for the Cash Flow instructions

When a Contractor Refuses to Pay, Remember Your Shared Goal.

So, what happens when the general contractor refuses to pay? Breathe. Just because you have accrued costs, doesn’t mean you’re entitled to your first payment yet. You know the General Contractor needs time to complete their pay application process before the owner issues payment to them and they can issue your payment. Making sure your invoices and paperwork are done properly and on time will help, and responding quickly to any questions from the general contractor will help to secure faster payment.

But in the meantime, do you have other jobs that will cover your immediate expenses? Can you negotiate with a vendor to secure better payment terms? Do you need a line of credit or other capital to make sure you have the financial cushion you need to complete this project without fighting the GC? Having access to the cash you need through a line of credit or other appropriate funding solution can allow you, the subcontractor, to focus on doing great work, building great relationships and having less stress overall.

Click here to learn more about project or contract financing for subcontractors.

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When is it Time to Get Funding for Your Construction Project?

 

Merchant Cash Advances, or MCAs, are a funding option for all types of businesses who need quick cash. But as a “quick fix” solution, it can come with a host of challenges that may lead to huge problems for small businesses, especially for those in the commercial construction industry.

That’s right. MCAs are bad for construction businesses. That includes YOU, general contractors and subcontractors reading this right now. 

And hey — MCA lenders and brokers, this is a good read for you, too. 

Let’s break down what Merchant Cash Advances are, how they work, and how they can create a vicious cycle of debt for construction businesses.

What is an MCA and how does one work?

Merchant Cash Advances, also called an MCA or Daily Debit Loans, are a type of funding that is based on the average amount of cash flowing through a business’ bank account on a monthly basis.

An MCA is actually not a loan, it is an advance on “future receivables” or future sales of the company. Therefore, the amount of the advance and the cost of that advance is based on the following information:

The business owner’s personal credit score. This is important to the lender because they use this to judge the character of the person and their likely desire to make sure the MCA is paid back. 

Did you know that just applying for an MCA can negatively impact your credit? Here’s why. Most MCAs are sourced through a broker and rarely does the business owner ever get to work directly with the actual lender. The broker gets an application signed and then sends it to multiple lenders who all pull the business owners credit score. 

Those multiple inquiries in a period of just days really hurt the business owners credit score. 

Bank account information. The lender will look at the number of deposits made into the account on a monthly basis to determine how frequent new money is coming into the account. They’ll also look at the total amount deposited into the bank account. This determines the likely revenue of the business. Finally, they’ll check the average daily balance in the bank account. This is used to determine how much can reasonably be auto-debited from the account every day without risk of a payment being bounced. 

Using this information, the MCA lender then decides how much the business is qualified to receive for an advance, the cost to be applied to the advance amount (this is the cost of the money to the business owner), and how many business days it will take for the advance to be repaid, (typically 6-12 months).

The cost of the advance is determined using a factor rate, which is a percentage of the lump sum for which the client is approved. Factor rates can vary from high single digits to as much as 50% or more. If a client is approved for a $100,000 advance with a factor rate of 30% then the cost of the loan is $30,000. 

The total repayment of the MCA is the lump sum of money plus the cost of the factor rate percentage. In the example above the total repayment amount would be $130,000.

The next important detail is the time frame to be paid back – typically 6-12 months. It’s critical in determining the actual repayment of the MCA and what the impact will be to daily or weekly cash flow. 

The real cost of a Merchant Cash Advance. 

As a general contractor or subcontractor business owner, you need to know what you are signing and what the real cost of that funding is to your business. If the factor rate is 30% and you can pay it back over 12 months that is very different than 6 months. At 12 months you are actually repaying the loan at an annual rate of 60% interest. 

Does that surprise you? If it does then we’re glad you’re reading this.

It is critically important for the client to know what the repayment structure is and how it will impact their business over the life of the repayment period. For example, if you only will be on a project for another three months and you have a six-month payback period then you need to know you have more work starting quickly and enough work to be able to actually afford the same daily payment in months four through six of the repayment period. If you do have the work, but you need your cash to get mobilized, then you will likely experience an even bigger problem due to the daily payments.

And this is where MCAs become an inescapable trap. If the borrower is struggling to make the payments, most brokers will try to set them up with another MCA. A second MCA is about half of the amount advanced originally and can be offered by the current lender or through another company. In the MCA world, this is referred to as “stacking” and can bring a situation from bad to worse.

If even a single payment is missed (most often, because the account was overdrawn) the borrower can be considered in default and be charged additional fees or other penalties. Further, each MCA  can (and will) place a UCC lien on the business. As long as those are in place, other lenders such as banks or factoring companies will not provide funding that could pay off the bad debt and get the business back on track. Instead, the business owner (who is already dealing with a huge drop in personal credit score) is told that the only option they have is to take out another MCA. 

It’s like trying to put out a fire by pouring gasoline on the flames.

Finally, many MCA companies will include a Confession of Judgement in their agreements, meaning that as soon as the borrower defaults, the company can file the confession in court. Within a matter of hours, the borrower can find its bank accounts frozen. Some MCAs will even start calling around to the general contractor requiring immediate payment of the advance.

Interested in learning more about Merchant Cash Advances and why they just don’t work for construction businesses?
Download our guide, “The Real Cost of a Merchant Cash Advance” with just one click!

The hard truth: Why MCAs are bad for construction businesses.

The nature of the construction business in terms of payments and finances make Merchant Cash Advances particularly risky. Let’s talk about the reality of how subcontractors get paid on commercial construction projects: 

A contractor’s costs are often more than they are able to collect from their invoice to a GC or owner, especially in the first one to three months on a job. Invoices are only sent once per month, and after the invoice is approved, the contractor has to wait 30-45 days to be paid. 

When the invoice is paid retainage is held back by the owner of the project – typically 10% of the total invoice. Retainage is held until the whole project is finished. So, the contractor only gets 90% of what they invoiced for the month. In some instances, a GC may not release payment to the subcontractor until they know all of the sub’s suppliers and vendors have been paid in full. This puts an even bigger squeeze for cash on the subcontractor. 

Despite these facts, the contractor has to pay their own employees every week, their suppliers when they pick up the materials, or if they have terms with the supplier then perhaps it is only a deposit at first and the balance in 30 days. Either way, it is still before they are actually paid from the project.

Profit on a construction job is NOT evenly distributed throughout the project. In short, what this means is the contractor’s costs are not directly in line with the amount they can bill each month and therefore even though the profit on the overall job may be very good the costs associated to some months as compared to what the subcontractor is being paid can be negative. 

This is where contractor construction payments and MCA loans collide, and it’s not pretty. 

Unless the MCA lender is willing to: 

• (a) take one payment per month
• (b) only on the day that the sub-contractor is paid from the project(s) 
• and (c) only if that month’s costs are less than what the subcontractor is actually being paid 

the subcontractor will 100% be in a very bad spot and likely default on the daily repayment structure.

For example: A concrete contractor working on a five-story building can bill a certain portion of the contract each time a floor is poured. Imagine if the contractor spent their first three weeks on the project at the end of one month, but the actual concrete pour wasn’t until the start of the following month. In this example, the contractor would have incurred nearly 100% of the cost of the floor but received none of the revenue associated with it.

The gross profit margin of the average construction business is 20% or less. The overall cost of the advance to the client is more than the profit they will be able to make on the advance amount. 

Remember the construction business example from earlier? That company took a $100,000 Merchant Cash Advance and needs to repay $130,000. That contractor company will need to invoice and be paid $1.3 million in order to create $130,000 of free cash to pay off the MCA loan without any problems. 

Also, this means the example construction business will not be able to use any of that profit for their own overhead expenses. It only goes to repay the MCA loan. Also, don’t forget the business will only get paid one time per month and need to pay all of the project-related costs out of the money they receive or their project will start to go very bad and the rest of the money they are owed for the project will be in jeopardy.

MCAs can be useful tools for businesses that have daily incoming revenue, such as a restaurant or retail store, but they don’t work well in the construction industry. Are they fast and easy? Yes. Is that worth the long-term trouble they can cause? NO.  

We are the alternative to MCAs. 

Many business owners are unaware of the alternative options available to them. Frantically trying to make payroll every week, with slow-paying clients and unforeseen expenses taking a toll, the fast cash of an MCA can seem like a good idea, regardless of the high cost.

We get it! There are times you need money quickly to do your work. You just need some additional cash so you can focus on what you do best: Getting the job done. 

Mobilization Funding is a smarter option for construction businesses that need short-term working capital for a particular project.

We offer: 

• Competitive rates
• No early payoff fees or penalties
• Loan repayment schedule based on when you will be paid for your work
• Flexible funding schedule depending on when you need it
• Qualified customers can also receive assistance in paying off MCAs

So whether you’re laying asphalt on a new highway, clearing debris after a hurricane, installing solar panels or replacing the windows in your county library, we built a program designed to help your business perform. 

Do you need to talk to an expert about what to do with your MCA debt? Call us at 813-712-3073 or click here.

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Merchant Cash Advance Versus a…

When it comes to managing business cash flow, construction subcontractors face a steep uphill battle as they take on new projects. With 45-60 days or more between starting the job and receiving their first payment, the subcontractor needs enough cash on hand to cover payroll, bond premiums, equipment leases, vendor or supplier payments, and other project expenses. For many subcontractors, Construction Contract Financing is needed in order to fill that gap.

Commercial construction contract financing allows subcontractors to borrow dollars they need for the early stages of a job by using the value of their contract as collateral for the loan. Yes, that’s right, their actual contract!

Mobilization funding, also known as mobilization financing, is a commercial construction contract financing option for subcontractors who do not have the extra cash in the business needed to start the project or are not able to get bank financing for one reason or another. A mobilization funding loan is a short-term option that allows you to borrow up to a certain percentage of the total value of the contract, then repay the loan with the dollars received from the project once work is performed and paid.

Here are a few things to keep in mind when looking for construction contract financing:

This type of financing depends on the subcontractor having a signed contract with a general contractor, property owner, or the party that is paying for the work. The contract will layout job requirements, payment schedule, scope of work, and the total value of the contract.

The important aspect of a construction contract loan is that the cash from the loan is used for project-related costs.  This ensures that the project will go well and that the contract can be invoiced and paid.

This is what allows the lender to use the performance capability of the subcontractor and their contract as the key factors for approving the loan versus the company’s financial documents and credit.

The lender can offer a type of pre-approval for a job that the applicant is bidding on or considering, but a loan cannot be issued until the contract is awarded or executed.

Learn more about commercial construction financing.

Commercial construction contract lenders typically require that the borrower has been in business for at least two years, have a history of performance and be able to provide bank statements and some other corporate documents.

Click here to sign up for the Mobilization Funding newsletter for more tips and strategies to help you achieve your goals.

Does your manufacturing or fabricating business need additional funds to cover a cash flow pinch caused by a big order or a slow-paying customer? Work-in-Progress (WIP) financing is an important tool specific to the industry that may overcome these and other common cash flow challenges and better align with your business’s cash flow cycle than other funding options.

What Does Work-in-Progress Mean?

WIP is a production and supply-chain management term describing partially finished goods awaiting completion. WIP includes the different components that are built into the cost of the business’s products, such as:

• • Materials
  • Labor
  • Allocated Overhead Costs

Let’s say your business manufactures kitchen cabinets and received a big order totaling $300,000. It will cost your business $100,000 for the wood, $25,000 for other materials and another $25,000 for payroll, for a grand total of $150,000 of allocated costs to that order. But your business only has $50,000 in cash available to pay for those costs, leaving you with a $100,000 shortage. WIP Financing will provide you with that $100,000 so that you can deliver those cabinets, get paid $300,000 and repay the loan.

How Does WIP Financing Work?

WIP financing is most often available to established businesses that have other receivables. It is not typically available for startup companies. In approving the WIP financing application, the lender will:

• Review the outstanding purchase order or other documentation from the client’s customer.
• Access the costs associated with producing the product (what the WIP financing needs are) and compare to the purchase order. 
• Determine the amount of time needed for the Client to execute on the Purchase Order and Invoice their customer.
• Perform basic financial analysis of the overall company through the application process.

Upon approval of the loan, the lender will purchase the needed materials on behalf of the business. If for labor, the lender will verify the payroll costs and issue payment through the business’s standard payroll process.

With the cash flow problem taken care of, the client will then create the product. When the product is delivered or installed, the client’s customer will send the payment to the client’s lockbox account that the lender has created for them. The lender will then deduct the cost of the materials plus the interest and financing fees, and then pay the remaining balance to the client.

As a short-term funding option, WIP financing allows manufacturing businesses to grow and fulfill orders with a portion of their gross margin on the order rather than suffering through a cash flow pinch that could lead to delays or other issues.

Work-In-Progress (WIP) Financing is specifically designed for manufacturing companies that need additional funds for things like raw materials and labor costs, which are associated with the production of orders.

This product can also be referred to as a purchase order (PO) financing, however, can vary depending on the type of business and its needs. Other options available to manufacturing or fabricating companies include a line of credit, factoring, equipment loan or a Merchant Cash Advance (MCA). Click here to learn more about different loan options for your manufacturing business.

Do you have additional questions about WIP Financing or want to apply for WIP Financing? Contact a Mobilization Funding expert today at 813-712-3073 or click here.

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In its most basic form, a bid is the sum of estimated project costs, overhead expenses, and net profit margin. There are countless factors that must be considered when drafting a bid, and in some ways, it can be more of an art than a science. One job that goes wrong could take years to financially recover from.

Click here to read our guide to calculating your profit margin

Here are 3 bidding mistakes that are putting your profit margin on the line:

Pitfall #1: Profit is Caught Up in Retainage

If you build in a 10% profit margin and your general contractor is withholding 10% retainage, stop kidding yourself. You are dependent on that retainage in order to make money on the job, and you shouldn’t be. Waiting to pull a profit from retainage leaves you at a huge risk of a cash flow shortage until the job is completed and your retainage is paid out, which can take a long time to be released.

You might think, “Well, that’s all right! I have another project that is wrapping up now, I’ll get my retainage from that, which will be my financial cushion.” Answer: It’s not all right. What if you have a common setback like a weather delay? Or if one of your subcontractors, material suppliers or vendors make a mistake on the job or their costs suddenly increase? What if the property owner is delaying payment to the general contractor for an outside reason? Essentially, what if that other job’s retainage payout doesn’t come by the time you need it or worse, doesn’t come at all?

Given the construction industry’s chronic problem with payment delays, leaving your profit margin tied up in retainage is one way to lose it.

So before you bid, be sure you know how much retainage the general contractor will withhold. If it pushes your bid far above your comfort level you can attempt to negotiate a lower retainage but if that doesn’t work, you’ll need to increase the amount of your bid to ensure that for each billing, you’re bringing in some profit.

Pitfall #2: Not Accounting for Overhead Expenses or the Cost of Capital

There aren’t many subcontractors operating today without funding from outside sources. Whether you use a factoring company, bank line of credit, SBA loan, merchant cash advance, or mobilization funding, no funding source is free. The cost of the funds you need must be built into the project costs of your job (or depending on the type of capital, into the overhead calculations), rather than digging into the project’s profit margin.

If you have an established relationship with a lender, you can use a term sheet or other breakdown of the cost of the funding you need for this particular project and include that in either the project costs or overhead expenses in your bidding calculations. If you will be securing funding for the first time on this job, do some shopping to identify the lender you want to work with first, and get a cost estimate based off of your business’s needs and expected cash flow.

Note: Beyond the term sheet, be sure you understand the details of your agreement with that lender. For example, if you are working with a factoring company and your rate doubles if the invoice takes more than 30 days to be paid, you may need to use that higher figure in estimating the cost of that capital.

Pitfall #3: Lowballing a Bid to Land a Dream Job

Many companies will submit an artificially low bid, thinking that by accepting a lower profit margin now, they will land the big job they’re looking for and open up bigger and more profitable projects going forward. (You might also think you can generate profit through change orders, which is another risky approach.)

The problem is that if anything goes wrong, that ambitious new project could mean financial ruin for your company, late paychecks for your employees, delayed payments to your vendors and sleepless nights for you, the business owner.

This puts you on thin ice from the start. Murphy’s Law states that whatever can go wrong, will go wrong, and there’s an awful lot that goes wrong on construction projects. When you start to feel that ice start to give way, you will be forced to do things you normally wouldn’t, like cutting corners on the job, taking out last minute daily debit or Merchant Cash Advance (MCA) loans you can’t afford and ultimately, damaging your reputation with the general contractor you were trying to impress in the first place.

Subcontracting companies are known for operating on thin margins, but that doesn’t mean you have to. If you’re still reading this article, you likely have experienced the disastrous results of at least one of the pitfalls listed here. You understand the problem, and how easy it is for everything to turn upside down. You deserve to sleep soundly at night, to take regular paychecks home to your family, and to be compensated for the risk you took by being an entrepreneur in the first place.

Yes, if you avoid these common mistakes, you likely will be bidding more than your competitors, but the economy is booming and the iron is hot. Your work is valuable, and it’s needed now more than ever.

Now go out and get paid. 

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Decreasing Profit Margins in Construction & What You Can Do to Protect Yours

Lien rights in the United States are your security and protect your commercial construction business so that you can get paid for your work. It’s similar to a bank giving you a mortgage and then placing a lien on the property. The bank never forgets or fails to place that lien to protect their rights, and you shouldn’t either.

In this blog, you will learn the following:

• What a lien is
• Who has mechanics lien rights
• Why a lien is important
• How to file a lien & alternatives to doing it yourself
• How much it costs to file a lien or send a notice
• How the lien process works

What is a lien?

Liens are utilized for all sorts of property. When a person takes out a car loan, the loan provider is a lienholder that retains the title of the vehicle, preventing the owner from re-selling that car until they are repaid. If the car buyer fails to repay that loan, the lienholder has the right to repossess the vehicle and sell it to recover the amount borrowed.

It is not unlike what happens with mechanics liens. Contractors, suppliers and other parties perform work and then are repaid over time as they progress through the job. Due to the construction industry’s problems with payment delays, the subcontractor needs to have enough money available to cover their payroll, materials, bond premiums, equipment leases and more.

What is a mechanic lien?

A mechanic’s lien is a legal, public document that is designed to guarantee payment to builders, contractors and construction firms that build or repair structures. The term comes from the 18th century, when “mechanics” referred to various types of tradesmen. In most states, a properly filed and executed lien can ensure payment by holding up the property from being sold, transferred or financed. Liens are generally enforced in court and result in a hold on construction project funds as well as foreclosure of the property to pay outstanding debts to the lienholders.

Who has mechanics lien rights?

Builders, contractors, subcontractors, material suppliers, architects, engineers, design professionals, or anyone who performs work or furnishes materials on a job site all potentially have mechanic lien rights.

Why is a lien important?

A mechanics lien is an official document filed with a government entity, (typically with the county) that ensures that the people and businesses who contributed to the construction or renovation of a property are paid.

How do I file a mechanics lien?

Filing a mechanics lien can be a pain in the rear, especially since the rules around them vary widely depending on the state you’re in. You can access free templates of lien notices online, but if you go that route you still need to file the documents yourself. The easiest way to ensure everything is done right is to use an online lien solution like Levelset. 

How much does it cost to file a lien?

Filing lien paperwork has some related costs. The recorder’s office, clerk of courts or similar entity for your locality will most likely issue a filing fee. Online lien solutions tend to be very affordable — some cost as little as $19 per recipient for the Preliminary Notice — and they deliver big value for your business in return.

We recommend Levelset to our clients for lien filing. With Levelset and other solutions like it, you provide some basic details about your company and your project, and their team handles all of your filings for you.

Levelset Pricing
Document	Price per recipient, as listed spring 2020
Preliminary Notice	Free
Notice of Intent to Lien	Free
Mechanics Lien	$349
Lien Cancellation	$149

If you want to take the time to do it yourself, you can contact the state or county where your project is located and request information and assistance. But why the heck would you want to do that?

Here is a general outline of the process:

1. 1. Send a Preliminary Notice via tracked, certified mail to the property owner that you are performing work or supplying materials on the job. Different states have different names for this notice, such as a notice to owner (Florida), a twenty-day notice (California), and a notice of furnishings (Michigan). The preliminary notice typically must be filed within 10 days of when you start the job.
2. 2. After you have started the project, provided a Preliminary Notice AND a payment becomes overdue, the next step is to file a Notice of Intent to Lien, which is required in several states. The Notice of Intent to Lien is a warning to the property owner and if applicable, the prime contractor, stating that your business will file a lien on the property in the next 10 or 30 days unless you are paid. A Notice of Intent to Lien is a strong incentive to get the owner to make the payment, as they want to prevent you from filing that lien. Even if it is not required by the state, it’s a good idea to use it.
3. 3. If you do not receive payment within those 10 or 30 days, you would then file a Lien on the property. Liens are filed in the county or municipality where your project is located, and in many states it is required to also send a copy of that lien to the owner and the prime contractor for the project.

Now that you’ve learned the basics of mechanics liens, you can start protecting your right to be paid for your work.

Have you had trouble with lien filings? Are you dealing with a general contractor that isn’t paying you for your work? Mobilization Funding’s knowledgeable team of experts are here for you. Click here for a free consultation, or call us today at 813-712-3073.

The commercial construction market rises and falls with the global economy, but a few trends remain the same. One trend that continues to march forward and increase in importance is environmental stewardship. Green materials, green buildings, and green development strategies all play a role in the design process. More commercial clients demand it, and developers and architects are happy to oblige.

Here a few common trends in green commercial construction that are here to stay.

Solar Design

Commercial construction developers are increasingly having to factor in solar energy to their design strategies. One town in Massachusetts even mandated the use of solar power for all commercial buildings greater than 10,000 sq. feet and residential buildings that house more than 10 units.

There are several ways to incorporate solar energy into construction design. Along with the traditional rooftop panels, developers are also using passive solar design to consider how they position their buildings and design their windows. Through passive solar design, buildings can stay cooler during summer or warm faster in the winter, depending on the climate. Keeping this information in mind can help builders who want a positive environmental impact without investing explicitly in solar panels.

Zero-Net-Energy Buildings   

Solar panels are meant to reduce dependency on coal and natural gas-based energy providers like state and municipal energy companies. However, solar panels alone often can’t produce enough energy to completely meet a commercial building’s needs. To achieve this, developers need to invest in energy efficient lights, appliances, and infrastructure in order to create a zero-net-energy building.

A zero-net-energy building (often called a zero-energy building) only consumes as much energy as it can produce. This is achieved through solar production and efficient appliance investment. Having solar or being efficient isn’t enough. More clients want their campuses to be zero-energy so they can reap the positive publicity that comes with it.

Municipalities Are Embracing the Architecture 2030 Challenge

Architecture 2030 is a challenge to create new buildings with zero carbon emissions and to improve existing buildings to the point where they cut their carbon emissions in half. The concept has been adopted by various towns and cities, including the 2030 District in Seattle.

If more municipalities adopt this challenge, commercial construction companies will need to step up. Contracts will go to green-forward companies in town who can keep up with the 2030 Architecture goals.  

IoT Makes Remote Management Easier

The Internet of Things (IoT, big data, AI, etc.) are changing building management. Site managers are able to:

1. 1. Find inefficiencies
   2. Optimize buildings to reduce waste
   3. Identify problems in real-time

It’s not uncommon for commercial construction companies to include IoT products in the development process, but these features also have a green element. The better buildings can run, the less energy they use, moving them closer to the coveted zero-energy status that more clients are asking for.

New Materials Are Still in Development

One of the biggest challenges that commercial construction companies face is keeping up with the latest technology. The green materials that are cutting-edge now will be replaced in the next few years. So many people are working to create green solutions – affordably – that there will be a boom in materials options in the next few decades.

This is good news and bad news for developers. On the one hand, going green will be easier in the future. But in the short run, companies will need to spend more to use what they have, and the solutions they use now will be considered outdated as new products hit the market.

Commercial construction developers who stay on top of the latest trends can take steps to meet the needs of their clients. As our society becomes more environmentally conscious, more people are going to request these features or rely on their developers to have the know-how to create a green building for them. You can use your green know-how and the financial support of Mobilization Funding to make these goals a reality. 

The modern construction site looks different than it did 20 years ago, 10 years ago, and even 5 years ago. Technology and industry trends are driving developers to do things differently, from changes in high-level planning to finding ways to detect minute leaks. Check out these top six constructions trends that are changing work sites in 2019 to get a glimpse into what the future of development looks like.  

Adoption of Artificial Intelligence

There are several AI tools that construction firms can use to improve their building processes. AI has been used to prevent site accidents through temperature and movement monitoring, identify problems like water leaks, and alert workers to unsafe conditions. Through sensors and data collecting, AI is the future of safe construction.

Increased Drone Use

Construction is one of the fastest growing markets for drone users. In 2017, drone use on construction sites skyrocketed 239% compared to the year before, beating out mining, agriculture, and surveying. Developers use drones to check the site progress, make estimates, and capture footage of the construction process over time.  

Continued Investment in Construction Tech

Drones and AI aren’t the only tools construction companies will soon have at their fingertips. In the first three quarters of 2018, construction tech firms raised $1.27 billion, a 124% increase on the funds raised in all of 2017. Expect startups across the country to try and “disrupt” construction sites with new processes, materials, and gadgets.

High Potential for Infrastructure Spending

Both Speaker of the House Nancy Pelosi (D-Calif.) and President Trump have said infrastructure investments, from road improvement to high-speed rail, are priorities for their agendas. This could mean big contracts for some companies and demand for construction work as a whole. As long as infrastructure stays a bipartisan issue, there are potential opportunities on the horizon.  

Gen Z is Entering the Workforce

Workplaces across the country are becoming more diverse in age, with more than 75% of managers saying they lead a multi-generational team. Generation Z is now starting to enter the workforce, these are workers born between 1995 and 2010, or people age nine to 22. These workers are digital natives, meaning they are more familiar with technology and look for employers that give them opportunities to learn and grow.  

Knowing these trends can prepare you for future changes to your work site. You can use the best tools possible to finish your projects quickly and on budget.

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