Since the beginning of the coronavirus, the construction industry has found itself wading through murky waters. Are we essential? Is our project on hold? If we are working, how will we keep our team safe? And if we are not, how will we keep our teams paid?

It has been a LOT to figure out. Luckily, many companies that serve the construction industry have rallied to provide clear, accurate information specific to your industry, your challenges, and your opportunities. We partnered with legal, financial, and other experts to produce our Coronavirus Q&A  YouTube series, for example.

Even as the country slowly begins to reopen, there are new questions around construction work. The need for information from expert sources familiar with the construction industry has only grown. When Levelset asked us to join their Coronavirus & Construction Virtual Town Hall, we sent them back an emphatic: WE ARE IN!

Mobilization Funding’s CEO Scott Peper joined Ben House, a construction and commercial litigation attorney in Texas, and Greg Reaume, an attorney with McInerey & Dillon, a construction litigation firm based in Oakland, California.

Listen to the recap to hear their answers to the questions asked by construction business owners just like you!

Questions like:

• What difficulties or challenges do construction business owners face during COVID-19?
• Will there be lien period extensions due to all the courts being closed?
• How can subcontractors do a due diligence check to vet the GCs and owners of their projects?
• What happens if an employee contracts coronavirus and files Workers Comp?
• What are the laws concerning workers who had been infected to return to work?
• How can you protect employees ongoing? Can you ask them to wear masks? Submit to temperature checks?
• And more!

 

You can also access the video and a full transcript on Levelset’s website.

This construction finance content was produced in partnership with DARE Capital. 

You are having success building your construction business. You have blueprints for jobs, but a financial blueprint for your company? Not so much.

If your construction business is growing every year, but …

• your paycheck seems to stay the same;
• you always feel like cash flow is too tight;
• and it is stressing you each week to make payroll;

then it is probably because you lack a financial plan that supports your growth. There are very easy (yet not widely known) ways to control your expenses through a cash flow plan. This allows you to finance your growth – and YES, it was created for and is specific to construction.

You need a goal and a plan that will help you reach it. You need to understand your options to acquire capital when you need it, what to spend it on, and how to pay it back without slowing down your momentum.

Accounting: Your Construction Finance Foundation

Solid financial tracking and reporting is the bedrock upon which you will build your company’s future success. Before you can plan for future profit, you need to know exactly where your money is going now. The only way to do that is to clean up your current bookkeeping and accounting practices.

Separate your personal expenses from your business accounts.

Your personal and business checking accounts must be separate and so should the expenses associated with each. This may seem obvious, but too often we see personal and business expenses in one account. For one thing, a merged account is just not professional and is more likely to result in problems for you – whether it is at tax time or if you are trying to get a business loan down the road.

Your company’s ability to build credit is also negatively affected when you blend business and personal spending.

Keeping your business and personal accounts completely separate will save you hours of work and frustration in the long run.

Open a dedicated payroll checking account.

It is common for business owners in construction to operate their entire business from one bank account, but it is not advisable.

One of the biggest reasons for having a dedicated payroll checking account is cash flow management. In construction, the balance of your bank account is rarely the amount of cash you actually have on hand. Those funds are already ear-marked for vendors, suppliers, and overhead costs like rent, utilities, and debt payments. Don’t double-book funds for payroll on Monday only to discover they are gone on Thursday. Keep your payroll safe and you employees paid on time!

A separate payroll account ensures the money you have assigned for your employee’s paychecks is available when those checks are cashed.

Get more payroll tips in our blog, Payroll Tips for Subcontractors. 

Hire an accountant.

You may think hiring a Certified Public Accountant (CPA) will cost too much money, but the reality is a good accountant will save you from making costly mistakes and allow you to focus on growing your business.

It is good practice to hire an accountant right away, but if your company has more than a few employees, your revenue is growing, and you are juggling multiple jobs, it is definitely time to hire a CPA. A good accountant often pays for themselves in a relatively short amount of time. After all, finances need to be current and accurate for you to stay on top of your accounts and plan for growth.

Know the financial warning signs.

Your company’s financial health is much like your own — it needs regular, preventative check-ups to spot warning signs early. Unfortunately, many business owners are only monitoring one vital statistic when it comes to their business – cash. That’s like assuming you are healthy just because you have a pulse.

Here are the financial warning signs you need to watch out for:

Negative cash flow.

If your business is routinely spending more than it earns, it probably doesn’t matter how much new business you generate. That’s because with each new job, more expenses will come too. A prolonged negative cash flow is a red flag that something is very wrong.

Cash flow is tricky in construction, with a large portion of project costs coming out long before any revenue comes in. This is another reason a CPA with experience in construction finances is so essential for your future growth.

Poor profit margins.

This particular warning sign is common in construction, and sometimes can be solved with a simple bidding adjustment. If you are applying a blanket markup on top of project costs to every bid, you may be starving your company of the essential profits it needs to grow and thrive. The total overhead cost divided by your total revenue is the percent you need to add to bids to properly account for overhead in your future estimates.

Falling profit margins may also signal an increase in costs or a decrease in income. This is a warning sign you need to address immediately. Once profit margin impacts cash flow, other complications arise quickly.

Debt payment performance.

If you are constantly extending your payment dates or missing debt payments entirely, your company should head directly to the financial equivalent of urgent care. An inability to pay your debts on time tells creditors you are in real trouble, which will limit your options of recovery.

Late payment or poor payment performance can also lead to even tighter cash flow constraints because it will reduce your ability to get credit from your suppliers. Having to pay suppliers COD will further limit cash and can then lead to the need for even more long-term debt which will further erode your company’s profits.

Assess your financial foundations.

Before you create a plan to grow your business AND make a profit, you need to know where your company stands financially. In order to get an accurate assessment of your finances, you will need to start with good financial reporting. These are the three reports you need to have on a monthly basis to review your company’s financial standing:

• A Balance Sheet
• An Income Statement
• A Statement of Cash Flow

What are you looking for exactly? Just like health warning signs, there are clear indicators when a business is doing well.

• Revenue growth year-over-year, if not month-over-month
• Flat or minimal expense increases as a percentage of revenue
• Positive cash flow
• Ability to service your debt payments and overhead expenses
• A consistent (and hopefully High) overall profit margin
• Steady new business pipeline
• High customer retention

If you don’t have all of these right now, don’t worry. Once you identify the weak spots in your financial foundation, you can work to shore them up — either before you launch your plan for growth or at its start. Your CPA can tell you what each of these financial statements mean for you and how you can make adjustments to best impact your business.

Materials List: Your Construction Finance Solutions

One of the most common mistakes business owners make is to view debt as a thing to fear rather than as a tool for growth. The reality is plenty of business owners borrow money not because they need it to survive, but because it is the smartest way to capitalize on an opportunity.

However, financial solutions are not one-size-fits-all. In order to build a financial plan that will support your growth, it is important to use the right funding option for each opportunity. Here is a list of funding sources your company can take advantage of, when it is best to use them, and when it is not.

Cash

Cash is king, and everybody loves that feeling of paying for something with cash. Too often, business owners get so hung up on the pride of paying with cash that they forget that cash is king for a reason — it can save you when there are no other options. For this reason, access to your cash is very important for actual emergencies.

There are four critical rules for cash to always keep in mind:

1. More cash is better than less cash;
2. Cash now is better than cash later;
3. Less risky cash is better than more risky cash;
4. And finally, never run out of cash.

Good for: Ensuring your ability to survive during a pandemic, making sure payroll is covered when your customers pay late, or taking advantage of an opportunity that arises.

Don’t use for: There are no bad uses of cash per say, only when you deplete all your cash.

Selling equity

Equity is the most expensive form of debt so be sure you are getting value for the equity you bring in. That “Value” is not necessarily always a lot of money, but it can be experience and talent in areas of business that you need. You want to avoid “dumb” money, and instead seek equity partners who bring something like industry expertise, access to a customer or set of customers, or have favorable relationships with suppliers.

Good for: Raising cash for working capital to drive the business, pay off high interest debt, bring in expertise that can help your business, or to help fortify your balance sheet.

Line of credit

This is the gold standard for working capital lending. The funds in your LOC can be used for anything, including financing the upfront expenses on a new job. Similar to cash, though, it is important to use your LOC to drive business and fund monthly operations while saving some availability for more critical needs should they ever arise.

The only real downside to a LOC is that is retrospective — it is always determined by your past 24 months financial performance, not the next 24 months. If you are growing fast, you may outgrow your line of credit.

Good for: Working capital. The cash needed on a day to day basis to manage expenses that will otherwise turn into an invoice o your customer (for example: COGS, other material purchases, equipment rental, and payroll).

Don’t use for: Buying Vehicles, equipment, or other capital expenditures that you don’t intent to pay off right away from business operations.

SBA loans

A term loan or working capital line approved and backed by the Small Business Administration is often easier to acquire than a traditional bank only line of credit, if you qualify as a small business. For commercial construction, the SBA defines a small business as one with no more than $39.5 million in average receipts.

SBA loans require a LOT of documentation and a good sponsor. Working with the right bank to sponsor your SBA loan is very important, as it can impact how they present your business. The bank is still taking a risk on your SBA loan and their assessment of your business and the perceived credit risk is just as critical to the approval process. Not every bank that makes SBA loans are created equal and each of them have different criteria for approval. Just because one bank turns you down for an SBA loan does not mean the SBA turned you down!

The downside to an SBA loan is once your company grows too large, it will no longer qualify.

Good for: Working capital, initial capitalization for your business, acquiring or merging wit another business, refinancing debt.

Invoice factoring

Invoice factoring is common in construction, as it significantly shrinks the 60-90 days between you submitting an invoice and receiving payment. A factoring company will advance you a percentage of the invoiced amount upfront. This makes it a powerful tool to balance out unpredictable cash flow streams, which gives you the chance to fund your project for the next month of the job and reduce the amount of cash needed to operate a project. Having access to more of your cash will allow you to do more projects that fit into your strategic growth initiatives.

The drawback is invoice factoring does not get you funding before a job starts or before you submit an invoice. Many high-performing construction contractor companies use invoice factoring combined with another financing solution, funding growth and keeping the cash flow stream moving positively.

Good for: Project-related expenses and operational overhead associated to the project you invoiced.

Don’t use for: Buying equipment or starting another project, or paying off long term debt (you need profit for that or another form of long term debt).

PO financing

Less common in construction is Purchase Order financing, in which the lender will pay your supplier to fulfill the order. The customer or supplier then pays the PO financing company directly. It deducts its fees and sends any remaining balance to you.

Good for: Cost of Goods Sold (COGS) purchases, other materials.

Merchant cash advances

These “quick-cash” daily debit loans can destroy otherwise profitable and healthy businesses. An MCA repayment involves a daily or weekly draw from your checking account, which can make forecasting your cash flow even harder than before. These daily withdrawals are almost impossible for commercial construction companies to keep up with, especially in the months after a project is completed but the loan is still active.

Think about like this – if you take out a loan today because you are short on cash and the repayment of this loan requires daily or weekly payments, but you only are paid monthly and often times that is even more delayed – then how could you possibly think you will be able to keep up with a daily or weekly payment without the money coming from somewhere else it is needed – like payments to your suppliers, vendors, or employees payroll.

MCAs are very easy to get, but can have devastating long-term effects including bankruptcy and personal credit problems.

Good for: I cannot in good conscience recommend an MCA for a construction company as I have seen way too many devastating things happen to great people.

Mobilization loans

This is a short-term loan that is tied to a specific project. It is meant to cover the upfront costs of launching new work — materials, supplies, labor, bond premiums, etc. When working with a partner such as Mobilization Funding, the repayment plan is aligned to your pay apps, which reduces the overall strain on cash for the business and relieves the stress associated with how you are going to pay for the project related costs. The repayment of the loan is in line with when you are paid for the project so you can pay off the loan as you earn the money.

Good for: Any project related expenses – material, equipment, labor, insurance, etc.

Don’t use for: Purchasing equipment, refinancing other debts

Other options

There are other funding options that work well in the construction industry, such as heavy equipment financing and payroll financing. The best thing for a company owner to do is to find financial partners they trust and lean on them when a new funding question arises.

When you know all the tools at your disposal — what they do and in what circumstances they will work for your business — you can make borrowing decisions that not only protect your company from loss but help bolster its growth.

Grow to New Dimensions

Now that you have a clear and accurate look at your financials and know the different funding solutions you can use to balance cash flow and execute on new work, it is time to set goals for your financial growth.

Setting Financial Goals

Your financial goal can start with a revenue number you want to achieve. For example, “I want my company to be a five-million-dollar business.” But numbers rarely inspire a team, especially when facing the inevitable growing pains that will come with growing your business.

Push a little deeper and give that number a purpose. What will it mean for you and your employees if you grow from a two-million to a five-million-dollar company? A purpose-driven goal is more effective at aligning your entire team, getting everyone on the same page and working toward the same goal.

Make sure the goal is ambitious but achievable and tied to a metric of time so your progress can be measured.

Profit
Revenue is important as it’s an indicator of growth. But keep your eye on profitability and set some profitability goals by total number (i.e. $2.5 million in two years) and also as a percentage (i.e. go from 7% net profit to 12% in three years). Sometimes we fall in love with big revenue numbers, but we have to keep our eye on the prize of profit.

Cash Reserves
While this may sound impossible to some people, it’s important to focus on building a cash reserve to weather inevitable (and sometimes absolutely unpredictable) downturns. Have a goal of at least two months’ cash put away. The recent pandemic is likely to encourage companies to build up even more cash reserves. If you can do three, four- or six-months’ cash, that’s great. But start with a small goal – the ability to operate on your own cash for at least one month, or two. Aim to grow it little by little each year. If you are growing each year by 10%, you need to grow that cash reserve by at least 10% to maintain two months’ cash on hand. It’ll help you sleep better at night knowing you can weather a storm.

Customers
While this isn’t a financial goal, it’s worth considering having a goal tied to number of customers. A broader base of customers can reduce risk for a company. If a large customer is lost, it helps to have a significant number of other customers with jobs to which workers can be redeployed. It also makes the future a little less risky, because other customers can make up for the shortfall of losing that customer.

A growing customer base can also show a bank another data point of the company’s health when that bank is considering making a loan.

Your Dashboard

Everyone with a car has a dashboard. It tells us how fast we are going, where RPMs are, how much fuel we have, and our oil levels. This is a snapshot of our vehicle’s performance and ability to perform. A company needs a dashboard, as well. There are a handful of numbers that are really important to help manage the business, and they will differ slightly for each company. But generally, they are simple, though not always tracked for growing businesses.

Customer Satisfaction
Given the importance of reputation in construction businesses and services, this is something to keep an eye on. As online reviews have become more commonplace, it is even more important: the better work you do for someone, and the happier you can make them, the more likely you are to gain additional work. The opposite is also true: unhappy customers are likely to tell five other people and hamper the ability to win new jobs. Seek to collect information on customer satisfaction. A simple “Net Promoter Score” (NPS) rating, “How likely are you to recommend others use us?” is a great way to track this.

Market Share
This one may be challenging to gauge given your particular market or niche, but you want to know how you’re doing relative to the competition. This pertains to how much of the available work you would like to have that you are winning.

Margin
As we said before, profit is what matters most, and the healthier a company is in other areas on this dashboard, the healthier its profitability. This needs to be tracked over time so owners and managers can determine if the company is getting healthier or weaker, or remaining the same. It is also an indicator of how well jobs and the business are being run. Are you gaining margin as you grow?

Labor Utilization Ratio
It is important to track the utilization of your most important asset. For most companies, that is their people. For others, it might be a piece of equipment. But it is crucial to know how much of our labor is working and how efficiently. Once a company knows this, they can set parameters around what that ratio needs to be. For instance, in one company, they might know that as long as their labor is being used 80% of the time, they’re ok and they will be profitable. But if they fall below 70%, they are in trouble. They may also find that if they get to 90% labor utilization, they must turn away other jobs.

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What is Construction Financing?

Equipment financing is another powerful tool to help your business grow and succeed. Financing a newer piece of equipment can help you cut costs, avoid delays, and build credit. We sat down with Gerald King, founder of King Commercial Capital, a cash flow solutions brokerage firm that specializes in equipment financing, to learn how equipment financing works, when you should use it, and how to find the right funding source for your needs.

What is Equipment Financing?

Put simply, equipment financing is the use of a loan to purchase a piece of equipment for your business. It is a broad term and can be used for smaller pieces of equipment like a $5,000 stamper and for million-dollar items like bulldozers and cranes.

The terms and details of the loan vary by lender and by the client’s needs, says King. “There are multiple solutions for financing for businesses. It depends on the business. When someone calls and says I need to finance this bulldozer, I talk to them about their needs. Their financing needs. I have to learn from the client what they need to structure the solution properly.”

When to Use Equipment Financing

Many contractors may shy away from obtaining financing and, preferring to pay for equipment in cash. It’s understandable — paying in cash feels like the responsible thing to do, but is it the best use of your cash reserves?

Probably not. There are plenty of instances when your business might need cash on hand — a project delay might put payroll in jeopardy, for example. King advises clients to utilize available financing solutions and save cash for emergencies. “Don’t spend $100,000 on a new piece of equipment in cash and then have nothing in your coffers. Cash is king. Save it for when you need it.

Equipment Financing and Banks

If you have a line of credit with your local bank, you may consider using that to purchase your new concrete mixer. Hold that thought. A bank line of credit (LOC) is similar to cash — it is a finite resource and is extremely valuable in an emergency. Tapping out your LOC on a five-year loan isn’t the best use of that available capital, and you’ll miss having that LOC option if your business suffers a financial pinch in the future.

Another reason an equipment finance broker is a better option than the bank? Exposure. A bank can (and will) only loan so much money. It’s a matter of risk mitigation. However, finance brokers often have a variety of funding sources, which means they may be able to loan more to one individual client than a bank can.

This can be critically important if your business is growing. King says, “A bank won’t grow with you. They will draw a line in the sand. Equipment finance partners don’t run into that exposure problem. They can grow WITH you.”

Finally, a bank looks at an equipment loan much like an auto loan. If the equipment is several years old, they may not consider it to be valuable enough to warrant the loan amount. Equipment finance partners have far more flexibility. “If it makes you money, saves you money, or makes you more efficient,” says King, “I can usually get it financed.”

When Not to Use Equipment Financing

Most equipment finance loans are taken out for used equipment. That’s because new equipment is often purchased from a distributor or manufacturer, and they offer their own competitive finance options.

Other than new heavy items financed through the manufacturer, equipment financing can be used to purchase a number of items your business needs. King says, “Equipment can be anything from computer software to a crane. Bulldozers, dump trucks, whatever it is you need.” He added with a smile, “Just don’t ask me to finance the vending machine.”

Sorry, snack lovers.

Equipment Financing Documentation

What paperwork you need to submit will depend on your lender, your business, and the equipment you intend to purchase. King says that often a smaller-ticket item can be financed based on an “application only” submission. That means you only have to provide bank statements and an application. Larger items, anything over $100,000, requires a full credit package including a few years’ tax returns, and possibly your personal bank statements and tax returns.

But, King advises sending over as much documentation as you have, regardless of the size of your loan. More documentation helps paint a more complete picture of your business — it tells the story of any hiccups on your credit and how this equipment will help you grow.

“I have to paint a picture to underwriting on why this bulldozer is going to be good for their business,” says King. “I need to be able to explain the hiccups on their credit. More documentation makes it a verifiable story.”

Renting Versus Owning Equipment

Are you currently renting a piece of heavy equipment and think buying would save you money? It might, but it depends on usage. King has a formula to help contractors decide when to pull the trigger on a new purchase. “If you are going to use the equipment 30% of the time for business purposes, definitely buy.”

Maintaining Equipment Versus a New Purchase

Let’s say you have an old forklift that you keep repairing because you don’t think you can afford to buy a newer one. Before your next trip to the mechanic or parts shop, sit down and do the math. How much is this piece of machinery costing you to maintain? If the cost of its maintenance is higher than the cost of a payment on a newer, better, more reliable piece of equipment, then it is time to turn that bad boy in.

“The cost is only going to increase,” King says. “If you spent X this year on maintenance for this equipment, what are you going to spend next year?”

There is another cost to consider if the equipment is critical to your business performance. Work stoppage and delays are cash flow problems, and cash flow problems are like snowballs rolling down a mountain. They grow exponentially if you don’t stop them fast.

“If you can’t use the equipment, how does that impact your schedule?” says King. “And how does that schedule impact affect your cash flow? For example, if you are doing underground boring and your older equipment breaks down, you can’t work. Downtime is a cash flow problem. It makes sense to buy and keep your guys working.”

Choosing an Equipment Finance Partner

Not all equipment partners operate similarly, and there are bad apples in the industry just like anywhere else in lending. King cautions contractors to do their research, ask questions, and read the fine print before signing.

There are three practices some lenders utilize that you want to watch out for, says King. They are:

Evergreen clauses. An evergreen clause means if you don’t terminate your financing, it auto-renews. That could mean you get stuck with way more payments than you originally contracted. For example, if you had a 36 month loan or lease, and you get stuck with an evergreen clause, you might end up paying an additional 30-35% on top of the original asset cost.

Payoff penalties. Some equipment finance lenders will include “prepayment penalty” or “sum of total payments” language, which basically means that if you pay off the loan early you still have to pay the interest and fees associated with those future payments. Ask your prospective lender if there are any pre-payment penalties or fees, and if future interest is included in the payoff amount. Then, read the contract to verify their answer.

Interim payments. Think of this one like a home loan and prepaid interest. Whatever time of the month you close, you still owe interest for the rest of the month until your first payment is due. So, if you close on the 25th, you have 5 or 6 days of interest accrued that you will need to pay. The trouble with interim payments, or “interim rent” as it is often called, is when lenders get creative with dates. For example, if you sign a contract with quarterly payments and they tack on an entire extra month to round out the quarter.

King has simple but smart advice when choosing an equipment finance partner. “If it sounds too good to be true, it probably is.”

King takes his responsibility to his clients seriously, which is why he is part of our preferred referral partner network. King Commercial Capital, much like Mobilization Funding, believes in building relationships and doing what is best for our customers. King puts it like this, “I have a fiduciary responsibility to put my clients into the best possible financial situation for their given scenario.”

Equipment financing is one more weapon in your arsenal for growth. Used wisely, it can help you execute on more jobs more efficiently, build your company’s credit, and keep your cash flow liquid.

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Your Construction Finance Blueprint

The coronavirus has put tremendous pressure on small business construction contractors across the country. Whether their state has deemed construction “essential work” or not, business owners are grappling with tough decisions. Some of these challenges are human — balancing the need to keep a business solvent against the very real pain of letting good people go right now. Others are purely practical, but no less stressful. How will I pay rent and utilities if there is no new work coming in?

Training yourself during this extraordinary time will make the other side of this crisis feel like a breeze in the wind. Getting strong now during this time will allow you to get through it and thrive on the other side.

We have launched a YouTube series to help inform your decision making during this pandemic. We interviewed experts from across the business spectrum and are continuing to add new videos as often as possible. .

Our own leadership has been having these same conversations and making the same tough choices. We see you out there. Being a business owner is a challenging job under ideal circumstances, and things are far from ideal right now.

This article isn’t about finance, payroll, insurance or SBA programs. Those are all important, but there’s something else equally important — your wellbeing and the wellbeing of your crew. That’s what we want to talk about today.

The struggle (and the stress) is real. How you manage and overcome it will determine where your business stands at the end of this crisis.

The first step is simple: admit that you are worried. It is OK to do that. Once you do you can focus on what you are going to do about it – that is the most important thing!

Acknowledge Anxiety

According to a National Small Business Association survey, 77% of small business owners are “very worried” about the economic impact of COVID-19. Here’s the bright side of that statistic: You Are Not Alone.

Anxiety can be an incredibly isolating emotion, especially in business leaders and entrepreneurs. You are used to solving problems, answering questions, and relieving stress from others. Acknowledging that things ARE uncertain and that you DON’T have all the answers can feel uncomfortable, but you need to do it anyway.

Refusing to acknowledge negative emotions is actually harmful to your health and the health of your business. It can lead to physical ailments like insomnia, indigestion, and headaches, and can make conditions like cardiovascular disease worse. There’s also the mental side of emotional avoidance. When you don’t confront stress, you can’t let go of it. Those bottled-up emotions become toxic over time and can lead to depression and other mental health conditions.

How does avoiding stress and anxiety hurt your business? One of the cognitive side effects of prolonged, unresolved stress is a decline in cognitive thinking. It can also lead to forgetfulness, an inability to focus, poor judgement, and overly pessimistic or “doomsday” thinking.

It is harder for you to make the good decisions you need to save your business because of how stressed out you are about saving your business.

So, let it out! But before you start venting to your team or your spouse, keep reading.

Find Your Peer Support Group

Finding a safe, supportive space to talk about your fears, challenges, and frustrations is critical. You want to keep morale up within your team, and you don’t need to compound any stress at home with work stress. You and your partner or spouse have your own challenges right now (groceries, kids at home, concerns over your health and that of your loved ones). You need an audience that can listen with empathy without being emotionally invested, which would add to their stress.

One option is to find a network or community of business owners — on social media, email, or a text chain — who share your concerns and can offer you encouragement and support.

Another is to hire a professional e-counselor or tele-counselor. Psychology Today has an index of counselors who offer virtual conferences.

Take a Break

Turn off your phone. Walk away from the television. In fact, go outside and take a walk. Or, skip your usual news broadcast and watch something that will make you laugh. (Digital Trends has a few Netflix suggestions.)

“I have too much to do to relax,” you’re saying. The reverse is true: You have too much to do, and the work is too important, for you to do it at anything less than 100 percent.

Business owners tend to be “always on” people, and when they feel stressed about their business push even harder. That’s great — that drive is what made your business successful in the first place. But, when facing the stress of a global pandemic, a national recession, the health and wellbeing of you, your family, and your team, AND the financial future of your business …. Yeah, it’s a lot. You need to disengage from that overwhelming pressure every now and then. It allows your brain to reset.

Start a Manifestation Journal

This may sound a little woo-woo, but stick with us. Part of what drives performance is mindset, and part of what establishes your mindset is your thought patterns. A manifestation journal is a simple way to train your brain to think more positively. Write down your anxiety or fear, and then write out the best possible conclusion you would like to see. For example,

• I am worried about making payroll next week.
• I will find a financial advisor who will help me get a PPP loan and make payroll.

Your specific anxiety leads directly into an action item — something you need to do in order for the positive conclusion you want to occur. It gives you a focus point, and it trains your brain to speak in “I will” statements instead of “I can’t” or “I won’t.”

Take Care of Your Health

Mental health is part of your overall health. What you eat, how much (or how little) you exercise, and how many hours of sleep you get all contribute to your overall mental health. Now is the time to start forming healthier habits that will help you stay mentally and physically strong during the crisis.

• Eat whole foods that are rich in vitamins and nutrients. Things like berries, citrus fruits, whole grains, and plenty of lean proteins.
• Set a sleep schedule that allows you to relax in bed — no tablets, TVs, or phones — and sleep for a full eight hours … or as close as you can get to it.
• Find an exercise activity that works for you. It can be a low-impact workout like walking, yoga or swimming, or turn up the heat and go for a run or a fast bike ride.

Talk to Your Team

Now that you have your own mental well-being plan in place, it’s time to spread that energy out to your team. Your team needs you to ease their anxieties, and a great way to do that is by first acknowledging your own.

It may sound counter-intuitive, but a leader who models vulnerability feels more confident and trustworthy than an aggressive bright-sider. Your team knows the situation; they need you to tell them how to feel about it.

Start by acknowledging the uncomfortable reality and your own response to it. “I know times are scary right now. I’ve been worried, too.” Then, lay out your plan. Tell them how you are going to weather this storm.

If you are furloughing employees, laying off staff, or reducing hours, make sure that conversation is in-person (or at least a phone call) and upfront. Start by stating the news directly. Ambivalence, while it feels easier for the speaker, is much harder for the receiver to process. Explain how the decision was made. Let the employee share their thoughts, but don’t debate with them. Stay positive and offer help when and where you can.

Give Your Team Resources to Cope

It’s important to remember that the construction industry has the highest male suicide rate in the country AND the highest rates for alcohol and drug use. As the leader of your team, you can help them survive and thrive right now by offering them resources to deal with their own depression, anxiety, and stress. We recommend checking out the resources available from the Construction Industry Association for Suicide Prevention.

Put Your New Positive Outlook to Work

When we are mentally healthy and thinking positively, we are able to process new information and make smarter decisions. Our ability to plan and strategize increases. All of these skills are critical to your ability to keep your business going during the COVID-19 pandemic.

Exercise your mental outlook every day, and just like a muscle it will gain memory and grow stronger. You will arrive at the end of this long, strange, stressful journey with a toolbox of stress-busting techniques and a powerhouse of positivity to face the future.

Construction payroll is more complex than payroll in more “traditional” industries. Your payroll can fluctuate when a new project starts, and every week throughout the job right up to its completion. Managing payroll internally is time-consuming, inefficient, and potentially exposes you to mistakes, lost revenue, theft and fraud.

Yet, many contracting companies still choose to keep payroll internal. Worse, they process payroll along with all other expenses from their Operations account.

We sat down with Bruce Patz, President of Associated HCM, to shed some light on common issues in construction payroll and offer a few tips to improve yours.

Why should construction contractors separate their payroll account from their operations account?

One of the biggest reasons to set up a dedicated payroll checking account is cash flow, says Patz. “A lot of business owners operate on what the bank says, not their actual cash flow. That means one person can write payroll checks believing the money is in there, and then another person write a check for supplies, which causes payroll checks to bounce.”

It’s not that subcontractors are inherently bad with money, but managing all of that outgoing cash is tricky, especially when several members of the team have access to the account.

A separate payroll account ensures the money you have assigned for your employees paychecks is safe. With a dedicated payroll account, there is zero chance of someone else writing a check for other expenses which would impact your team’s payroll.

Another reason to separate payroll? Ease of accounting. Whether you balance the books yourself or have a CPA (and you really should have a CPA), separating your payroll from your operations account makes life, and bookkeeping, a lot easier.

Tips for smarter construction payroll.

Plan ahead. With good financial oversight, based on data from the previous year’s payroll and your expected projects and growth rate this year, you can determine an estimated forecast of your payroll expenses.

Don’t forget about payroll taxes. “A lot of contractors forecast labor on a new project, but they forget the employer taxes when they estimate the payroll expense, “says Patz. “Taxes can be 15-20%, so they need to be in your estimate.”

Separate your payroll and operations. Seriously, it’s that important. If you work with a payroll company and have a dedicated payroll account, you know on Monday what your payroll expense is going to be. It gives you a few days to figure it out if you find yourself short. This is better than the 24-hours-or-less panic that often ends with a contractor taking out a high-risk Merchant Cash Advance Loan (MCA).

Do you have questions about payroll during the COVID-19 pandemic? Check out our YouTube video with Bruce Patz and Caroline Catlender.

 

Cash flow is always an issue in construction. How can contractors best ensure payroll ALWAYS gets met?

“Work with a payroll service that understands your industry and your cash flow cycles, so they can make recommendations,” says Patz. “And hire a CPA, or a payroll service that has accounting as a service, to help with budgeting, reporting, and forecasting. The more you can plan ahead, the more you can get ahead of any problems.”

And planning ahead allows you to better plan for growth and capitalize on opportunities when they arise.

Patz also recommends having a financial partner. “Go with your line of credit first, if you have one,” he says. If you don’t have a line of credit, don’t panic. There are financial partners out there who can help you.

Like us! Check out How Our Loan Process Works to learn more.

What is the benefit to hiring a 3^rd party payroll service versus doing it in-house?

A good payroll company can help with a lot of things beyond processing payroll, such as:

• HR Compliance
• Employee Handbooks
• Equal Pay Act Compliance
• IRS forms for talent acquisition
• Worker’s Comp payments processed along with payroll, rather than a lump sum
• Out of state payroll tax calculations
• Calculating exact payroll per project
• Managing the different wages by project (Ex: Davis – Bacon Act Wages)
• Providing Certified Payroll Reporting

Many payroll companies also offer payroll finance programs. Some will also help calculate employer taxes and offer other accounting services.

For Patz, being a great payroll service comes down to that one word: service. “What sets us apart is that we are a small business, and we have a personal relationship with our clients,” says Patz. “We’re very different from the big payroll companies. A lot of the bigger companies don’t care how their clients make payroll. We start at the beginning. We talk about cash flow to understand it and create payroll solutions that work for you. Our services mirror and align with who you are and what you need.”

What should a construction contractor look for in a payroll company?

Finding a payroll service that specializes in construction can be tricky, and there are plenty who say that they understand the cash flow realities of construction subcontractors. Patz recommends starting with a simple search. “Google them,” he says, “and see if they have ever been accused of stealing tax money. That’s an easy and important first step!”

Next, be ready to vet the company by asking a few questions. Do they reconcile their tax accounts daily? This helps prevent errors and fraud. What is their liability coverage? And finally, can they provide referrals or case studies from other construction companies they’ve worked with?

Construction payroll is complex, but it doesn’t have to be painful. Save yourself and your team the headache of processing payroll yourselves and instead focus on what matters most — performing the work and growing your business.

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Revenue is the lifeblood of your business. Profit supports your goals for growth, but many construction contractors operate on the thinnest of profit margins. Here are eight strategies you can start using today to increase the profit margin on individual jobs, and your company’s overall profit margin.

#1 Know your job numbers.

They say every river leads to the ocean. The same philosophy is true for your profit. The profit of every job adds up to your company’s overall profit. Increasing your profit margin a few percentage points on each job can add up to a significant increase in net profit and free cash flow for your business.

How do you increase your profit margin? It starts with your bid. Accurately estimating profit margin from the beginning can tell you which jobs to pursue, and which aren’t worth the sweat. That means you need accurate bidding, which all comes down to numbers. It feels great to get a job every time, but doing work that is not profitable just to have work will RUIN your business and is one of the leading causes of why construction businesses fail.

Don’t do work if you aren’t going to make money.

Make sure your bid includes ALL job costs, including overhead and cost of capital. It is imperative you add the cost of your general overhead to every job you bid. In order to do that you have to KNOW what your total overhead costs actually are. Overhead, in its most general sense, is the total of all the costs to run your business that are not directly linked to a specific job. That includes all employees that do not work on the job, your rent or mortgage, insurance costs, payroll fees, entertainment, any other debt payments, etc.

The total of all those costs on an annual basis needs to be calculated – that number is your total overhead cost.

The total overhead cost divided by your total revenue is the percent you need to add to all of your bids in order to properly account for overhead in your future estimates.

In order to figure this out add up all the costs from your 2019 income statement that are not related to actual jobs. Then divide that by your total revenue in 2019. Here is an example for you:

• Annual Revenue: $3,000,000
• Annual Expenses:
• Office staff Salaries – $100,000
• Rent – $30,000
• Insurances (GL, workers comp, auto, etc) – $80,000
• Debt Payments – $40,000
• Total: $250,000
• Total Expenses ($250,000) divided by Total Revenue ($3,000,000) = 8.3%

8.3% is your Overhead allocation. This is what you need to add to every estimate just to break even on the job.

If you bid $100,000 on a job and you have $80,000 in labor and materials on the job you make think you are making $20,000 or 20% margin. The reality of that is you are only making $11,700 on that job because there is $8,300 of overhead expense that needs to be paid also.

Dig into historical data to determine if the costs you have estimated in bidding were accurate at the end of the project. If not, it’s time to update your estimate numbers.

Your profit margin needs to be higher than retainage. Waiting to pull a profit from retainage will put 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.

#2 Know your company numbers.

Now that you are keeping track of your overhead, job costs, and profit margin on each individual job, expand that thinking out to your company as a whole. Remember to include all the costs we discussed in #1 like insurance, your fleet, and office supplies. Do you have outstanding debt with interest that is nibbling away at your profitability? You need to know which debt to attack first, and how the entire ecosystem is working for or against your profit.

This macro view of your company’s profitability can be a real eye-opener, but it’s critical to your success. Profit margin is one of the biggest reasons new construction companies fail.

Pro Tip: Hire an accountant. A CPA can help you determine these numbers accurately, identify cost-saving efficiencies, and help you forecast numbers for the future.

#3 Reduce your cost of customer acquisition.

Lead generation is always a hot topic with contractors. The cost of that lead generation, and its outcomes, are two critical pieces of data that impact your profit margin. How many leads is your sales team producing? How many leads have you purchased? And, most important, how many of those leads converted into new business? If you have 100 new leads and 0 new clients, we’re sorry to tell you that you have wasted your money. At the same time, if you have a rock star sales representative who closes a new deal every day, that person is worth their weight in gold.

Track which lead generation channels are delivering the most leads, and the BEST leads. Cut what isn’t working. Spend your marketing dollars where you are seeing the best production to increase your profit margin.

#4 Borrow to GROW.

Borrowing to survive is bad, but borrowing to capitalize on an opportunity for growth is SMART! If you can borrow $500,000 in order to execute a job with a 20% profit margin and you earn $125,000 in profit, then the cost of the financing is worth it.

Every funding option has positives and negatives, and borrowing without a plan is almost always a bad idea. It’s important to view every lending opportunity with this question in mind: Can I borrow this money to grow and make sure I don’t undercut my growth during the payback?

Read more about borrowing to grow:

Borrowing Capital is a Smart Way to…

#5 Stop competing on price.

You are not a commodity. Neither is your business. A strategic price reduction under the right circumstances is one thing, but when you compete on price alone to win business, the message you are sending is that your work is only worth that much. That’s not a great recipe for long-term growth.

Instead, focus on your reputation as a leader, your company’s reputation in the industry, and the quality work your team is executing. Performance and accountability build a great reputation that will last longer and open more doors than a cheap bid.

Go back and read that last sentence again.

This comes back to bidding. Show your numbers and be upfront about how you came to them. You know what it will realistically take to get the job done right, and a good GC does too. Make their lives a little easier with bids that are clear and comprehensive, that answer their questions, erase pain points, and put their minds at ease. Showing them how you are going to fund the job will also help to put them at ease and trust that you can perform the work they contracted you for. That’s a long-term growth strategy that will show up in your profit.

#6 Trim the talent fat.

Take a deep breath, this one is hard.

You need to balance permanent staff and contract workers. Even harder, you need to take a look inside the office. Is your payroll bloated with specialized staff members who do only that one job or don’t do their job well enough? Would you be more profitable if you combined roles or outsourced a few of these duties? If you have people on your payroll that you have to pay whether there is work or not, you need to make sure they are (1) necessary, and (2) helping the business grow. Get lean and efficient to increase profit margins.

Nobody likes to let good people go. It is not a reflection of them or you — it is business. Be the boss they’ll never forget by helping them find their next opportunity. Leverage your network.

#7 Search for efficiencies and lean into them.

You might be surprised where you can find efficiencies that increase productivity and profit margin. Updating your project management software will have a cost, but if it means you can schedule more work faster, it will soon pay for itself. The same goes with basic fleet maintenance. It may be cheaper to repair that old equipment right now, but in the long run how much are you spending on repairs? At some point, it becomes a better investment to retire old members of the fleet and replace them with newer vehicles.

Efficient and effective communication between your field crew and office staff can help you get paid faster. When you get paid faster, you can pay your vendors, suppliers, and lenders faster. All of which means fewer interest payments and an increase in profit margin.

#8 Set goals and track your progress.

To increase the profit margin for your company, assign a goal to each of these tips. Can you increase your average job margin one percentage point this quarter? Can you reduce your cost of customer acquisition from $350 to $100? Set the goals and then track your progress toward them. Monitor the data after every job, at the end of every month, and at the end of the quarter. You do not have to do all of these things at one time – pick one or two and see them through to the end and then pick 2 more until you implement all of them.

Increasing your profit margin gives your company a solid foundation from which to grow. It makes you more attractive to lenders, increasing the odds you will get the funding you need when you need it next. It also gives you more peace of mind and less stress, so you can focus on doing the great work that your business is known for.

Now go out there and get paid.

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Do you stress over payroll? Construction subcontractors face an uphill battle every week to get payroll checks written and delivered. First there is the construction industry’s slow payment problem; it is hard to pay your team when you have not been paid for the work they have been doing. But many business owners compound the problem by not having a dedicated payroll checking account.

Ensure payroll funds are in.

When you only have one operating checking account, all requests for funds are equal. It is basically a “first-come first-serve” scenario, putting your payroll at risk. A dedicated payroll checking account eliminates the concern that another business expense — like materials, equipment rentals, or debt payments — will cause a potential overdraft when payday comes.

Safeguard your account data.

If you process payroll from your main operating account, the entire account number will print on the check. A separate payroll checking account allows you to mask the main checking account number, protecting it from potential fraud or misuse.

Level up your financial health.

A single business checking account can also be a headache for your bookkeeper and accountant. There are a lot of withdrawals made from this account, and your bookkeeper needs to account for all of them. Streamline payroll expenses by having them all come from one dedicated checking account. When your accountant reconciles your operating account, it is easy to link transactions to your payroll account on the ledger. This also ensures that employee checks will always clear, whether someone holds it too long or cashes it right away!

We always recommend using a third-party payroll company payroll for your business – that way payroll taxes are calculated correctly with all other deductions that are needed and, whenever possible, payroll can be directly deposited into each employee’s bank account.

If you or someone on your team is doing all of this work, consider hiring a professional accountant and a payroll processing service. A key practice in accounting is to separate the duties of AP reconciling and payroll processing. It creates a check-and-balance system, reducing the potential for error or theft.

One more thing on business operating accounts: It is bad practice to have an ATM or debit card linked to the main operating account. If you need to have a debit card versus using a credit card, then open an additional checking account that you can transfer money into from the operating account first and then debit from there. This keeps personal expenses, or even smaller charges that could appear to be non-business related, out of your main operating account. This also protects your main account from fraud or theft or anything else that could be bad related to debit cards.

Make your company more attractive to lenders.

Separate accounts also make quarterly payroll taxes easier. Financial and tax reporting are important components of your bankability — how attractive your company is to a bank or lender. Having a separate payroll checking account shows your company’s maturity and responsibility, which helps the lender determine whether you will be a good candidate for a loan.

Some lenders, Mobilization Funding included, require a separate checking account in order to process funds. An isolated account ensures the funding is used only for its intended purpose.

Would you like to learn more about our lending platform? Click here to see how our loan process works.

A payroll checking account is good for your growth strategy.

A dedicated payroll account allows you to plan for payroll better, manage your company’s financials, and become more attractive to lenders so you can get the capital you need to GROW. It also sends a positive message to your team: Your paychecks are our priority. You work hard for us, and we work hard to protect your paycheck.

If you found this blog helpful and informative, you may also enjoy our newsletter. Click here to subscribe and get more tools and resources sent directly to your inbox every two weeks.

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One Huge Mistake Contractors Can’t…

Your bid is a powerful tool. It’s like Thor’s hammer, knocking down the competition and winning you victory! But only if you know how to wield it. Submitting an ineffective bid, even one that wins you the job, is like swinging that hammer right at your own kneecaps. You’re probably going to go down, and it is probably going to hurt. We put together these bidding tips to keep you swinging superhero bids that protect your profit margins and grow your business!

We’ll start with a review of the tips we shared in 3 Bidding Mistakes that are Killing Your Profit Margin.

Know the retainage before you bid

You need to be as close to cash flow positive (more money coming in than costs going out) as possible with every pay app, but that’s tricky in the first month of the project or if you don’t know the retainage a GC plans to hold on the job. Don’t leave it up to chance, and please don’t tell yourself you’ll float on profit from other jobs while waiting on retainage. Counting on that is too risky and you can’t float, and your business can’t survive without a steady, positive cash flow.

Bidding Tip: Work with the GC to settle on retainage. It may be negotiable, or you may have to raise your bid. Perhaps the percentage of retainage is not negotiable to start but you can negotiate a smaller percentage once you reach a certain project milestone. Be honest — you are protecting your business AND your team’s ability to do the job.

Calculate your costs and include them all

This may seem like less of a bidding tip than a no-brainer, but many subcontractors miss an important detail when planning their project costs — overhead and the cost of borrowed money or debt payments.

From overhead to labor to equipment and fuel, your bid includes an accurate estimate of all the related project costs. But, does it account for how you are going to PAY for your employees that are not part of the project labor force, or your other general overhead like rent, office staff, your salary, insurance, debt payments, vehicle payments or other equipment costs?

And does it account for the debt payments or the money you borrowed to start or fund the project?

It better, or the cost of that funding will come straight out of your profit or worse; be more than the profit you estimated to realize in the first place. Lastly, to be most effective and safe, you should account for all of the cost and overhead net of retainage – meaning don’t even count on the retainage as part of the contract for cash flow purposes – you are not going to get it until the entire project is over in most cases and that cash will not help you while you are performing the project anyways.

Bidding Tip: Work with a trusted finance partner from the start to prepare a term sheet. Include the cost of your funding in your overhead or project costs.

Your funding plan should also be part of a conversation with the GC. Start by acknowledging the reality: Slow payments are part of the deal in our industry. Not a fan of that idea? Check out our blog, Why Subcontractors Need to Talk About Slow Payments with General Contractors to set yourself up for success.

Bid to grow, not just to win

A subcontractor submitting a low bid to land a dream project or new GC relationship is like a farmer counting spring chicks before the eggs are even laid. For starters, you cannot guarantee that this project is the one that is going to unlock a treasure chest of larger, more profitable deals. Second, it will be hard to justify your much larger future bid given your first. Third, final, and MOST important, if you underbid and something goes wrong this dream job will quickly turn into a nightmare.

You should estimate and bid the budget needed to do great work and perform. Performance will make you stand out to a GC. If you want a general contractor to give you a chance to work on their project, talk to them about your ability to perform and maintain a project schedule, not price!

Bidding Tip: Remember that this bid is YOUR superpower to grow. Put in the details, show your work, prove what it will take to do the job right AND that you are the right company to do it. Making promises in bidding that you keep in execution is more likely to build your reputation with the GC than undercutting yourself and scrambling to do damage control later.

We mentioned “show your work” above – this is important. Why? Because the level of detail that you show will be very telling to the GC and can separate you from the others bidding the job. The details can show the GC that you know what you are doing, that you have been thorough, and that if they hire you that same level of detail will go into their project!

Consider the Project Method

Design-Bid-Build (DBB), Design-Build (DB), or Construction Manager At Risk (CMAR) or Integrated Project Delivery, each project method has its own risks and variables for the General Contractor. If the project is CMAR, ask the General Contractor about the Guaranteed Maximum Price and expectations regarding Contingency Amounts, Allowances, and Change Orders.

Consider the Procurement Method

Not all jobs are automatically awarded to the lowest bidder, though it may seem that way sometimes. Owners like Lowest Bid Procurement for obvious reasons, and a lot of government contracts require it, but it still isn’t the case on EVERY project. In Two-Step Bidding, your technical prowess is just as important (if not more) as your price, because it is your technical qualifications that are reviewed first. In Best Value Source Selection, the entire scope of your company — qualifications, management, staff, reputation, and price — are all under review.

Bidding Tip: If you’re looking to grow your company with a sustainable cash flow and project pipeline, don’t undercut your strategy with low-ball bids when you don’t have to. Invest in building a team of superhero laborers — training on-site and off, regular certification renewals, management training for you and the rest of your executive team. Be confident on the merits of your team and bid appropriately.

Bid on the RIGHT jobs

It can be tempting, especially when you are trying to recover from debt or grow your business, to bid on every project that comes your way. Resist temptation! First, bid on jobs that you can successfully execute. Look for projects that will grow your network or raise your profile with your GC network. And again, most important, bid on projects that will allow you to make a profit.

An effective bid is a mighty weapon in the battle to win more work and GROW your business. Wield your power wisely. With these bidding tips, we know you will.

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Ready to put the power of a finance partner behind your bid? Answer 3 questions to start your application!

The construction industry is poised for a bit of a shock in 2020, as rates across multiple lines of insurance — including General Liability, Automotive Liability, and Umbrella or Excess Liability — are set to increase. According to Willis Towers Watson’s Insurance Marketplace Realities 2020, the rate increase predictions land anywhere between 5% to 30%, depending on the coverage line.

To get a better understanding of these changes and how you can prepare for them, we sat down with Dylan Burns, Senior Associate in Corporate Risk & Broking at Willis Towers Watson.

“The commercial insurance rates have been down for the past 3 or 4 years, but as the insurance market has changed, especially in the construction industry, rates are up across multiple lines of coverage. Many contractors may not be aware of this. If you’re not working with your broker and discussing alternative strategies, you’re probably already behind the eight-ball.”

Burns shared five questions you should bring to the table when you sit down with your broker.

1. What are my options? What are we doing to prepare for my renewal?

You may be used to relatively “easy” renewals, but with the marketplace constricting and carriers making dramatic changes to policies that is no longer the case. “Even if you’ve known your broker for years and have a good relationship with them,” says Burns, “now is the time to sit down and review your policy together. You need to build a sustainable strategy. Not just for 2020, but for the next two or three years.”

What can you do?

Get proactive. Prepare for your renewal by scheduling a meeting with your broker and bring all your necessary documentation for review. The following is a short list of what will be needed for review:

• Change of address, if applicable
• Number of employees
• Number of vehicles
• New equipment purchases
• New service or product offerings or other changes to business practice
• Claims data – including detailed information about larger claims and what the company has done to mitigate those types of incidents in the future

Failing to prepare for your renewal can have costly consequences. Not being prepared, delaying information to your broker/carrier and not scheduling pre-renewal loss control meetings all delay the process and limit the time underwriters will have to work on your renewal. This typically leads to less than favorable renewal terms for your company and potential premium increases. Ouch.

It also doesn’t hurt to shop around. Your broker may only have access to a select group of carriers, and there may be other carriers that offer better plans for your business. “Checking what’s out there for you can save you a lot of time and stress in the long run. Even if that may be with another broker,” Burns says.

2. Does my current carrier have discounts for fleet tracking and other safe driving measures? Are we taking advantage of those?

Rising third-party litigation and skyrocketing verdict outcomes have kept Auto Liability rates on the rise for years now, and according to the experts 2020 is no exception. The good news is many carriers offer discounts for safe driving technology and programs.

What can you do?

Implement a safe-driving program at your company. “Brokers and carriers can actually help with that,” says Burns. “Carriers want to work with companies that take pride in their safety. By leaning on their broker, a business can show how they’re taking control of their safety which is attractive to carriers and can afford potential premium discounts.”

Your safe-driving program should include continuous education around distracted driving, fatigued driving, and aggressive driving. If you haven’t already, install fleet tracking in your vehicles. Modern fleet tracking systems do a lot more than just GPS — they can detect and record speeding, aggressive driving, fast braking, and other no-no’s on the road. Some even have historical playback capabilities, which can be useful in claim disputes. This may seem like you want to micro-manage them and perhaps you do, however, the real benefit is the cost savings to the business. Make sure you TELL your employees why you are implementing this program and what the benefits are to your employees so you can manage the message the right way!

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3. What is my company’s Workers’ Compensation Experience Modification Factor (E-Mod)? What does that number mean? How can I improve it?

Workers Compensation is one of the few insurance lines not experiencing a rise in rates. In fact, the prices are so low that it has some carriers worried about profitability. But that doesn’t mean you shouldn’t be paying attention to it.

“Some carriers are looking at Consent to Rate policies rather than the state-filed rates, in order to improve profitability,” says Burns. “Regardless, knowing and improving your Emod is important to your business. For one thing, the higher your Emod, the more you’re going to pay for Workers Compensation. Also, many General Contractors won’t even consider bids from companies with an Emod over 1.00. That’s especially true for government contracts.”

Work with your broker to understand your Emod factor and how you’ve gotten to that number. Each claim affects your company’s Emod, but how each claim is characterized influences the potential impact.

What can you do?

“Talk about safety every day,” advises Burns. “The more you can do to increase employee safety and reduce incidents, the better.” Wellness initiatives, improved communication methods, mental health counseling and substance abuse recovery programs can all make your team safer and reduce the chance of an accident.

Getting employees back to work — even to a light-duty job while they recover — is good for everyone. Employees experience quicker recoveries and less morale decline. Employers can better control the costs of absent employees, and shorter work restrictions can improve your Workers Compensation rates.

4. Are you aware of additional premiums carriers are looking to receive in 2020?

Construction umbrella and excess liability policies are facing some of the biggest changes in 2020. Carriers experienced an excessive number of claims break the umbrella or excess limit. To course-correct and remain profitable, carriers are now raising minimum premiums much higher, from an average of $1,000 per million to $2,500 per million or more.

“The General Contractor has umbrella or excess liability, but more and more are requiring that subcontractors match their umbrella policy,” says Burns. “At the same time, those policies are becoming more expensive and more challenging to acquire.”

What can you do?

Reviewing your coverage plan is good advice no matter which line of insurance we’re talking about.
“Insurance policies are like an encyclopedia,” says Burns. “They’re long, and they’re full of industry and legal jargon. Ask your broker to walk you through it. Find out how your policy responds in the event of an incident. What factors can you control? Which are fixed? What is negotiable? If this coverage is going away, what are my options? Your broker can walk you through all of this.”

5. What can I do from my carrier’s perspective to help with my coverage and rates?

This is the golden question. As the insurance marketplace becomes more constricted, carriers are looking for best-in-class risks. That means you need to put your best foot forward during the application process. You’ll need to provide thorough documentation, including loss experiences and historical exposure. “The carriers don’t want any surprises. They want to understand your business, its history and the outlook for the next couple years. Underwriters understand losses occur, but they want to know the story of why those incidents had occurred and what the company has done to mitigate those types of claims in the future,” says Burns.

Your first step is to get all your documentation together and schedule that check-in with your broker. “Carriers rely on data more and more to predict risk. You need to provide as much information as you can, and in the best context possible,” Burns says. “We as brokers help with that. We dig a little deeper. We say, ‘You have had this loss. Tell me about that.’ It allows us to tell the best story to yield the best possible result for you.”

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Slow payments in construction impact everyone, but subcontractors get hit the hardest. After all, you’ve already financed the labor, materials and equipment to get the work started; a delayed payment means you can’t replenish your cash reserves and you may have trouble making payroll or other critical payments.

Most subcontractors make up the difference with personal savings or the wrong funding option for their business like a Merchant Cash Advance. Worst case scenario, work stops completely while you chase your money, enforce your lien, or borrow money from another project to manage the cash flow crunch on another which now puts both projects at risk. What do we mean by that statement? We mean something like choosing to NOT pay a material supplier once you are paid from Project X, with the plan to just do it next week when the check comes from Project Y.

It’s a nightmare, right? What if it didn’t have to be?

It doesn’t. Automation and technology are already starting to improve the payment infrastructure in the construction industry. But there’s something EASY and FREE you can do to start improving your cash flow right now.

You can have an open and honest conversation about money with your General Contractor. If you’re thinking, “Dream on. I’m not going to admit to my GC that I need money,” then this article was written just for you.

General Contractors, you should keep reading, too.

Come armed with empathy, not emotion.

Nobody is going to deny that slow payments in construction are the norm rather than the exception. PWC’s cash flow survey showed that contractors wait an average of 83 days to get paid! That applies to the owner delaying payment to the General Contractor, GCs delaying payments to subcontractors, and so on. When you talk to a General Contractor, start from a place of empathy for the GC’s position and then share your own.

“We both want to do the best work possible, and we both know the cash it will take to get that done. If the owner fails to pay on-time, it’s going to affect us both. Here’s how it will impact me. I don’t have the cash flow to cover three months of payroll, so I will probably have to dip into my personal savings or — God forbid — get a very high cost loan that will then debit my checking account every day putting tremendous pressure on my cash flow that is already an issue due to slow payments.”

It’s true. Find out more about Merchant Cash Advances here.

This may seem like admitting weakness, but it’s actually the opposite. Stating what is true and real, without emotion or fear, is exactly the kind of calm confidence people respect and look for in leadership. This is especially true when you are talking to someone in advance of a problem. You are not threatening or blaming, just informing them that if X happens then Y will be the result. We are partners in the outcome; how can we manage it together and what options are there to make sure this does not happen?

Support your stance with the facts.

The next step is to bolster your position with facts. Bring your numbers to the table. Show the GC your expected cash flow on the job, and your cash flow projection for the job’s lifetime.

All subcontractors and GCs should understand that on a construction project there is a certain point in the project when the job will cash flow itself. That time is NOT at the beginning of the project. Each new project requires an investment of cash to float payroll, material orders, and other job costs until you can invoice enough against the contract – this is true for the subcontractor and the GC. The point at which you are able to get enough profit out of the project to float payroll and other job costs is the point at which the job starts to cash flow itself.

If you need help determining the cash flow of your project, we created a guide you can use. Click here to get your sample Project Cash Flow Worksheet. (Don’t forget the instructions!)

It’s hard to deny numbers in black and white, and it’s helpful for General Contractors to see how a slow payment affects your entire company.

Once the General Contractor understands your perspective, it will be much easier for them to empathize. Now, take it to the next level.

Bring the GC a solution to the problem.

If there’s one thing a GC appreciates, it’s a subcontractor who PERFORMS without adding stress to the project. You can be that subcontractor. All you have to do is come to the table with a plan.

You’ve addressed the elephant in the room — slow payments on this job are going to be a nightmare for everyone. You’ve shown the numbers — here’s how it will affect me, my company, and my crew. Now it’s time to wipe the worry from your GC’s face. Give them your plan to succeed even if (when) a payment gets held up.

Share your funding plan for the first 90 days of the project. You have one, right?  If not, click here to get started. Ask the GC if they’ve offered incentives to the owner for on-time payment. If so, you can double that savings by offering a discount to the GC if they can guarantee 30 days net payment. You’re in good company if you do — according to Rabbet’s 2019 Construction Payment Report, 72% of subcontractors said they’d do the same.

Bring it back to basic numbers — if we meet X pay schedule, the overall savings on the project will be Y%. That’s a powerful argument for the GC to make to the Owner or Developer, and you just hand-delivered it.

Flip the script on slow payments in construction.

General Contractors, are you still reading? Good. This part is especially important for you. We need to change the tone of conversation around payments in construction. ALL Subcontractors are NOT bad with money; they’re running a business with a payment environment unlike anything in any other industry. Subcontractors need you to be a partner in this, not an adversary.

Subcontractors, remember: You and the GC are on the same side. They hired you to do the great work you do every day. If you’re not getting paid on time, chances are it’s because the GC hasn’t been paid yet, either. Work together to come up with a plan that keeps both of you working and removes the stress from your cash flow.

It all starts with a simple conversation.

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