Business mistake I’m glad I did not make

[AndyG]

Last spring I looked at a job-

It involved excavating a backyard extensively and creating a large retaining wall that had to be certified by an engineer-

Building a room addition into that area

Building a masonry storm shelter in the house

Converting the attached garage into a living suite

Removing the middle loadbearing wall in the house and installing a large LVL to spend the distance and carry the roof load

Fully re-wiring and
replumbing the house

Completely altering and renovating every square inch of the interior with four full tile bathrooms

New floors new trim new drywall, paint, new cabinets... the whole shebang and exterior accents and painting the house along with probably 40 yards of concrete

The architect told the lady she should be able to do this for about $200,000.

I really didn’t even want to talk further with her so out of touch and told her that she was looking in the 350 to 400 range depending on her tastes- I was very cordial and curious at how determined she was to get it done so dangerously cheap.


I reached out to her about a week later and asked her what she was thinking and she said she had contractor and she was just fine.

Well of all things later I ran into a contractor buddy of mine a little while later and he was telling me about this certain job and it turns out that he took the job- for 262,000.00

They end up getting the job about 90% done and 4 months behind his promised completion date and are having tremendous friction between him and her and can’t get paid - I told him to stop the job and get a completion plan, collect the needed money and get it finished. Then settle up.

I was amazed to learn he had no payment schedule in his contract.

The entire contract was literally four sentences. Less than one page.


He would not listen to me and things basically just kept falling apart. He kept going. Big mistake. Next a vendor mails her a lien threat and she freaks and gets a lawyer.

Now they are having a Mexican standoff.

Recently she reaches out to me and invited me to come look at the house.

At this stage she owes him 60,000 and she’s nervous about giving him more money and asked me if I think there is $200,000 of work done there.

I told her “no, I think there’s about $350,000 worth of work done and that the reason he can’t finish is he’s out of money.”

She told me she would’ve hired me but he was all she could afford.

I told her well she couldn’t afford him either he just did not know that.

When I walked through the house basically I was just going “oh God, Oh God, oh God” mentally. I had a feeling he was in trouble on the project but when I saw that I realized he probably lost $160,000. Just the masonry cost was $50,000 and at that point he had suck his boat as that was nearly 20% of the gross contract.

He has drained his company,

The good side is the work is in a logical state of completion and beautifully executed- He could’ve done a few things better but I can say the same for myself at times.

With the money she has they can go a long way to getting it finished but I think they’re going to run into trouble on the cost of concrete because they have a pretty good bit of yardage.

The bad news is he got no engineer to sign off on the retaining wall, This is a huge problem getting a certificate of occupancy. And he owes a lot of people money so subcontractors are not too quick to come.


And of course she’s looking to me for advice so here is what I told her- Keep in mind I was aware of some things he has requested she do to move things along.

I told her to go to the plumbing supply place and pay for every single thing you need and get the sinks and faucets delivered to the countertop fabrication company-

Locate all the cabinets that you intend to purchase for the bathrooms and get them purchased and delivered.

Locate your interior door hardware.

Get your structural engineer buddy to help you guys with the retaining wall certificate it may require some excavation to verify it was done correctly.

Get your light fixtures to the house.

Get the countertop template didn’t get an installation date and schedule the plumber with him.

Figure out how much concrete you need and the cost - If you don’t think you’re going to be able to do it I’ll figure out what is absolutely essential.

Get a count on all your cabinet doors and order your cabinet hardware

Get your shower glass quoted and make a decision on what to order

Get a lien waiver signed for any money you give him and anywhere you can pay people with joint checks- to him and them- They can give him his profit out of the transaction ( Which won’t happen because he owes everybody in town money right now- me included)

Once you guys have a handle on this you need to lay out your money on paper look at what you spent that was going to go to him and see what you have left determine what is fair and make sure when the money moves it moves people.



Lord have mercy.

There are so many things wrong with this situation-

Let me take a minute to explain how things like this happen-


- Contractors get busy and they don’t slow down and look at the constructibility challenges of a project during the bid phase

- They get overconfident in their success and don’t even consider that they could make a serious mistake

- They start running into financial issues and will take work at a ridiculously low price in order to make sure they get the job to get some money coming in trying to keep everything going

- They dramatically overestimate their capability to execute work within budget- As if they are somehow immune to the current market price of products and services

-They write sloppy contracts

- they spend money that is not theirs to spend

- They don’t know their own costs

Some or all of this happens, then the money slows down, the work slows down, that slows down the money even more ......

He and I are going to sit down in a day or two and I’m going to share some things that have helped me through some tough situations and hopefully he can muscle through this. He has been through some hard things and overcome them in the past and worked hard to get where he is.

 

[LukesfirstJeep]

Does this mean the lowest bidder wasn't the cheapest? I feel sorry for contractors that do an honest job, but get underwater.

 

[AndyG]

Does this mean the lowest bidder wasn't the cheapest? I feel sorry for contractors that do an honest job, but get underwater.

I love that -the lowest bidder was not the cheapest.

Good stuff.

I like the one “ if you think a professional is expensive wait until you hire an amateur”

 

[tnjeepguy]

Unfortunately most of the stories you hear are the opposite. The homeowner is the one being cheated. Paid and work not done or done poorly and left a mess, etc.

"caveat emptor"

 

[AndyG]

Unfortunately most of the stories you hear are the opposite. The homeowner is the one being cheated. Paid and work not done or done poorly and left a mess, etc.

"caveat emptor"

Yeah this one is a little unusual because she really thought she was getting cheated and I was like you know ma’am he could quit right now and you’ve got to deal with the century-

One of the problems is the GC really doesn’t realize the seriousness of the situation- He was on the edge of an abandonment breach of contract.

Also unbeknownst to him she was talking to the city and everyone so she wasn’t completely ignorant neither was the city.

I think it speaks volumes that she really wants him to finish.

He’s let the stress get to him a little bit and he’s not treated her as well as it should-He’s going to need to learn even if you’re in the wrong you need to be nice.

 

[WestCoastDan]

Herding a homeowner's ideas & expectations into the same corral as reality & budget is often a difficult task.
They see pictures in a magazine and the "I want that" mindset gets ahold of them, without any clue as to the complexity & cost associated with their lofty ideas.

I once built a kitchen that was a duplication/recreation of one the homeowner saw in a popular movie.
Having to create the design using still shots and video wasn't easy, and it took a lot of my time, both at the shop and in the home.

The finished project turned out great and it was exactly what she wanted, but it was over budget and a bit past the expected schedule; some of that was on me & some was on them.

In the end, it's all moot because their house burned to the ground last month along with all of their neighbors' homes.

 

[B1Toad]

I had several in that situation (although not nearly as major as the one you describe) where the customer was desperate for a solution, but unfortunately they no longer had the resources for a proper remedy. Somehow they thought I could come in and fix everything for a pittance. (This was just on the electrical stuff)

 

[AndyG]

Herding a homeowner's ideas & expectations into the same corral as reality & budget is often a difficult task.
They see pictures in a magazine and the "I want that" mindset gets ahold of them, without any clue as to the complexity & cost associated with their lofty ideas.

I once built a kitchen that was a duplication/recreation of one the homeowner saw in a popular movie.
Having to create the design using still shots and video wasn't easy, and it took a lot of my time, both at the shop and in the home.

The finished project turned out great and it was exactly what she wanted, but it was over budget and a bit past the expected schedule; some of that was on me & some was on them.

In the end, it's all moot because their house burned to the ground last month along with all of their neighbors' homes.

Lord lord- what a story.

 

[AndyG]

I had several in that situation (although not nearly as major as the one you describe) where the customer was desperate for a solution, but unfortunately they no longer had the resources for a proper remedy. Somehow they thought I could come in and fix everything for a pittance. (This was just on the electrical stuff)

That is all too common.

I had one customer asked me how much is this going to cost us to finish what this guy started-

My answer was about everything you wasted paying him, plus what we had to do.

The bad part is most of the time the contractor is a crook and pretty much cleans people out- Then they get a bad job and they don’t have the money to finish it correctly.

 

[B1Toad]

One of the problems coming into a job that was left unfinished by another contractor is liability. Especially in the electrical trade, I can't just come in and finish someone else's work without accepting liability for the entire job.

 

[AndyG]

One of the problems coming into a job that was left unfinished by another contractor is liability. Especially in the electrical trade, I can't just come in and finish someone else's work without accepting liability for the entire job.

If you sign up you, are signing on.

With overlapping circuits and potential backfeed and all the things balance sheet rock you can’t see.... All the time you’re figuring this out you wonder if the place is going to burn to the ground....

It’s really not a privilege.

Sometimes I will ask myself with my insurance company will be OK with that decision if fixing this backfires?

- you know when the market is strong contractors can’t get to everything and these bottom feeders get picked up. I see an aftermath every time we have a boom cycle here.

It would blow your mind what I’m having to do to fix a house here in Huntsville right now that was essentially a crawlspace built 8 inches over dirt.

 

[DuckNut]

Far too many people (business owners) are struggling and they lower their prices just to get jobs. This is a false sense of reality and worth. The moment you lower prices to get that job you are one step closer to closing your doors.

A business must know what it is worth per hour and cannot charge less than that. Doing so cheapens your values and quality of work, leading to trouble. Maybe not that one job, but the killer is only a few days away.

We turn down many jobs. The two leading reasons we turn them down is 1) not big enough and 2) we do not hit off a great rapport with the owners.

I wish every single guy out there in business for himself the absolute best. There are some that deserve to go away but overall, I want all owners to succeed.

 

[AndyG]

Far too many people (business owners) are struggling and they lower their prices just to get jobs. This is a false sense of reality and worth. The moment you lower prices to get that job you are one step closer to closing your doors.

A business must know what it is worth per hour and cannot charge less than that. Doing so cheapens your values and quality of work, leading to trouble. Maybe not that one job, but the killer is only a few days away.

We turn down many jobs. The two leading reasons we turn them down is 1) not big enough and 2) we do not hit off a great rapport with the owners.

I wish every single guy out there in business for himself the absolute best. There are some that deserve to go away but overall, I want all owners to succeed.

Very well said.

I like part 2- rapport.


There is a fantastic point- Because that has so much impact - It is a terrible mistake to take on a project for somebody that you know is going to be difficult to work with.

You don’t always know 100% but most of the time if you’ve done this for a long time you can tell.


Just how customers go through the decision making process will tell you about everything.

Good
Post.

 

[Rickyd]

A good tell i watch out for is complaining about the last guy,even worse is complaining about a list of contractors.99% of the time It just means I'll be the next victim of this person.

This applies to personal relationships as well.

 

[gbirk]

Last spring I looked at a job-

It involved excavating a backyard extensively and creating a large retaining wall that had to be certified by an engineer-

Building a room addition into that area

Building a masonry storm shelter in the house

Converting the attached garage into a living suite

Removing the middle loadbearing wall in the house and installing a large LVL to spend the distance and carry the roof load

Fully re-wiring and
replumbing the house

Completely altering and renovating every square inch of the interior with four full tile bathrooms

New floors new trim new drywall, paint, new cabinets... the whole shebang and exterior accents and painting the house along with probably 40 yards of concrete

The architect told the lady she should be able to do this for about $200,000.

I really didn’t even want to talk further with her so out of touch and told her that she was looking in the 350 to 400 range depending on her tastes- I was very cordial and curious at how determined she was to get it done so dangerously cheap.


I reached out to her about a week later and asked her what she was thinking and she said she had contractor and she was just fine.

Well of all things later I ran into a contractor buddy of mine a little while later and he was telling me about this certain job and it turns out that he took the job- for 262,000.00

They end up getting the job about 90% done and 4 months behind his promised completion date and are having tremendous friction between him and her and can’t get paid - I told him to stop the job and get a completion plan, collect the needed money and get it finished. Then settle up.

I was amazed to learn he had no payment schedule in his contract.

The entire contract was literally four sentences. Less than one page.


He would not listen to me and things basically just kept falling apart. He kept going. Big mistake. Next a vendor mails her a lien threat and she freaks and gets a lawyer.

Now they are having a Mexican standoff.

Recently she reaches out to me and invited me to come look at the house.

At this stage she owes him 60,000 and she’s nervous about giving him more money and asked me if I think there is $200,000 of work done there.

I told her “no, I think there’s about $350,000 worth of work done and that the reason he can’t finish is he’s out of money.”

She told me she would’ve hired me but he was all she could afford.

I told her well she couldn’t afford him either he just did not know that.

When I walked through the house basically I was just going “oh God, Oh God, oh God” mentally. I had a feeling he was in trouble on the project but when I saw that I realized he probably lost $160,000. Just the masonry cost was $50,000 and at that point he had suck his boat as that was nearly 20% of the gross contract.

He has drained his company,

The good side is the work is in a logical state of completion and beautifully executed- He could’ve done a few things better but I can say the same for myself at times.

With the money she has they can go a long way to getting it finished but I think they’re going to run into trouble on the cost of concrete because they have a pretty good bit of yardage.

The bad news is he got no engineer to sign off on the retaining wall, This is a huge problem getting a certificate of occupancy. And he owes a lot of people money so subcontractors are not too quick to come.


And of course she’s looking to me for advice so here is what I told her- Keep in mind I was aware of some things he has requested she do to move things along.

I told her to go to the plumbing supply place and pay for every single thing you need and get the sinks and faucets delivered to the countertop fabrication company-

Locate all the cabinets that you intend to purchase for the bathrooms and get them purchased and delivered.

Locate your interior door hardware.

Get your structural engineer buddy to help you guys with the retaining wall certificate it may require some excavation to verify it was done correctly.

Get your light fixtures to the house.

Get the countertop template didn’t get an installation date and schedule the plumber with him.

Figure out how much concrete you need and the cost - If you don’t think you’re going to be able to do it I’ll figure out what is absolutely essential.

Get a count on all your cabinet doors and order your cabinet hardware

Get your shower glass quoted and make a decision on what to order

Get a lien waiver signed for any money you give him and anywhere you can pay people with joint checks- to him and them- They can give him his profit out of the transaction ( Which won’t happen because he owes everybody in town money right now- me included)

Once you guys have a handle on this you need to lay out your money on paper look at what you spent that was going to go to him and see what you have left determine what is fair and make sure when the money moves it moves people.



Lord have mercy.

There are so many things wrong with this situation-

Let me take a minute to explain how things like this happen-


- Contractors get busy and they don’t slow down and look at the constructibility challenges of a project during the bid phase

- They get overconfident in their success and don’t even consider that they could make a serious mistake

- They start running into financial issues and will take work at a ridiculously low price in order to make sure they get the job to get some money coming in trying to keep everything going

- They dramatically overestimate their capability to execute work within budget- As if they are somehow immune to the current market price of products and services

-They write sloppy contracts

- they spend money that is not theirs to spend

- They don’t know their own costs

Some or all of this happens, then the money slows down, the work slows down, that slows down the money even more ......

He and I are going to sit down in a day or two and I’m going to share some things that have helped me through some tough situations and hopefully he can muscle through this. He has been through some hard things and overcome them in the past and worked hard to get where he is.

I am an IT consultant, and if I replace some of the nouns in your story with IT related nouns it still rings true to so many projects I have seen.

1st - Set a clear definition of work, we call it a SOW (Scope of work).
2nd - Set clear goals for the project and separate out wants from needs.
3rd - GET A CONTRACT SIGNED, AND MAKE SURE IT WAS REVIEWED BY AN ATTORNEY! The $5k you save by not doing this will cost you so much more down the road.
4th - Get a down payment and require PROGRESS BILLING! If they will not do this, they can't afford you.
5th - Retire. The world has become a shit show.

 

[AndyG]

I am an IT consultant, and if I replace some of the nouns in your story with IT related nouns it still rings true to so many projects I have seen.

1st - Set a clear definition of work, we call it a SOW (Scope of work).
2nd - Set clear goals for the project and separate out wants from needs.
3rd - GET A CONTRACT SIGNED, AND MAKE SURE IT WAS REVIEWED BY AN ATTORNEY! The $5k you save by not doing this will cost you so much more down the road.
4th - Get a down payment and require PROGRESS BILLING! If they will not do this, they can't afford you.
5th - Retire. The world has become a shit show.

That pretty much nails It.

Your scope of work is your ticket. It is what you’re charging for.

Technically. it is the product. It is what you’re selling.

And if you can’t correlate that to a profitable payment schedule you don’t need to be doing what you’re doing- And like the guy were talking about you probably won’t be doing it very long.

And it does not end pretty.

 

[DuckNut]

Very well said.

I like part 2- rapport.


There is a fantastic point- Because that has so much impact - It is a terrible mistake to take on a project for somebody that you know is going to be difficult to work with.

You don’t always know 100% but most of the time if you’ve done this for a long time you can tell.


Just how customers go through the decision making process will tell you about everything.

Good
Post.

There is another term that really bothers me. I do not know why I get frazzled when someone mis-uses the term but I do.

Customer.

I do not ever wish to work for a customer. If I get the sense they are content to be a customer I walk away. Customers always complain. Every department store has a massive customer service area. Some times they are half the size of the customer checkout area. Customer to me is a simple transaction with a 50% chance of a changed mind followed by a complaint.

There is a huge difference with the other "C" word. No, not the four letter version - that is just a female customer. The "C" word I am referring to is client. The definition of client is an ongoing relationship. These are the people I want in my life.

A week ago I got a call from someone we did a project for about 6 years ago and touch base every once in a while but hadn't heard from them since last summer. The call I got was from the Mrs. letting me know her husband passes away a few weeks prior and she is having a hard time coping in the house we built for them. She said " I need you to build me a smaller house and when you are done sell this one". (She will be living at a different house until then).

Customers or clients - only you can choose one.

 

[AndyG]

There is another term that really bothers me. I do not know why I get frazzled when someone mis-uses the term but I do.

Customer.

I do not ever wish to work for a customer. If I get the sense they are content to be a customer I walk away. Customers always complain. Every department store has a massive customer service area. Some times they are half the size of the customer checkout area. Customer to me is a simple transaction with a 50% chance of a changed mind followed by a complaint.

There is a huge difference with the other "C" word. No, not the four letter version - that is just a female customer. The "C" word I am referring to is client. The definition of client is an ongoing relationship. These are the people I want in my life.

A week ago I got a call from someone we did a project for about 6 years ago and touch base every once in a while but hadn't heard from them since last summer. The call I got was from the Mrs. letting me know her husband passes away a few weeks prior and she is having a hard time coping in the house we built for them. She said " I need you to build me a smaller house and when you are done sell this one". (She will be living at a different house until then).

Customers or clients - only you can choose one.

That is very true.

Jay Abraham, the brilliant marketer, uses that same example, citing the word client means “in your care” in his view.

We have repeat clients.

And some one time customers.

 

[NDSpeed]

so when searching for a contractor, what are some of the things i should be looking for,

in the future plan on building a custom 2400sq ft with a detached garage workshop,

no idea which state either.

so i’m interested in how you find the corerect contractor

 

[LukesfirstJeep]

so when searching for a contractor, what are some of the things i should be looking for,

in the future plan on building a custom 2400sq ft with a detached garage workshop,

no idea which state either.

so i’m interested in how you find the corerect contractor

Back in the day, ask for references, and how long the crew has worked for the contractor. There's is/was a regional contractor that has very low prices. Every year they go out to the lowest bidder for the sub work. The model home you saw might not represent the home you get.

Today? I'm not sure what to do.