CONTRACTOR SUCCESS STORY as a new business , we couldn ’ t qualify for vendor credit or business loans to purchase our own .”
A lack of finances and cash flow adversely affect small contractors in a number of other ways , a situation compounded when payment for work is delayed . “ Government jobs are awesome in one way because there ’ s guaranteed work , with a contract in place ,” Angie observes , “ but then you submit your progress payment invoices and you ’ re waiting and waiting – there have been times we ’ ve had to wait as much as 120 days before receiving any payment . Meanwhile , small businesses like ours get forced into a factoring loan .”
Unlike traditional loans , companies and banks which offer factoring basically purchase a business ’ outstanding invoices for a discounted rate , collect on the invoices directly , then charge the business owners a fee . While this option can provide some quick cash , it ’ s typically more expensive than conventional loans . Remarks Angie , “ As a young couple and a young company , we didn ’ t really understand what that meant , but we knew we needed the money , so we said , ‘ Okay , let ’ s just do it ,’ but then we looked back and thought ‘ How much did we pay in factoring fees ?’ But again , there were not a lot of options .” While costly , this option at least helped them keep the company in business by providing cashflow to fund payroll while they to receive payment .
They also learned the hard way the importance of reading through a contract ’ s fine print . “ At first , we assumed that what we bid for was what was in the contract they sent us to sign , but sometimes it ’ s not like that ,” reflects Angie , “ Sometimes , they add more specifications without increasing how much they ’ re paying . If we had known there was someone out there , like a contract lawyer , who could help us review that , we ’ d have avoided the financial burden of being paid the same but having to complete more work than we ’ d originally bid on .”
Another hurdle that Angie describes was having to start from scratch in building the company ’ s credit history when they transitioned from being a sole proprietorship to being incorporated . “ That was something we were not aware of at the time , so we had to start all over from the bottom up .”
Based on their own experiences of learning by trial and error , Manny and Angie espouse the value of providing training , resources , and mentor-protégée programs to help educate and guide small business owners , especially in relation to government contracting work , so that they are more aware of what they are getting into and know how to protect themselves .
For newly established small contractors with minimal resources , especially those without access to traditional loans and networks , Native Soil offers the following tips :
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When you start making money , don ’ t spend it on eating out all the time , vacations or lifestyle upgrades – instead , save as much as you can to fund the costs of your next project . Don ’ t go out of business by foolishly spending all your money .
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Be focused and responsible – pay your employees , pay off all your debts and invest in growing your business .
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Understand your trade . Each industry has high and low seasons , so put money aside for the times when you don ’ t have a lot of work but still have expenses to meet and vendors to pay .
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Everything is based on your personal
SPRING CONTRACTOR REPORT - 17