How Painting Contractors Lose Their Shirt

Expand nationally

Most painting contractors fail when they go outside their geographic marketing area. An exception to this is a situation where one customer asks you to work on their property on a national basis. This type of out-of-town marketing succeeds because it is not really an expansion of your business, but rather, expansion with one customer.

Some contractors expand because they think the grass is greener somewhere else. Many simply let their egos get in the way of their good judg­ment. Expansion outside of your local market is difficult, particularly for a subcontractor. Subs must build a local labor force. My advice is pretty simple: if you are not making money, fix what is wrong with your business and make money in your own market. If you are not making money and plan to relocate as a cure, do so as a tradesman.

For those of you who are making money and are tempted to expand geographically, think of it this way: contracting is a risk —why expand in such a risky way? Consider taking money from the contracting business and diversifying. Hire a good financial planner. If you are bored, find a hobby or use your business skills to help a charity. Don’t let your boredom destroy your business.

Build their own house or office

Most con­tractors already have a full-time job. While I have written about this in the past, I want to reiterate what a financial disaster this can be. Building your own house or office can be a huge business distraction. We estimate it costs our average customer $100,000 in lost profits. Are you in a position to take such a financial hit? If not, hire someone and let them do it. It will be a much bet­ter use of your time. Don’t underestimate the impact of having your own crews work on your magnificent dream house. It is difficult to explain to a $12-an-hour guy why you are not made of money when you are building a million-dollar house.

Use Revenue Canada as a Bank

No matter how bad of a cash crunch you are in, always pay your payroll taxes and income taxes first. The government is the most expensive bank in the world. Just don’t use the government as a lend­ing institution, no matter how tempting it might be.

Neglect their insurance

When you have an accident and are sued for mil­lions, it is too late to discover that you are not properly insured. Insurance is a complex legal issue. The purpose of insurance is not to protect you from day- to-day mishaps, but rather to ensure that a disaster will not wipe you out. Make sure you have a professional multi-line business agent who is an expert in insurance (not sales) review your insur­ance needs. Review all your coverage. If need be, increase your deductibles, but make sure you have adequate disaster coverage. Incorporate, and make sure your corporate structure is clean, with no games.

Remember, you may be able to hand creditors the keys to your shop and still keep your house and personal wealth if you do. Make sure you are covered for incidents such as embezzle­ment, employee non-owned vehicles, etc. Consider having an umbrella that covers your personal worth. I am not an insur­ance expert, so don’t follow my advice; hire someone who is an expert. I know insurance is expensive and a hated word to contractors, but if you ever need it, it will save your butt. Make sure your coverage is adequate to save you.

Make real estate mistakes

Many contractors dabble in real estate, and this can be a great strategy, but don’t do so until you are ready. Trying to cut deals in real estate as a way to get out of debt can be a huge distraction. Only do such things when you have the time and capital.

Do the wrong job

This is a biggie for many painting contractors. Taking on a risky job in hopes of making a lot of money can sink your ship. Don’t let the excitement of the big score cloud your good judgment. Some warning signs of a wrong job are outlined below.

If an unknown customer or out-of- town company calls out of the blue and has a “too good to be true” job, well, it probably is. Even if you can do the job, conduct an extensive credit check. The job stretches your abilities, and is not only large, but difficult in scope, and will require most of your best people. The job is more than 20 percent of your total sales volume for any given year. How are you going to keep your other customers happy while you work on this miracle? The job is a large, new construction job. New construction is almost always harder than working directly for a property owner. It can take longer to get paid; you have other subs and trades in your way. The list goes on. Last, but not least, if something goes wrong on this job and you are not paid a substantial portion, due, will it destroy your lifestyle and business, or just hurt you short term?

Think of it this way: staring at a pretty girl may not be cool with your wife, but if she gets angry, she will probably get over it. Sleeping with that pretty girl may cost you half your net worth and your relationship with the family. Is it worth the risk? Don’t let the “pretty girl” job destroy your company.

Stay in a dysfunctional partner­ship

Partnerships are like marriages, and 50 percent of the marriages in the US result in divorce. People form partnerships for many reasons. Possibly, you and your partner are brothers or cousins. Maybe one is the field guy and the other an office person. Over time, it is very difficult to keep those partner­ships focused where both partners are bringing the same value to the business. People’s lives and goals also change over time. Maybe when the business started, one of you was a 150 K a year foreman and the other a 150 K a yr salesperson, so all was okay. Now, one partner runs the business and is a 150 K a year owner, and the other is a 150K a year foreman, which is not so okay. If you are going to have a partner, you both must act and communicate like partners.

While the above list does not nec­essarily represent all of the stupid financial mistakes painting contractors make, it does represent a pretty good cross-section. Avoiding these issues will probably save you a lot of heart­ache and money.