My last post was about how you’ve got to expand your business in order to achieve wealth, but I also need to make the important point that replication in your business is made much, much easier when the service you provide can be easily performed by unskilled laborers.

Many services require special training, education, and certifications.  For example, I have a good friend who is a personal trainer in Cleveland, and he is highly skilled at what he does.  He earns a good living, but if he ever desired to expand his business by moving into a managerial role and bringing in other trainers to work for him he could find it more difficult than it would be for, say, a lawn-mowing business owner.

Why?  Personal trainers are certified and have devoted long hours to get where they’re at, which means that they are somewhat of a scarcity and expect to earn a good living.  In other words, they expect to be paid well and are difficult to replace.  One or two trainers quit and it could really effect the business in an immediate and negative way.  Lawn mowing techs, on the other hand, are pretty much a dime a dozen.  They don’t need any previous training or skills and so they are in greater supply.  Therefore they can be hired for relatively low pay and if one quits they are easily and quickly replaced.  This scenario sets you, the business owner, up for higher profit margins, less chance of a breakdown in the system, and therefore a quicker rate of company expansion.

As evidence of this phenomenon just take a look at McDonald’s or Subway, which have thousands upon thousands of franchises.  Do you think they achieved that kind of growth by hiring highly skilled hamburger flippers and sandwich makers who expect to make a lot of money?  Of course not.  They’ll hire just about anybody with a pulse because the work is easy to learn and perform, and the pay is therefore pretty low.  That means more money in the franchise owner’s pocket, and more money in the corporation’s pocket.

In my previous entry about targeting a specific service niche, I touched on the subject of replication in your business.  It’s time to revisit and elaborate on this notion.

First, let me be perfectly clear that you will never get rich with your service or contracting business unless you are willing to grow the business and bring on employees to perform the labor.  If you started that painting business because you simply love painting and get satisfaction out of performing the labor, then more power to you.  Just understand that in order for the business to expand you have no choice but to take on a managerial role and pass off the brushes and rollers to worker bees.

In a simplified example, look at these two scenarios:

1. You, the business owner, insist on performing most of the work on every single painting job, though you do have a helper that earns $10 an hour.  Since most of your time is spent painting, there is little time left to devote to advertising and marketing efforts, which limits your annual gross revenue to $100,000.  After expenses and paying your helper, you’re earning around $50,000 before personal income taxes.  Not bad, but you’re not getting rich either.
2. You have decided to step away from performing the actual labor so that you can focus more time and energy on marketing, sales, and administrative tasks.  The resulting increase in business exposure for your company pushes your annual gross revenue to $200,000.  You now have two two-man teams that do all of the actual painting.  Each team has a “lead painter” that earns $12 an hour and a helper that earns $10 an hour.  After paying all your workers and all other business expenses, you’re earning $70,000 before taxes.

Clearly, scenario number two is a more desirable outcome.  You’d make $20,000 more per year by taking on more work, all without so much as touching a paintbrush!  To make it even more interesting, let’s take things a step further:

• Emboldened by your increase in income, you decide to launch an even more aggressive      marketing campaign that raises your advertising budget but results in annual gross revenue of $500,000.  You now have five two-man teams that perform the labor, one salesman that gives  estimates, and a secretary to answer the phone and perform basic office duties.  Obviously with expansion has come higher costs, but after all is said and done you’re earning about $125,000 a year before taxes.  Not too shabby considering that your duties amount to making executive decisions, handling the marketing, and watching a good deal of ESPN in your office.

Hopefully you can see where I’m going with this.  Pull out a pen, paper, and calculator and extrapolate these numbers out even further (million-dollar service businesses are fairly common in many big cities) to see for yourself that the income you’ve always dreamed about is achievable, but it simply cannot happen if you’re doing all the work yourself.  You’ve got to pull yourself away from the labor if you ever hope to truly make a lot of money.  To get rich you must grow and learn to delegate.  There is no other way.  If you can’t stand the thought of parting ways with a brush in your hand and paint on your face then so be it.  Just be aware that you’ll probably never earn six figures and you’ll be busting your butt for the next 30 years just to pay the bills like everybody else.

If there’s one thing that aggravates me more than the customer that acts like a jerk, it’s the customer that takes forever to pay for services rendered.  These are usually the types that have never owned their own business, and are quite often also the type that expect you to bend over backwards to accommodate special requests or to perform extra services for free while on the job site.  Funny that they ask so much of you but think nothing of taking a month to pay.  In their world they’re just happy that that they needled you for every bit of free labor they could get and don’t give a damn about your cash flow.

As in life, one of the keys to running a successful business is to anticipate and head off problems before they arise.  I’ve gotten in the habit of explaining our payment expectations when homeowners call to schedule the work at their home, and it’s a ritual that has been pretty effective in avoiding payment problems down the road.  No matter if you’re trying to become a general contractor or a grout cleaner, tell them up front that payment is expected immediately upon completion of the job, and that they should make their check payable to “so and so contracting, LLC”.  If they want to pay with a credit card they should have it ready when the job is done.  Setting the stage in this manner will alert the customer to the fact that you take immediate payment seriously, and in most cases they will follow directions to the “t”.  There’s a way to do this without sounding like an a-hole, and if you can’t figure it out on your own then ask someone for help or get someone else to do the scheduling who has better phone etiquette.

No matter how well you prepare, however, there will inevitably be customers that “forgot their checkbook” or “can’t find their credit card” or some similar nonsense.  If it’s obvious that they absolutely will not or cannot pay on the spot, act a little shocked, then hand them a self-addressed stamped envelope (you should have several prepared in your work binder for this kind of situation) along with the invoice, and make sure to write “Your prompt payment is appreciated” on the bill.  These few simple steps will go a long way in demonstrating to them how serious you are about collecting the money ASAP.

If a week has gone by and you STILL haven’t received payment, skip the usual thank you letter and instead send out a demand for payment letter.  Make it friendly in tone, but be clear that your company relies heavily on weekly cash flow to keep up with your financial obligations and that their immediate payment would be very much appreciated.  End it with another expression of gratitude for the opportunity to perform your service at their home, and don’t forget to include another SASE just to help grease the skids a bit.

If two weeks have gone by without sign of payment, you need to make a phone call and politely ask what’s going on.  If that doesn’t work then, of course, other options come into play which aren’t very pleasant but which are occasionally necessary, and include lawyers, debt collectors, and liens.  The bottom line is that you don’t want things to digress to this point, so do your best to set expectations before work has even begun, and you can help to limit the number of deadbeat customers that you’ll eventually have to deal with.

If you’re interested in becoming a general contractor, or any kind of contractor for that matter, you need to prepare yourself for the occasional customer who expects you to work for free.  No, I’m not kidding.  Let me give you an example.

Recently, a local homeowner contacted me to ask for a written estimate for work at his home.  I, of course, said that I would and then asked if there were any other related services he needed from us so that I could price those as well while I was at the home.  The homeowner declined.

So, I gave the estimate.  That evening the homeowner contacted me to say that he was very interested, but added the caveat that if he “gave me the job” he’d expect me to perform some other tasks for free that had not been mentioned previously.  He then topped it off with my favorite line: “If you do a good job word will spread”.

Needless to say, I was a little peeved, as I always am when people expect something for nothing.  It was bad enough that he withheld this information from me during our first series of conversations, but by doing so he also deprived me of the opportunity to even investigate the other issues while I was on his property.  He essentially was giving me the choice of either saying I would perform free work on something that I had not even physically examined or saying that I would not perform the work for free.  I chose the latter.

As expected, he wasn’t thrilled with my response and I didn’t get the job.  Good riddance.  Dealing with difficult people is not a hobby I particularly enjoy, and in my experience the customers that act weird in the beginning tend to act weird for the duration, and are more likely to make petty complaints, ask for even more freebies later on, and take so long to pay that I end up having to send out a demand for payment letter.  Those kinds of people lose me money, and I can’t have that.  My attitude is, if you want to wheel and deal, go to a car dealership.  Don’t expect a small business owner to make all sorts of concessions on labor and price, especially the specialty contractors who do small-revenue jobs.  I have bills, too, and my company is not a charitable organization.  If a homeowner is  going to try to bargain with a contractor, they should at least let him/her know up front all the services that need to be performed, and then bargain on price after the estimate has been given.  Otherwise it’s just a waste of everybody’s time.

I know, I know.  Everybody likes a deal and I’m being too harsh.  Maybe, but the real point of this story is that you, as the contractor that wants to grow your business, must accept the fact that with every concession you make and with every free service performed you are just delaying your ultimate success.  You’re allowing yourself to be held back.  Once your business is established you have to stick to your guns when it comes to price or people will take advantage of you.  Most of these customers are not business owners and don’t recognize the multitude of costs that we face, so while they might be thinking you have room to budge, you should know better.  You should know when to walk away from a losing proposition.  In the meantime, double your efforts to target wealthy, time-challenged homeowners who appreciate quality and who recognize that it comes with a price tag.