Struggling with Business - Your Responses

Struggling with Business Today –Your Responses
Issues and Solutions

So many of you responded to our newsletter last month (click here to read it) by emailing me with how you are handling your personal struggles. For many of you it’s devastating because you have been running a business successfully until now, but haven’t had to deal with an economic climate like this.

All of your emails had meaning, and touched me personally and I acknowledge you and what you are going through. For the purpose of this newsletter, I have edited your responses down to the key common issues in order to be able to share them with everyone. I am encouraged by those who have taken action, and I hope that their emails contain insight that is beneficial to you – some food for thought.

The key common concerns:

Unlicensed contractors taking the work
Underbidding to get the job
Collecting payment for completed jobs
Lack of consistent work (the phones aren’t ringing)
Cash flow (and hard to get loans)

Taking Action:

Market yourself
Lean On and Lien!
Report unlicensed workers
Diversify

Here are Your Stories – you are not alone

I’m a woman-owned design firm in the Midwest and was set pretty well when this started –customers included universities, private industry, a railroad, and architectural and engineering firms. I had no personal debt or business debt except for mortgages and those were below 80% of the property value and had investments.

The university that constituted 30% of my business cancelled most of their design contracts and quit awarding new ones except in specific instances.
A private company is piling up projects – but cannot get money released.
One of my major engineering sources went out of business.

I personally need to hear periodically that I am not alone. I tried rotating layoffs, hoping to keep my people. But then, people came back depressed and worried and unable to do a decent job. Some people can continue to function under rough circumstances, but many start doing really stupid things. I never want to part with the ones who can continue to function when they don’t know whether to skip their house payment or their car payment this month. And that makes me, as an employer feel awful. I don’t like cutting more than half of my employees and reducing the others to part time. But, my business line of credit has been maxed out for months and I now have a car loan and two large charge card loans and will be getting another special offer from a charge card tomorrow. At least I can – because my business was in great shape when this started. And work is good for the soul. I miss having enough of it.

Our business is struggling and I am lost at the moment on which direction to take. I have been in the Engineering field for over 20+ years and I started my own company 6 years ago. My Company has met my expectations over the years working with my long term contacts and clients, until last week. I have never had to market my company and have been able to rely on word-to-mouth recommendations. So, I'd appreciate your thoughts and your readers’ comments and ideas on what we should be doing in these times.

Unlicensed Contractors:

Not all areas in the state require any inspections and/or licensing which means that a lot of small unlicensed contractors that don’t have the trained people or the equipment to do commercial work and only did residential wiring are now doing whatever they can to get work. They are bidding commercial jobs at a residential rate and driving down the price not realizing what their true overhead costs are. They probably don’t know how to figure their true over head costs. This does cause great financial stress on these contractors but they continue to bid at the same prices thinking that if they have checks coming in that they are making money. Eventually they will be out of business but in the meantime other larger contractors are bidding work at their cost (overhead included) and are being told that they are too high. The larger contractors can’t even think of “Profit”. I think if you did an article on how to figure overhead and true costs that it would help a great many people.

In Rock Hill, SC we are plagued with property owners using unlicensed people for their electrical needs or trying to do a job themselves. Then you add the AHJ in to the mix. Apparently with the economy the way that it is, our local AHJ will not enforce our state laws. Their opinion is well every one needs to work, or well we are trying to help people save money. As for me and my house we will continue to serve and trust in GOD.

Underbidding to Get the Job

Lowball competitors are also primarily using subcontract electricians at fixed square foot price to do the main part of the roughs & trims in residential here in north Texas. They are obviously working for much lower net income than our in-house guys.

One of the hardest things to overcome is home improvement contractors taking on all phases of work. Some are not licensed but give the appearance they are. They undercut our prices to obtain work and make us (licensed contractors) look like the bad guys. Yet most have little or no overhead to contend with. There is little or no enforcement from the consumer protection offices from the state that we work in from budget cuts. Up here in the northeast, price talks until a house burns down and then they talk about safety. How do I compete? The working class is trying to survive while the rich get bailouts. What happened to America?

The worst part of this thing is working these jobs for 25 to 30 percent of what I would have if things were normal...if I bid a job for what it's worth, I’d be sitting at home waiting to lose my house...The small jobs which are my bread and butter that should be 15 to 75,000 are going for 10 to 55,000....seems all I am doing this year is trading dollars. I also fear that even when things level out, that it will take some time to get the GCs and owners to pay the money the jobs are worth.

Our small company went from 20 to 4 field employees this year. I had to let some good people go that really hurt me, they were good people. We were heavy into shopping center work and that has all but dried up. Now we are going after what little commercial work is out there with everyone else including industrial and residential contractors. All of the jobs I am bidding now are going below cost to do them. I don’t understand how these electrical contractors can continue to do this. I do expect bonding companies to be taking over several jobs soon in Alabama. I am a little prepared for this, only because I took a beating when wire and conduit went up so bad about 6 years ago and I was under large contracts at fixed bid cost. That taught me to be a lot more conservative, so my company can hold on through this, if it don’t last for years......and to be honest I am about ready to temporarily close for a while to let the people bidding below cost get their fill, or go under, then open back up when the market is better. Example: Before I had my last lay-off I bid a $211K job at COST to keep good people working and got beat by 2 electrical contractors! After that I decided, no more. I will bid normal with a smaller profit and if I don’t get it so what.....let ‘em have it. Good luck to all of us, maybe what few nego contracts we all have left with our good customers will keep us all going.

Collecting Payment for Completed Jobs

The biggest problem our company has is getting contractors to pay after we complete their work. Some of the smaller jobs would cost to much time and money to take them to court and they know it so will not pay. Thank God for the older repeat customer if were not for them we would probably fold.

We are having more trouble collecting on completed contracts. Payment terms are spelled out plainly, but seem to be habitually ignored. If it was only one or two, you may consider it normal, but seems to be an escalating problem. The normal excuses seem to be cash flow problem that filters on down the line. I read in the local news that local county govt. was 3 to 6 months late on payments to vendors. In speaking to our major supplier, he indicated that this was a problem that was having an impact on them as well, with several layoffs.

The biggest problem facing us little guys is getting paid. Most of the time, we get paid late, then later, then again later, or not at all. My men work hard, no labor problems, seems the bigger they are the least likely they are to pay on time. Always dreaming up reasons not to pay on time, so then you have to get lawyers involved, and they get paid and not you.

Our company in S. Texas has been in business for 25 yrs and the two biggest problems we have experienced have been getting full payment when due and competition from either bootleggers working on the side or UNLICENSED "so called electricians". Thankfully the State of Texas has an enforcement arm and they are doing what they can to stop unlicensed work. I always said when you see contractors driving new pickups and flashy toys the bottom is fixing to fall out. I got caught in that position once years ago a learned a really good lesson from that. We have seen this 2 times in the last 25 years. All the ones that were chasing the new housing market have now FLOODED the small job and service/repair jobs resulting cutting into our bread and butter work. Don't worry though....many of those guys will be out of business soon because they didn't plan for the long haul - remember they have the trucks and toy payments to make.

Lack of Consistent Work (the phones aren’t ringing)

My business is currently suffering from a lack of consistent work. We are normally down for fourteen days without work, and when we finally receive work (or win a job), the income received doesn't pay the bills we are required to pay each month. I believe we are suffering for these reasons: 1. Lack of consistent work, or jobs that pay enough to make a profit 2. Mandatory bills paid-out each month (Example: insurance) We are living day to day! A hand up would be real nice right now. I remember having a backlog of 4-6 weeks now we are at 4-6 hours. I have 1 2 man job scheduled for tomorrow. I have 5 field employees: 4 JM, 1 A, 1 helper. The phone has stopped ringing. Unlicensed handyman are working for less than wages, IBEW guys on the bench are side jobbing, the list goes on. We cut almost everything to stay in business, including my pay! We did however increase our marketing budget and are looking at other ways to gain exposure. The getting paid part has always been a problem. It seems worse now. We are "writing off" $15K this month as uncollectible debt, which will of course wreck our P&L for the month and then carry out to the end of the year. We'll survive but we'll be scarred.

The phone is not ringing at all some days. I look forward to hearing about strategies that help get resolve that. We are enhancing our web site and also putting ads in some publications.

Cash Flow (and hard to get loans)

Ours is a family owned and operated business that has been around since 1926. We have evolved a lot over the years and will continue to in order to survive. Cash flow is usually our greatest financial obstacle. Either we are waiting on payments that arrive a lot later than they should or are having to chase people down for payment. Add to that a lack of funding at a reasonable rate and it sometimes returns us to "living week to week" scenario. Other common factors include poorly trained electricians to choose employees from, lack of concern locally about proper licensing, the abundance of "shade tree servicers” and an ever increasing tax burden, both local and federal. There are times when I wonder why I am not pumping gas for a living. Unfortunately I don’t play well with others and I am forced to work for myself to keep employment. Just ask my wife and business partner, Dottie. Seriously though, our company is no different from thousands of other small businesses struggling to stay in business. It is my opinion that small businesses like ours are the backbone of this country and like the farmers need to be acknowledged and help made available to smaller companies. We don’t want a handout but a hand up would sure be appreciated. Thanks for taking the time to bring this to light and I look forward to your articles. Your newsletters and website provide us with much needed information.

I am finding it hard to find loans and grants to start a business with, right now I found a subcontracting spot in a factory which gives me forty hours a week but the pay is only slightly more than as if I were working for someone, so the money is less than piling up you know. And I still can't hire someone to work all of my other clients. Man it's hard to do everything.

The most significant challenge to my company is cash flow. In the past, we operated a lot like farmers. We’d borrow operating capital in the spring (or bidding/planting season) to cover our overhead while we went through the bidding process, then pay the loans off as the progress payments came in from the work we generated. The past two years, the banks have turned their backs on us (except for some minor get-by loans along the way). As a result of the lack of cash to cover current expenses like rent, utilities, vehicle payments, etc, we’ve been forced to delay payments to our creditors, which has damaged our credit rating and given the banks another excuse not to support us. Here’s the irony of it all:

Good electrical contractors are in short supply and will be in demand for the foreseeable future - just not that many people out there that have both the technical and business abilities to be electrical contractors.
We had our best year to date in 2008 due to streamlining and going after niche markets. This year, I had to pass up potential work because I didn’t have the time to bid it. Due to the cost cutting that we had to do, we gave up a large number of our workers and those of us left are doing it all.
Demand this year has been steady and appears to be increasing---we have a market for our services.

If you have the time, take a look at the New York Times online in the Small Business section of the Business pages. The article about our company was featured on 19 Dec 08, by Mickey Meece. The article pretty much says it all. Thanks for the prayers. It’s in God that we are putting all our trust.

Taking Action

Market Yourself

I feel free advertising is the way to go, pass cards out, referrals, craigslist.com etc. The better business bureau is ok to have; I have gotten some business for being accredited with them. And it's cheap. Let's see I've tried small ads in the yellow pages, I lost money there. Then I tried yellow pages.com, 0 for 2. Second I would say 80% of the estimates I put out there fell through. If I was to get 90% of the estimates I put out there I would be fine. There are too many unlicensed people doing work for cheap, and bypassing codes to save money. I'm on the brink of closing shop, and going to work for someone else.

My response to your question about strategies for coping with the current economy also ties in with your twitter project. We are in the process of communicating with our clients to let them know they can follow us on twitter. Specifically, we will be sending out “twitter alerts” that tell clients “We have a gap in the schedule from 12-4p this Tuesday, first come first served for a 20% discount.” The hope of course is by letting all of our clients know they have a specific window to save money, we will keep the guys working and the client who is also looking to save some money will act earlier than they might have. What I like about it also is that we are not lowering our overall prices, just offering a specific discount based on our current situation on that day.

Lean On and Lien!

We got away from working with contractors years ago. It's a double edged sword however. In lean times they keep you busy (contractors) but individual home owners pay much better. If your contractor does not pay you. Go to his customers, his Bank, his supply houses and any body else that will listen. You do not need a contractor like this, lien and keep up on it. Call a collection lawyer after the due date. (Talk with him first and tell him what you are going to do) If he does not settle up, you do not want to work with him anyway. This is your future.

Report unlicensed workers

I have been talking to an area inspector here all day. We are discussing an unlicensed electrical assistant working as a Contractor on this job I am at. Finally I got someone to listen. The AHJ is going to make him an example. $1000 per apartment he changed a panel in. His name will be in 6 counties' newspapers and forever banned from working in this state as an electrician even if he can pass the tests. So Hustle, Hustle, Hustle for work and report the unlicensed one. Now don't get me wrong we were all without a license at one time but we worked for our right to be a Contractor. I will help anyone that wants to get a license as long as they understand doing it right and protecting the customer is what the NEC is all about.

I am reporting unlicensed electrical contractors at an alarming rate as people turn to them to save money. They are crawling out of the wood works.

Diversify

I must say that the greatest amount of business I get is from word of mouth, and home warranties. Doing a good job pays off, and signing up (at no cost) for home warranties, both get business. The problems I face in this economy are that I bid a lot of jobs, and it seems like people aren't willing to spend the money, even though I've lowered my hourly rate quite a bit, as well as my mark-up on materials. I did however manage to get the bid on 2 new construction homes, with the possibility to do 8 more beyond that. I'm also having a hard time getting new customers. I know that I'm cheaper than most, if not all others here, so I figure that I must try to expand my customer spectrum, instead of just lowering my rates for a few customers

Mike, I diversify the operations. That opens up new options. The economy will become more stable in time. One of our bigger (non-union) companies has opened a Data Comm. shop, and then a HVAC shop, allowing personnel to be shifted around.

That is how I am doing it to. We have always done anything with wire in it Network, Telecomm and traditional from Service entrance to bedroom or whatever I have taken on an HVAC Journeyman to help with this heat pump job and that has shown me paths to more work.

I was 5 months with no work and talked an HVAC contractor into throwing me a distant job my way - 265 miles away supervising Heat Pump installations. That feeds me so I can't complain. I did a sign rewiring for a sign company that paid me 300 in one day and he gave me 5 signs for my truck cut from vinyl. If not for networking with the local businesses and other electrical contractors I would have closed my doors.

I work mainly with telephone companies including cellular since 1993 all over the US and some other countries. Since last September, the industry has come to a halt as far as maintenance goes. We specialize in Grounding, Power (ac/dc), lightning protection and training. Companies are spending less dollars on new equipment installation, therefore, I receive less calls to make sure the equipment and facilities are properly grounded and powered according to set standards. The man cometh and is almost at the door of closing

Yes it is going to be a tough winter to survive this year but rely on your repeat business and referrals from word of mouth. If you do a good job at a fair price your customer will call you again. It’s ok to make a profit, nothing wrong with that, but please don't give it away. That ruins the market as a whole. If you can't make a profit you are better to stay at home and let the other guy lose his fanny and few times till he is out of business. Slow times are also likely times to catch people in their office who are normally busy and not available. It never hurts to seek new business. You lose some customers each year for a number of reasons so always be on the hustle for new opportunities. Hopefully the reputable contractors will survive this mess. When life feeds you lemons, break out the tequila!

Doing it all:

I think the biggest issues I have seen in the last year or so is the amount of new phone calls from new customers going from 3-5 a day to 3-5 a week! The big strain on all of us is the cost of carrying all the insurance and licenses required to be a legitimate contractor: Workers Comp., liability, auto, office/structure, health, life, disability, bonding insurances plus all the state and county license fees. The "Handyman" has none of the above and is killing us all!

Shop around for the best rates you can get.
I contacted all of my "regular" customers and made visits to let them know I am still here. My saving grace has been my previous customers calling me, some from three years ago for new work. I established good work ethics with my customers in the past and it has helped me stay in business today.
I have also taken a hard look at my advertisements and where I am advertising. I have made the changes I felt best to make.
I am driving farther than I have ever driven out of my area to get work.
I have learned how to do things and/or now do things in the industry I did not or would not do before - like low voltage/communications work, residential construction, etc..."Education is key"!!!
The last thing I am doing to stay in business for my self is I have looked into other avenues for income. Although I take a ribbing from my piers, I actually started a landscape company earlier this year doing residential lawns, tree trimming, irrigation work, landscape lighting etc...Believe it or not, this helps fill in the voids in the schedule and keeps everyone working and making money. I make enough doing this part time to pay my mortgage!

Continue to give us your comments and feedback so we can structure our upcoming series of Business Management newsletters to address your specific concerns.