Four Important Words That Turn High Profit Jobs Into Non-Profit Jobs!

• That Should Be Included...

• Since It's Open Anyway...

• You Get It Wholesale...

• It's A Small Change...

• While We're At It...

• It's Easy For You...

• I Have An Idea...

• I Need A Favor...

Contractors hear these all the time. Part of the root cause can be traced to a mild case of "Stockholm Syndrome" where contractors feel their cash flow may be held captive by their customers or clients. They do not want to upset the "Captor-Customers" and so they tend to do more than they should.

I have a Randalism to share with you: "Hammer, Hammer, Who Has The Hammer?" In this case the "Hammer" is a change order. This is a bit harsh; however, if you are a contractor you live in a harsh reality and the sooner you realize that and take steps to protect yourself, your company and your family's financial future the better.

80% of your customers are going to play fair. You do what you promise and they will pay you, no questions asked and they are the foundation for high profit repeat customers.

15% of your customers will try to get a bargain...little extras, minor changes. These are marginal customers you will want to replace with high profit repeat customers.

3% of your customers are "Grinders" and will try to take all your profit by telling you too "Sharpen Your Pencil" which means do the job for just over your hard cost for material and whatever you pay your employees in gross wages with no allowance for overhead costs.

2% of your customers will do everything in their power to lie, cheat and steal. This is harsh but true from my experience as a contractor and now as a construction accountant. I have seen it happen to 100's of contractors and clients and in some cases more than once.

The 80-20 Rule For Financial Success In Construction

Life gives us a test (working without change order management system) and if we learn the lesson (get change orders signed and paid) we pass the test. If not life is patient and will allow us to repeat the test as many times as we want too.

Change orders are the "Hammer" and if you have a signed change order you have the hammer. The funny thing is 80% of your customers will pay you with or without a change order.

5% of your customers will more often than not sign the change order and pay without any fuss or problem.

3% will put up a fight and not likely to sign change orders saying "I don't have time for nonsense" and they rarely pay because they know a change order is a "Hammer".

2% will NEVER sign any change orders and usually get upset and angry because they know the odds of you getting any money go up when you have a "Hammer".

There Is A Hall Of Justice But There Is No Hall Of Fairness

No law says there has to be change orders. A lawyer may be able to enforce a verbal contract; however, for contractors unless you have something in writing it is my opinion that construction contracts fixed in stone. If a contract states, “I will pay you $X to do Y scope of work", your customer cannot force you to do more and you cannot do less than agreed.

Change orders can protect you and your customer. Change orders give contractors leverage because you can refuse to make the change unless you are paid.

Five Tips To Help Contractors With Change Orders

#1 When The Four Important Words Are Spoken STOP, LOOK AND LISTEN!

• If it looks like a duck (change in scope of work) walks like a duck, quacks like a duck it is a duck (change order).

• There is no such thing as a no-cost change once you understand "What Ten Minutes Costs Your Construction Company" The little leaks sink the ship (construction company's) because they are "no big thing" a simple "freebie" to maintain "goodwill" so that in time the contractor can go to Goodwill charity for a handout.

• In a lot of cases you are dealing with a customer who has a "Champagne Diet On A Beer Income" and if your customer understands that something is extra and how much it will cost in time and money they may change their mind or at least they will know ahead of time how much and when they need to pay.

• Get the change order filled out and signed before any work is done. There is likely to be pressure on you to “just do it” with the assurance that “it will be worked out later.” and other fairy tales. 80% of your customers will pay for services and will not object to signing a change order. In fact they love it! They want certainty and to know exactly what to expect. That is how the live their lives.

# 2 Ask For Payment In Advance

• What!!!???  Ask for payment in advance? Am I crazy? Contractors are not bankers, but they seem to finance a lot of extra work using their own credit cards and paying finance and interest charges. Hint: if you do not have enough cash flow to pay off your credit cards every month chances are you are acting as your customer's lending institution or their sugar daddy! Randalism "I am not an excellent judge of a person's credit score; however, I am a good judge of cash, checks and we accept all credit cards. If you do not accept credit cards please click here and read this

# 3 Consult Your Employees

• Your construction workers are the ones who will do the work. Consulting them and getting their feedback about any potential problems you may not be aware of can save you tons of grief later.

# 3 Consult Your Subcontractors

• Consulting the sub-contractors and getting their feedback about any potential problems regarding scheduling and additional materials shows respect and may mean the difference between profitable change orders and non-profit or even negative profit change orders. 

#4 Pay Your Subcontractors In Advance

• You are going to pay for the change anyway so why not get some additional benefit from it? Everyone makes choices about which job to give priority to and which ones can wait. In construction time is money and whenever a subcontractor makes your job a priority you make more money. Make your subcontractor's life easy and they will make your life easy!

#5 Download Our FREE Change Order Form

We have a FREE Change Order Form Click Here you can download

and use over and over. We also have a video you can watch below

QuickBooks Expert Specializing In Construction Bookkeeping Services