Month: December 2018

Contractors, especially those running a small business, often have trouble getting approved for traditional loans because lenders tend to view the construction industry as risky and unpredictable.

When choosing a loan, you should consider the limit and the repayment terms. To understand the cost of borrowing, the most important number is the annual percentage rate (APR), the interest rate annualized for the whole year.

Let’s go over a few of the best options for independent contractor business owners and how you can make an informed choice.

Business Line of Credit

A business line of credit (LOC) is a revolving line you can repay and use repeatedly to fund the growth of your construction company or to cover seasonal cash flow gaps. Basically a line of credit sets the maximum amount that you can borrow at a time. You’ll only pay interest on the credit you use, so a LOC could be a good fit for contractors that need quick cash to cover expenses on a new project with a fast start date (so it can be repaid relatively quickly).

Business LOCs can have relatively low APR, as low as 14%. However, an LOC usually also has a relatively low limit, maxing out at around $100,000. If you need more capital, you’ll need to consider other options.

Traditional lenders, like banks, tend to have the lowest APRs, but also the strictest requirements, often requiring a few years in business and strong revenue. If you’re just starting out, you could turn to an online lender, but they usually have higher APRs and lower credit limits. Bare minimum, you’ll need six months in business and $25,000 in annual revenue to qualify for a business line of credit.

Short Term Loans

Short term loans are appropriate for business owners who need growth capital and have predictable expenses. They’re usually used to make a large immediate purchase for the business, since it’s dispersed as a lump sum and you start paying interest immediately. They usually must be paid off within six to eighteen months.

Short term loans have an APR between 30% and 50% and can range from $100 to $100,000. Usually you’ll need a credit score of at least 500, be in business for more than a year and have annual revenue of at least $100,000.

These loans are best if you need quick capital for a purchase. If you need capital for ongoing expenses, then you’ll be better off with another option.

Invoice Financing

Also known as account receivable financing, this term describes two options for using invoices to acquire capital.

The first is called invoice factoring, whereby the business sells their accounts receivable to a factoring company in exchange for immediate payment of a portion of the invoice(s). The remainder of the invoice, less a fee, is received when the invoice is paid in full.

The second option is an asset-based loan. These are loans based on the value of outstanding invoices. Essentially, you are borrowing up to 80% against the value of your eligible receivables. The lender will first need to assess the reliability of your customers, so this works best if you work with companies and other reliable customers. These loans typically max out at $100,000 and must be repaid within 6 months.

Equipment Loans

Equipment financing is a loan used to purchase large equipment that remains functional long-term. The equipment you’re buying is used by the lender as collateral for the loan.

Interest rates for these loans runs between 6-9% and the loans can be up to $500,000 (usually 95% of the cost of the equipment). You will need better credit for this, with a minimum score of about 600 usually being required.

This tends to be used by larger companies. These are very specific loans, made for the purpose of purchasing a specific item or items. Smaller companies should look for a different option.

SBA Loans

Small Business Administration loans are backed by the SBA. The SBA can guarantee up to 85% of loans of $150,000 or less and 75% of loans of more than $150,000, with a maximum loan amount of $5 million.

These loans tend to come with very low APRs, running between 5-10%. There’s also a loan packaging fee of a few thousand dollars and an SBA guarantee fee of around 3%, so this loan can be a bit pricey if you’re looking for a short term loan. The loan repayment term depends on how the loan is intended to be used. The longer the repayment, the lower the interest rate.

In order to qualify for an SBA loan, you’ll need a credit score of 680 and provide a down payment of 10-20%. They take a long time to get funded and they’re difficult to qualify for, so small businesses shouldn’t expect access to capital for months, if they’re approved at all.

Taking a loan is always a serious decision that can impact your finances over a long period. The biggest favor you can do yourself is to make sure that you understand everything about your loan and what it will mean for you, your business and your credit. Consider all your options, do your research and make the best decision for you.

Running a client-based business can be tough, especially when you’re just starting. To build your business, you have to market yourself and build a client base. To stay ahead, you’ll want to develop a solid relationship with your clients by providing excellent service and high quality work, which will ensure word of mouth and less need for active marketing as you move forward.

Building a marketing strategy that targets your ideal clients is a challenge that you have to face early on or you risk a failure to launch. There are lots of different methods you can utilize to build your marketing strategy, so let’s go over a few ideas and how they could apply to your business.

Publishing Ads

If you decide to go for paid ads, there are several platforms you can chose. You can pay for ads on Google AdWords, Facebook, local television, radio or print or a number of other options.

No matter the platform, the most important thing to keep in mind for marketing is understanding your customers. You can write the perfect Facebook ad, but if it appeals to college students instead of homeowners,(but that wouldn’t be a perfect ad) it does you no good.

The content of your ad is just as important, if not more so, than the platform on which you advertise. There are potential customers everywhere; you don’t have to find them. You have to send the right message, and they will find you. (Not sure about that last bit of logic)

Understanding your customers is two-sided. You, naturally, must understand the folks in your target region, but you also need to know what niche you want to occupy.

If you want to develop a specialized, high-end business, you will need to target more affluent clients with ads for exclusive services and high quality fixtures. If you are a jack-of-all-trades who can help anyone with anything, you’re better of marketing based on your flexibility and competitive prices.

Online Presence

One of the biggest buzz words in the marketing world today is “SEO.” SEO is search engine optimization, which means altering the online visibility of your website in organic search results. You can do this by altering the content of your page, adding media content, cross linking and many other strategies.

At the very least, you should definitely utilize your Google My Business listing. A complete and up-to-date listing helps you in two ways. First, the more complete your GMB listing, the better Google will understand your business and the higher your listing will be in relevant search results. Second, potential clients are more likely to find you and call you if your GMB listing is full.

Solicit Reviews

Whether on Facebook, Google or your own website, positive reviews are a huge boon to businesses. Particularly for contractor services, word-of-mouth can be a significant source of new clients, whether direct or indirect (like reviews). Consumers often need reassurance that they are making the right choice, especially when it comes to inviting someone into their home and to do expensive work on their home.

When you complete a job, you should always tell the customer you would appreciate a positive review online and follow up with an email or even a text message with a link to your business Facebook and GMB listing and request that they leave a review for your services. Naturally, you want positive reviews, but it’s also important that they leave written details, so that reviews feel personal and authentic. Encourage this.

Build a Brand

Before you can solicit reviews, you need to ensure that they’re going to help, not hurt. Do this by building a brand. Your brand is the way you present yourself and the way you are perceived by past and potential clients.

Some parts of a brand are universal. You should always be known as a perfectionist, relatable and trustworthy. You should leave every client completely satisfied and feeling positively about their experience with you. Every client should want to leave a 5-star review and feel comfortable (or even look forward to) recommending you to a friend, colleague or neighbor.

Depending on your target audience, you should consider branding yourself in additional ways. For example, if you aim for a high-end clientele, you should avoid being viewed as “discount” or offering “good value.” That doesn’t mean you should overcharge or gouge, of course. Good value is always important, but be wary of offering discounts or deals on services.

Network

As previously mentioned, word-of-mouth is critical to building a local business. Good word-of-mouth doesn’t just come from clients, but from other professionals, too.

Building strong relationships with the local suppliers in your area is a great way to gain new clients, as suppliers that like and respect you will be willing to direct customers your way and even recommend you to other professionals in your area.

You should also network among other contractors, whether in your field or other fields. Having ties to others in the same field can serve you well, as they may direct clients to you if they don’t have the time to take them on or you are more qualified for a specific task.

One great way to network is online, through professional forums, such as Contractor Talk. Such forums are a great place to connect with other contractors, ask for advice and share your experiences.

You can choose to implement one or all of these marketing strategies, or you may decide to just count on traditional word-of-mouth by your customers. The most important thing to keep in mind in using marketing to build your business is to know your audience and pursue them relentlessly, no matter what strategy you choose.

No business owner likes the slow season. Not every business has a slow season, but for some contractors, especially those that work exclusively outdoors, like roofers, the winter can be a tough time to find work.

Here are a few ideas for surviving the slow season and keeping your business alive.

Offer discounted services

As they approach the slow season, many contractors think the solution to booking gigs is lowering their price, but price reduction is a slippery slope. Once you advertise a certain price for a certain service, it devalues your work all year round and customers will feel cheated when the warm weather roles around and your prices go back up.

Rather than advertising a lower price, you could distribute door flyers or postcards that offer 10% off select services for the next 30 days. The word “select” is key, because it reserves from wiggle room depending on the job. This makes it seem like a special, since it isn’t for the whole season and is a percentage instead of a flat drop in rate.

Always weigh a price reduction carefully before you implement it since this strategy can affect your business long term. There are those that believe that if you are truly good at your job and deserving of the rate that you charge, then you shouldn’t lower it for any reason. This can garner you more respect with clients and other contractors alike.

Expand your skills and your target audience

What keeps you busy 9 months of the year may not do the job in the slower winter months. But if you can diversify your skill set and bolster your audience with new clients, you can keep yourself busy when your specialty slows down.

For example, if you are an exterior painter, you could consider offering interior painting in the winter. Seems pretty obvious, but then how are you to compete with the guys who do interior all year long? But if you spend some time adding drywall and plaster repair to your repertoire, you may just have an edge. If you run a crew, it may be enough to have one guy who can handle certain more complicated tasks, as well.

Pitch early (September) to local businesses, churches and small offices for any work they may need done. You probably can handle some light reno jobs or handyman tasks, too. There are lots of options for how to keep yourself busy, just outside of your specialty. You just have to pursue them and know how to nail them down.

Get a seasonal job

If you run a solo operation, you may want to just close up shop for the slow months and get a seasonal job. A lot of places look for seasonal help, especially around the holidays, like warehouses.

Snowplowing is another very common option for a lot of contractors in colder climates. You already have a big truck (most likely), so renting or buying a plow for the winter could pay dividends.

If you’re comfortable with it, you could also work as a sub or join a crew temporarily. Sometimes larger contractors will have projects that run through the winter and they could take you on for your slow months.

Do side projects

The slow season is a great time to get things done that usually get pushed to the side in favor of project after project. If you are looking to keep your team or yourself busy short term, there’s always the standard maintenance: clean the shop, clean and tune up your work vehicles, organize the tool trailer, etc.

Another great option is offering continuing education to employees. You can do training for more complex or difficult tasks, CPR/first aid or the OSHA 10-hour training course (which can reduce your insurance costs, actually). You can also spend some time reviewing old projects to see where you could have been more efficient and done things a smarter way.

Of course, these are only good ideas if you’re just filling a day here or there. DON’T try to keep employees working if there it isn’t work. You’ll just end up bleeding money for the whole season and having to lay people off when you need them.

If the need is to fill your own time, not that of a crew, you can (and should!) use the time to bulk up your SEO, website and marketing. This is something that can often be neglected until you have a desperate need for it and then it’s too late. Having an updated website (whether it’s just a Facebook page or an independent URL) is critical for your business. Activating and updating your Google My Business is an easy way to bolster your online presence.

You can also do offline marketing. Posting flyers, sending postcards or distributing door flyers are all great ways to remind your local community that you’re around and can drum up business in the slow season.

Save up

This last one involves a lot of smart planning and prepping. Basically, charge more the rest of the year to compensate for the slow season and just take the time off.

As a one-man operation, this can be relatively simple (though potentially difficult). If you can reduce overhead costs for the off season (for example, avoid unnecessary insurance premiums by getting per-project insurance) and work (and charge) enough the rest of the year to cover your costs and maintain your lifestyle, you’re all set.

If you operate a crew, this can be a bit more complicated. You need to either pay your employees enough or have an understanding when you hire them that when you lay them off, they’ll come back to you when you start back up. Whether they enjoy having the time off to pursue their own interests or they find a seasonal gig, it’s important that you ensure that they trust and respect you enough to come back when you need them. Remember that these folks depend on your business for their livelihood. It’s a serious responsibility and you don’t want to hang them out to dry.

One of the most important and most difficult aspects of being an independent contractor is deciding how to price your services. If you’ve decided to charge hourly, as opposed to project-based, then the next big question is how much to charge per hour.

Naturally, to get the basic idea for your minimum acceptable fee, you need to start by assessing your costs and dividing them by the number of hours you want to or can work. Then you need to decide what kind of lifestyle you want to lead, and therefore how much profit you need to turn. There are lots of calculators online to help you work this out.

But it’s easy to miss things or end up hurting your business unintentionally. So, here are a few things to keep in mind when you are setting your hourly rate and pricing jobs.

1. Don’t forget ALL your overhead

Overhead is any expenses associated with the general operation of your business. Of course, this includes all the basics: your shop, tools, vehicle, advertising costs, etc. Overhead also includes annual expenses, life insurance, health care, workers’ compensation and taxes.

Failing to understand all of the overhead costs associated with your business overall and with individual jobs can cost you big over the course of the year.

2. Check out the competition

It’s all fine and good to do a calculation and pick a number. But you need to determine if the number you’ve picked is viable in the marketplace. Prices for services vary by area and by demand. You need to assess what others are changing and what clients are willing to pay.

Keep in mind that breaking into a relatively closed market can be challenging. It’s possible that you’ll need to start on the lower range of fees; your fee can increase as you gain more experience and build a trusting client base.

You can talk to other independent contractors in your area (either face-to-face or online) and see what companies in your area pay employees who do similar work to yours. You’ll probably need to play with your fee as you start out and see how the market responds.

3. Be flexible

Even if you’ve set a rate, remember that nothing is a hundred percent. Sometimes a job may call for a flat fee. If a job is far away but will only take an hour or two, you may want to consider a higher hourly rate to compensate for your travel time and costs. A more complex project may force you to quote and leave it open ended.

Whatever you decide, stick to your guns and remember your value.

Which leads us to…

4. Don’t undersell yourself.

You have value. While you’re checking out the marketplace, remember that your work isn’t identical to other contractors in your area, or even those in your field. If you have a lot of experience or expertise in a particular service, don’t be afraid to charge for them and defend yourself if you’re questioned.

If you’ve done the calculations and decided on a figure, but feel nervous asking for that amount, ask yourself why? Is it fear of overcharging? You don’t feel it’s fair? That could be, but more likely, you’re just undervaluing yourself and the services your provide.

Undercharging can not only cost you money on individuals jobs, it can devalue your company by making you seem “budget” or “cheap.” That can affect your business in the long term.

5. Feel comfortable walking away

If you set a number and believe that number is fair and justifiable based on your experience and other qualifications, stick to your guns. If a potential client questions your fee, explain your thought process. If the client continues whinging, don’t be afraid to walk away.

A customer that is focused on price over quality is almost inevitably going to cause you a headache and cost you more then the job is even worth. The client isn’t always right and when they’re wrong it can be a real disaster for you.