provided by: 
More than likely as a child you heard this from your parents: "If you would simply listen to me, you would not have to make the same mistakes I made!" Did we listen? Maybe. But more often than not, we looked back and think, "Gee, if I listened to my parents, I wouldn't be going through what I am going through."
Well, I'm not your parent, but there is something I want to share with you that could be of great benefit and perhaps even save your business. If you are a young company, this probably hasn't happened to you yet. If you have been in business for five to 10 years, more than likely it has happened to you and hopefully you learned something from it. If you have been in business for 10 years or more, more than likely this has happened to you at least once, and since you are reading this article, you learned from it because you're still in business.
Here is a story that may seem familiar to you. An electrician started his own company a few years ago. While not easy, he was making some money. Most of his jobs tended to be small to medium in size. One day you look in the paper and read that the local school system was going to remodel the high school and bids will be taken from contractors in various trades over the next few weeks.
It looks like a great opportunity, right? So, our contractor gets a set of plans and finds the portion of the job applying to electrical work isn't just big, it's huge. He does his research and finds that the electrical work would be far and away the biggest — and potentially the most profitable — job of his business career. A job that could lead to more work and more revenue.
He recently attended a class on labor pricing so he knows how to bid the job to make a reasonable profit. If his numbers are right he will have a 10 percent net pre-profit built into the job, which will cover the company's overhead, including owner's salary, and it would keep the crews busy for several weeks, if not months.
The day finally comes and the winning bids are announced. Our new electrical contractor gets the job! He now orders the equipment and materials from the supplier, and in a few short weeks the job begins with nearly every tech working full time on the project. But, before he knows it, it's payroll time. So, he submits an invoice for the work done so far.
A week passes and no check, which continues week to week. So, he makes a phone call. To the contractor's dismay he is told invoices may be submitted only once a month, between the first and tenth of the month. Our contractor is now two weeks behind, but next week is the first of the month so the check will surely arrive soon. Another week or two passes and still no check. Another call to the office only to find out one more detail he didn't know: the standard operating procedure is payment in 60 days after receipt of invoice.
Now what? He has no money coming in for another two weeks, needs to make payroll and now he gets hit with a bill from the supplier for the materials he ordered for the job. Fortunately, he did set up a line of credit. So, he borrows from that line to make payroll and pay basic overhead costs. The distributor will have to wait, however.
Finally, the initial invoice arrives 60 to 90 days after it was submitted, but notices he receives less than the amount he submitted to the general contractor by 10 percent. So, it's time for another call. Our contractor now learns about the general contractor's 10 percent retainer that will be held back until the final checklist is completed. In other words, the general contractor is going to keep 10 percent until the total job is complete.
As the job progresses a familiar pattern arises: Payroll and overhead need to be paid, but there is not enough money in the checking account to cover it. Time to borrow on the line of credit again, and again until you hit the limit. Now, he is in some real trouble.
I am not saying you should never take that big job, and more than likely many of you have taken big jobs and succeeded. What I am saying, though, is count the cost. For example, a contractor in a recent class shared that he had a similar type job, but was able to negotiate a 20 percent down payment with agreed upon terms of payment within two weeks after an invoice was submitted with only a 5 percent retainer. It is amazing what you get when you ask.
author: By Tom Grandy