I think it’s time to graduate.
Many of us get into contracting because we love the work and we don’t want to work for anyone else. Especially in this economy, we’re just happy to have a job, right? Michael Gerber, in E-Myth, calls this “Owning A Job”.
In this state of mind, you may be content to just make enough to pay the bills and buy the materials. This is great for a while, but if you get comfortable, you’ll go out of business because you’re not considering your overhead costs.
I’ve been digesting Michael Stone’s book, Markup & Profit, which gets really specific why most contractors fail in the business. His opinion: they don’t charge enough!
The truth is that you’re paying these overhead expenses in one way or another. If you’re not planning ahead, these expenses are likely to pile up and spoil your cash flow which is essential to contracting.
Graduation to owning a business comes when you begin marking up your prices to include overhead and profit.
Profit is not a bad thing. If you aren’t making a profit (on top of your hourly rate) you might as well work for someone else and not have the responsibilty of the business.
I’ll leave the mechanics of this for another day. Basically, you need to add enough to your job price to not only cover the cost of the project (labor + materials), but also your overhead expenses throughout the year and profit.
According to Stone and lots of official stats, Construction contracting has the highest failure rate of any American businesses. Let’s combat this trend and treat our job more like a business.
Happy graduation!
-Peter
