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Company Vs. Sub Contractor

Discussion in 'Commercial Snow Removal' started by VIPHGM, Oct 25, 2010.


    VIPHGM Senior Member
    Messages: 306

    Ok I'll try and keep this somewhat brief with out writing a complete book,

    I own a small company that is starting to fast grow in SE Michigan, I designed my company to start off with residential only accounts, Which brings in decent money for me, The past 2 years i have slowly gained some good paying smaller commercial accounts, which has kept me busy. Last Year I received my largest account yet a 15 acre snow plow, but it was a full contract that was sub contracted too me. I bent over backward and detailed this place to impress the contractor and complex. They were thoroughly impressed in my performance. but i had asked them one thing and one thing only, just pay on time and they did that. They asked me to pick up several more summer accounts from them, well i am not a huge company so that means a lot larger payroll something i am not use to. So i went from 100% myself/ company to 50% company 50% subcontractor. 2 complex's were 40 acres a piece and the other was 15 acres, plus my 100+ residential accounts that i have, So i booked a full 5 days of work this summer with 4 guys including myself. So beginning of summer payroll went crazy, work went crazy busy, and the only ones to pay at first was residential, it first took almost 90 days before we first got paid from our large sub contracted commercials, also don't forget i had to buy equipment to expand to fit these commercials accounts in so overhead went up. Well go figure one of the large complex's didn't pay the contractor all summer and well it states in the contract that if they don't get paid we don't get paid until the complex pays, well we had to cancel that contract in august to be able to cut back on payroll since we weren't getting paid from that one large account. Well unfortunately that account we maintained for almost four months put me far behind and it has now effect our performance on the other properties that we subcontract, making the contractor not the happiest, (that one complex has still not paid and its almost November) I personal get along with the company we contract for and know everyone there. There somewhat understand but at the same time i feel as if they look down at me because my operation isn't that large compared to there's and what they are use to, I am hoping to get back these large contract for the winter again plus some more but I'm getting nervous

    Here is where i am going with this.....

    I run my company and make good money, but now not enough to cover my new overhead, but cant afford to lose my accounts if something fails as a subcontractor

    I sub contract and make good / not huge but good profit margins with what i have to work with

    If i combined both of them its huge growth in my company in a shorter period of time with a lot of expenses, but expenses i don't mind if it will benefit my company in the long run, we grew almost a full 50% just this year alone

    but what if they decide not to hire us back, How do i offset this 50% income lost, i now can not support my company just back on my company with out the income of being a subcontractor. What if they try and low ball me on properties do i still take them for the work for the cash flow, what if they get behind on payment again?

    1. do i start talking to other contractors
    2. its almost to late to start bidding on larger properties
    3. Do i even continue to sub for them going into another season with out getting paid the back owed money?
    4. I want to buy salt and organize equipment and trucks for the winter and be ready and organized and cant yet because i am still waiting on them to let me know if i get the work, so i have potential to lose my good plow truck drivers, salt prices and equipment reservations.
    5. its will be almost too late to hire new good drivers if my guys leave for other work

    Does anyone else out there have a 50/50 rolling company, how do you deal with situations like these?

    I know everyone has growing situations, and well its hard to talk to someone about my company that doesn't know anything about landscape and its sometime hard to talk to other landscape companies without relieving too much information to them, i don't mind talking about it but every situation is different but some helpful advise would be greatly appreciated

    Thanks in advance Everyone for reading
  2. DaytonBioLawns

    DaytonBioLawns Banned
    from 45458
    Messages: 347

    Okay, so you learned some things the hard way! Not like I've never done that...:angel:

    So you need to revise your agreement. Make structured pay terms for big accounts. For any account, if they do not pay on month A, they do not get service on month B. That fix is simple. No if, ands, or buts about it! I know it seems harsh, but you are in business with these people, not cuddly friendly snuggle buddies! xysport

    If people complain about problems that THEY cause, such as not paying on time, thus not getting serviced.... DROP THEM AND MOVE ON! just do it! the next one down the road will be better. As for bidding, just bid your numbers....if they don't work, then don't do it. People always bait and switch contractors. If you give a pretty good price, they take bids from lowballer A, B, and C and wave them over you. They get you to drop to prices that are set only for the person receiving service and then bite on it. It happens with almost all commercial accounts.

    Have you thought about being a contractor, rather than a sub? I know it is harsh to those who help raise you as a sub for them....but there is always a time and place to put your legal entity on the line. Take the leap if you feel comfortable. It will either work, or it will not work. It is that simple. Don't wrap your life up in it, because you can always restart (although keep credit in mind)....

    Let it be know...do some flexing wesport of them muscles! if they don't pay, you don't service. The second they are late on payment, you are late to service. The second that they pay, you service. I know it is a PITA sometimes to play like a mariennete doll to that tune, but it will get the point acrossed.

    I have been in a battle with a homeowner. Great client, but can't always pay, and wants the econo-way. When she pays up, her lawn is the best in the neighborhood or her walks are perfectly dry and ice-free. When she doesn't....her place looks rediculous....

    Just give it a try, and never sacrifice hours for cash flow if there is demand. If there is truly over competition and lack of available paid hours, do so in the final moments of keeping cash flow....never a second earlier.

    hope it helps,

    DGODGR Senior Member
    from s/w co
    Messages: 641

    What you are experiencing is not exclusive to landscaping or snow removal. Biolawns makes a good point in his first paragraph. It may seem as though it's a hrash pill to swallow, and you may think "If I make those type of demands than they won't want to give me the work". That may be true. If it is, than you don't really want to work for them in the first place. If you do you will probably end up in the position you are in now. You are obviously not happy with how it's going so far. As it stands now (with you agreeing to wait to be paid until they get paid) you are allowing them to make the profit without the risk. You are taking the risk for them. Not such a good deal IMO. Now you are still letting them control your destiny because you did not get answers from them while you could still do something else if they didn't award the work to you. I don't know what the laws are in your state. If it's not too late you may want to lien the properties that you have not been paid for. If you continue to do the work for them, as you did in the past, you are exposing yourself to the same situation that you are already in. I recall a famous quote: If you always do what you always did, you'll always get what you always got.
    I would suggest you start looking for ways to keep that equipment, and those employees moving. Do not wait for your contractor to come through. You will be better off without them. If you do not have a "No Competition" clause in your contract with them (if you have a contract) than you may want to approach those properties that you are already servicing for them. You have already done them for less than they bid them for. If that's not how you want to do business than I can respect that. Go get some other properties. Get back in control. If it's too late for this year than you may want to see how you can reduce your overhead. You may have to unload much or all of the new equipment you bought to cover the new work.
    As I said before, many businesses are challenged by rapid expansion. It's eay to get equipment, and debt, if you are not very cash heavy before you begin to expand. Next time you may want to consider diversifying more. It's not always wise to put all your eggs in one basket. Another safety strategy may be to RPO your new equipment. This may not be the best for cash flow (rental payments are usually higher than purchase payments) but the safety of being able to return the items should the work stop, slow down, or whatever, is appealing. If it all works out as planned than you roll over the equipment to a purchase.
    Another option would be to go back to the residential on a larger scale. You already know that game, and said that you had good margins on it. You can always get more commercial stuff later.
    The bottom line is this. Even if you get as much commercial work as you can handle, do the best job imagineable, and everyone is really happy with your work, you are doing it to make a profit. If you don't get paid, you lost money. I can lose money at the bar or sitting at home watching TV. I don't need to go work to lose it. It's your choice....profit,or practice.
  4. DaytonBioLawns

    DaytonBioLawns Banned
    from 45458
    Messages: 347

    I like that. Well spoken! :nod: I choose to sit at home a lot....or I'd have a glimmering national company...I'd rather be happy and make money to pay my bills....I don't lose money. I always build a bank account or build my business with everything I lay my hands on! You should do the same.
  5. ddb maine

    ddb maine Senior Member
    Messages: 832

    well said from both.

    I am in a similar situation, a non paying customer, reputation seemingly on the line...... its not. it never was unless I put it there by reducing my quality of work. As of friday I will either have a check in my mailbox or I'm headed to put a HEFTY lien against the property. It has taken me months to get to this point as this is the first time dealing with anything like this. (non-payment) Very unfortunate, very long hard lesson learned. Some people dont care how good your work is, they don't care how much everyone in town loves you, they LOVE the fact that you work for months on end without taking any payment and seem to be able to go on forever doing so.
    Your only friend when dealing with these people is your contract. I learned my lesson, EVERYTHING has to be spelled out for them, if you leave a hole, they are going through it. And even if you dont, they will try and weasel...
    True story, I was at the site with this customer and they wanted to know why something wasn't done. I read to them a line from the signed contract in my hands and it stated that it wasn't to be done. They then told me "thats not what it says", they pulled out their copy and read the same line back to me and said "thats not what it says":eek: My jaw along with another who was present hit the floor..... This person was able to read the contract and tell me that what the contract says isn't what it says...:dizzy:
  6. elite1msmith

    elite1msmith 2000 Club Member
    from chicago
    Messages: 2,762

    You have multiple issues going on, and not my answer or anyones else will be 100% what should be done. Being a business owner, means taking risks, and making mistakes.

    As fare as payment issues...get better customers, is about the only thing you can do. Fast growth will always lead to payment problems, because you can't weed out the bad ones quick enough. Find someone else to work for

    Growth,- hope for the best, but plan for the worst. Nothing wrong with getting big quick, but make sure you have the bank account to back that up. I have also bee total multiple times, to avoid letting 1single account be more than 10% of your income and if it is around 10%, make sure that have your finances planned so that you can quickly dump off exspenses in the event that you lost that account....labor is an example that can be laid off....but if you bought a loader just for this account....where would it go if you lost the account? Could you still make the payment?
  7. blowerman

    blowerman PlowSite.com Addict
    Messages: 1,275

    Many of the guys on this site will give you good advice. We can't give you all of the answers, as most of us have made similar mistakes. Hopefully you will use the input to clean up your operation.
    Growing at extremely fast rates is hard for any business, but even harder to do in a down economy.
    Considering depressed prices and increased competition, to have 50% growth can be overwhelming as you have pointed out.
    I have a electrician friend who said, "when I add one employee, I try to maintain $20,000. just for his position." It's not that he cost's that much, but the materials, added tools and van, etc. etc..
    While I love sharing photo's of our bigger equipment with guy's on plowsite, pics don't tell the story about behind the scene's. Try owning a Big excavator (06 Volvo 160) and watch the housing market drop so fast you can't even auction off the machine for half of what is owed. So, I use reserves and pay for the machine to sit. The big blue New Holland, runs maybe 15 times in winter, some field cutting is summer.
    If I were you, chase some of your own work so all the eggs are not in one basket. Otherwise, craigslist off some of the excess machines, those type of items sell easy and will free you of the payment burden. Lay some employees off, lower insurance, less headaches.
  8. lilweeds

    lilweeds PlowSite.com Addict
    Messages: 1,178

    One thing to look into is a mechanic's lien. All states are different, but here in PA as long as you are the "sub" the owner is responsible to pay you even if they already paid the contractor. You can usually tack on your legal costs as well.
  9. MatthewG

    MatthewG PlowSite.com Addict
    Messages: 1,400

    You are very well educated, I didn't think too many people knew about them.