“Dave here and for those of you who don’t know, I am a home improvement contractor.”
This introduction sounds like something you would hear at a group therapy session and, in a way, telling my story here is my version of group therapy. I write this today because the process helps me work through the anger and financial pain of being stiffed on a big job by some deadbeat homeowners who totally pulled the wool over my eyes. My story is quite simple and it could very well happen to you A. if you are a home improvement contractor and B. if you are not extra careful. This did not happen because I am someone trying to build a business and electing to take unusual risk on a job you would expect to see from a rookie. I have been in the home improvement business since 2005 and built my reputation steadily one client at a time as a trustworthy reliable contractor. I also keep telling myself that I am a smart businessman and I should have seen this snowball rolling down the hill way before it plowed over me with a full head of steam. The aftermath of this fiasco represents a multi-thousand dollar education in the 2012 class of the school of hard knocks. Here is a brief description of how this thing got out of control and by hearing my story how you can prevent it from happening to you.
I met Mrs Smith ( not her real name) through a previous client as I do with most of my best jobs. Referrals are the lifeblood of my business. She called me and started the discussion with the fact she and my former client went to church together and she recommended me for an expansion on her house. She(Mrs Smith) owned the house in an older but nice section of town where a number of homeowners had done some very nice updates. She wanted a new kitchen and larger master bath and she also wanted to close in the garage and build a stand alone garage on the property. Mrs Smith told me she owned the home for several years and would be paying cash for the total project. We met several times,came up with some plans and within about 4 weeks we had a signed contract for the project. The total price for this project was around $125,000. Since she was paying cash I requested the standard deposit and started work immediately.
Things went smoothly in the beginning and Mrs. Smith and her husband were very nice to deal with and they were both local professionals who were very busy with their careers and raising a family. In hindsight I only met Mr. Smith twice and he seemed a bit aloof about the whole project. In the beginning there were not many warning signs and I felt comfortable working with the Smiths but then again she seemed to be juggling a lot of things at one time. The fact she was referred to by one of my best clients made me comfortable with their project.
The situation soon began to change for the worse when I received a call from Mrs. Smith two weeks into the project. She informed me she had decided to to finish out her basement for her elderly father who was not planning to move in with her from out of town. She wanted me to come by quickly and discuss the revisions and additional cost. After some standard discussions about the requirements and some back and forth on pricing we settled on a final sum for the additional work. I also agreed to start immediately on the additional work because I already had a crew on site and I was intending to draft the Change Order Agreement that day. My draft of the Change Order Agreement ended up taking several days to complete due to personal family commitments. I then emailed the document to Mrs. Smith who claimed not to receive it for several days because she was out of town caring for her father and did not have access to the email address it was sent to. The long and short of it was my crew was performing work on a project which was not adequately documented for the change order.
Slowly this job began to get ahead of me. In a short amount of time I had more cost in the work than money from Mrs. Smith. She was out of town for a couple of weeks dealing with her father. Her son was living in the house and was letting my crew in to do the work. I was a bit on edge about this situation but there were some things about this client that caused me to let my guard down. Nice professional appearance, friendly to deal with, referral from a long standing client, etc…
So where am I going with this? Here it is- Mrs Smith soon dropped a bomb on me and called me one Sunday to tell me that there was a problem with the finances on the project and she was unable to produce the check for my now past due draw and could I wait a few days to get the money. This was definitely not something I wanted to hear. Problems with payments on jobs are indicative of deeper problems and I was about to find out more than I wanted to know about the Smiths.
First issue to be divulged to me by Mrs Smith- her marriage was in trouble and her husband had recently moved out and returned to his hometown in another state. Second issue- her father had decided not to move in with her and the money he had agreed to provide her for the basement conversion was not coming. Lastly Mrs Smith told me that the family finances were in shambles due to her marital problems and other issues that she could no longer pay me for the work she had under contract with me. She said things had become so bad that she would have to possibly sell the house as is and move somewhere else.
This thing was beginning to look like a tailspin crashing toward the ground at mach speed. I pulled my crew from the job and immediately went to the courthouse to file a lien on the property. I also went to all my vendors and communicated to them that I needed to return a good deal of the material I purchased for the project. Some were accommodating and some were not. Those who allowed me to return material charged me a significant restocking fee. At the end of the day I lost a sizeable sum of money on this project. Money in a tight economy I could not afford to lose. Mrs Smith was so selfish she did not consider the affects her problems had on me. She just followed the advice of her attorney and cut off her contact with me. I understand the bank is in the process of foreclosing on the house and I will eventually get most of the money I lost but not until after many months of delays and legal expense.
Well you have read my diary entry this far and you are ready for the wisdom that comes from living through or reading a difficult situation such as this. So here it is the fortune inside the cookie: Dave’s lessons learned from Mrs Smith 1. Referrals are great and important but should not to be given any financial consideration or latitude beyond regular customers just because they know a good customer of yours. 2. Nice professional looking people may or may not have their act together and there is no way for you to know this other than having concrete payment arrangements in place prior to beginning a job. A secure payment escrow service would have protected me 100% in knowing full funds were in place prior to beginning this job. 3. Job Change Order Agreements are important documents and no additional work should be started until properly documented by a fully executed change order.
The financial impact of this problem with the Smiths has provided me with a new perspective on my business. There are plenty of opportunities in business to lose money. You actually have to be smart to make money and any service or tool I can find to help me make money and prevent from losing money is something I am going to seriously consider. It would not take too many more mistakes like I made with the Smiths to put me out of business.