Jacob Austin 00:00:00 Hi all, Jacob Austin here from QS.Zone. And welcome to episode 106 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode, number 106, is a continuation of our mini series on growing your business, focused on winning bigger projects without overstretching yourself. Over the last three weeks, we've covered signs that you're ready to take on bigger jobs. How to manage risk when stepping up the commercial and contractual considerations of working on larger jobs, and some strategies to handle staffing, supervision and supply chain as your business grows. This week, in the conclusion of the mini series, I'm covering seven common pitfalls that SME subcontractors face when they step up towards bigger projects and, more importantly, how to avoid them. So let's dig in. Pitfall number one, and it's the biggest of all is cash flow bottlenecks. Everybody's heard the saying revenue is vanity. Profit is sanity. Cash is reality. Cash is what keeps your business turning over. It's especially true on big projects, and it's disturbingly common for a subcontractor to win a big contract and go bust because of cash flow implications.
Jacob Austin 00:01:44 The scenario goes like month one. You've got a huge outlay on materials, and you're covering the cost of your labor week to week until the first payment from the contractor lands. Now you're going to apply for your first valuation at the end of month one. And then you've got to wait for their payment terms to expire. And that might be 45, 60, 90 days on top of that initial first month's worth of work that you did. And then, of course, you've got month two, perhaps month three to continue funding your lad's on site, the purchase of material, the hire of plant and so on. So you're going to be massively in the red knowing contractors as well. They're likely to knock back parts of your application. Suddenly you can find yourself in a negative spiral, unable to pay your suppliers and your workers on time. Work slowing down, and you're starting to get in trouble with the main contractor for failing to make progress. So how do you avoid this? Well, you need to plan and monitor your cash flow.
Jacob Austin 00:02:48 This means before the project starts, you create a month by month schedule projecting how much you're going to get paid and when and when all of your expected outflows are going to be. And factoring in everything weekly wages, supplier payment, plant hire bills that will fall due at the end of your credit period. Identify the peak negative cash points and ensure that you've either got cash reserves or a line of credit to cover that gap. For example, maybe in month two, that upfront part of the project is likely to see you amass the largest amount of debt throughout the whole process. What does your plan tell you that the deficit is going to be at that point, and where are you going to get the funds from to cover it? Have you got reserves? Have you got good credit terms with your suppliers so that they won't start billing you for materials until you've got paid? And of course, you need to stress test this. The contractor is likely to pick up on payment at some point. It might well be the very first payment on the job.
Jacob Austin 00:03:51 He might be waiting for you to sign and return the order before he can release any money to you. What's your contingency plan for if you don't receive the money when you think you're going to, you need to have one in place as well as that contingency plan. There are some basics that you can do right to help yourself out, and that starts with billing promptly. Depending on the type of contract, you'll get to schedule a valuation dates, or you'll get a schedule of milestones that you can draw off when you've completed them. However your valuation is set up, you need to make sure you hit the criteria, and you do it promptly to get the money back in your bank account as quickly as possible. So don't be lax in submitting your application. Treat it as sacred invoice immediately after hitting a milestone and a day or two before the valuation date. Obviously, forecasting the day of TOS progress, contractors terms and conditions will often amend the standard conditions to show that if you submit even a day after the valuation dates are expired, that you'd have to wait a whole other month before you can apply again, and that's a month that you've got to do without your cash.
Jacob Austin 00:05:04 You also want to make sure that you've claimed for absolutely everything that you can within that period, down to the very last days work that your man will be doing at the point of the valuation being completed. Make sure you're submitting applications or invoices in the format that the contractor wants as well. You don't want to give them excuses to not pay you what you want. If you're asking for extras, then make sure that they're agreed as quickly as they can be. Granted, there isn't always time to agree them upfront, and including an agreed extras in the application to the contractor will sometimes whiten them up. But it is a way to force a conversation to state your entitlement and then to force a negotiation to happen. Just be ready to get around the table and to back up what you've asked for, with appropriate substantiation. You'll want to keep an eye on the payment behavior of your main contractor during the job. If they're underpaying you, or if they're delaying payment, then address it. You have got rights under the contract to suspend the work if you're not paid.
Jacob Austin 00:06:07 You have to use a proper notice to be able to do that. It can be a drastic step, but it's really powerful if you do it properly. Pitfall number two program overrun. This will inevitably have a cashflow impact as well, because if a project drags on longer than planned, it costs you more in preliminaries. It costs you more in overhead. It ties up your resources longer, which delays the moving on to the next job. Small subcontractors sometimes get into big projects and underestimate how delays can cascade and affect their business. Be it whether design changes hold ups by other trades, any of these can blow out the program. If you originally planned to be done in six months, but it stretches to nine. Then it's three extra months of site costs that eat into your profit, unless there's a delay in there that you can claim for. Of course, so be Being realistic and vigilant on your program. As I've said before, push for a sensible program. Once you're live on the job, monitor your progress regularly.
Jacob Austin 00:07:12 Keep a chart, even if it's basic, and update your progress against it. If you see slippage, then identify the cause and whether you can recover it and ask for an official extension of time. Under most subcontracts, if the delay isn't your fault, then you can be protected from liquidated damages by submitting a request for more time. Many subcontractors fail to do the paperwork on that and then end up eating the cost later. So don't be shy about it. It's a professional process. It's laid out in the contract. It's not personal. Document delays and formally notify the site team to protect yourself as much as anything else. But notifying a delay will also enable the contractor to think about mitigating it. They might be able to re sequence. They might instruct you to do some overtime as an acceleration measure. Speaking about risks to program helps the overall project as long as those conversations are productive. To avoid a blow out altogether yourself, the starting with a realistic program is the best and most effective tactic. There's no point in over committing and then falling foul on the delivery.
Jacob Austin 00:08:23 It will cost you money. If there are delays, then try and offer solutions. We can bring in a second team and do X if it helps move the job forward, but it will cost extra. There might need to be a bit of communication and negotiation around recovering delays. Can you do anything outside the box such as pre fabricate something off site to help regain time? Remember as well that you will need bits of float within your program and if you're on a particularly large job, then the logistics will have more program impact than you might be used to. You've got downtime moving between areas, coordination issues, etc.. Distribution of materials and removal of waste. All of these are little bits that might add up to a significant problem over a long program. These are the kind of things that you need that float for. Pitfall three is a bit of a vanity one, but one that does happen once you feel like you're big enough and you're able to take on a big project, it's not uncommon to go after another one.
Jacob Austin 00:09:23 But juggling one big project can be hard. Juggling two will be exponentially hard if you haven't expanded your team sufficiently, and it's easy to get into trouble taking on a second big job whilst they're midway through a first. And then both projects suffer, leading to quality issues, broken promises and damage to your all important reputation. You need to know your limits and know your capacity to expand alongside them. It might be wise to finish with your first large project. Build the capacity. Build the confidence before adding another. Learn from it. Learn the kind of setup that you need. This learning will help you take on more than one big project at once, because you'll know what it takes to deliver it. Then you can plan to have the right resource in place to add subsequent projects to your portfolio. Remember, you need to provide good service to your clients. You don't just want to turn off the stream of revenue that you had before as well. Treat your first big project as a test. If it's success, then by all means roll it out, but not at the expense of the workflow that you had before.
Jacob Austin 00:10:32 If you've got key clients that will regularly pay you money for a service you are providing. Why turn it off so long as it's profitable for you? Pitfall number four quality fade. On larger scale projects, little mistakes can multiply. If your quality control isn't right, you could end up having to really work or spending a lot of time with excessive snagging. All of this is costly and time consuming, affects your abilities to meet deadlines, and it is a common pitfall in the rush to meet your deadlines, to skip your quality control checks. Then you find yourself with bigger snag lists coming back to you from your main contractor. All of that rework can kill your profit, and importantly, it can damage your reputation. You need to avoid this by implementing the right quality checks at the right stage. If there are closing up points and you're not going to be able to check work without costly opening up, then you need to make sure you've got whole points in place to check before you close up. That might mean that you need to make sure you've got the right amount of supervision on site.
Jacob Austin 00:11:42 Often it's the supervisor that will come and check the work of others. If you can't do that, then. Peer reviews might be appropriate. Either way, you need to have adequate checks to prevent defects and hold yourself to them to prevent building in defects that you're going to have to correct later. It's more costly to put it right after the fact, so avoid it altogether. Another thing you could do is ask your main contractors, QA or QC checker to give you feedback early. It's better for them to tell you that a few bits aren't up to scratch on, say, a sample flat or a benchmark room. Once you've got those right, you've got something to aim for. You know what the required standard is, and seeking that feedback early lets you cascade that amongst your team and get everybody working to the right standard. Pitfall five is not accounting for true costs. We've talked previously about under pricing, and I mentioned in the last episode about cost reporting. It's surprisingly common for subcontractors not to track costs at various points throughout the project.
Jacob Austin 00:12:49 They assume all is fine. And then somebody in their accounts team says, oh, we're a little bit low on cash. It looks like we're overspending. I've had a subcontractor previously bring me his cost printout and said, I've realised this is cost me loads of money. And I'm thinking this is two thirds of the way through the project. Surely you must know by now what you're winning on, what you're not winning on. And it transpired. I only really looked into what the job was costing him if he realised he was touching his overdraft. That's leaving your business to chance. By not cost reporting, you're missing out on a vital piece of learning that can help you either win or be more profitable on the next project. Compare how long tasks are taking versus how long you budgeted for them to take. Did you manage to buy the materials at the right price that you put in your bid? Are there wastage costs that you needed to factor in that you forgot about, or you didn't realise there'd be so much of? Did prices rise? Detecting some of these things early allows you to correct the course.
Jacob Austin 00:13:53 It's like the fabled pilot who's forever correcting the plane. That's off course as much as 95% of the time, but it ends up at its destination because of all of the adjustments that are made to keep it heading there. You can't make adjustments if you don't know you're off course. A specific thing to watch out for is prelims or your site based overheads. This is accommodation supervision, plant hire time related costs that will exceed your budget if the project overruns. Bear in mind, if you are delayed, then you could recover some of these costs. If you're able to demonstrate that your program has been prolonged by the fault of another. Many subcontractors don't record this properly and therefore they lose out. These costs would be charged on an actual cost basis. So you need that cost report to be able to isolate what that cost is so you can recharge it. Pitfall number six letting paperwork slip. It's not glamorous but failing to keep up with your necessary documentations variation approvals, delay notices, daily checks, records of what's going on your site.
Jacob Austin 00:15:07 Diary delivery tickets sign off as areas are handed over. All of these little records are easy to take at the time, and hellish hard to do retrospectively and often impossible. If you don't take them at the right point, they can hurt you later, particularly if you've got an aggressive main contractor that might come back to you and charge you for things that he's incurred costs for throughout the job. Without your own records, you can't defend against that. Records are equally important when you're charging for extra work yourself. Signed confirmation of hours spent doing X confirmation of verbal instruction. Without these documents, you might not get paid. You need to get some habits going with your site manager, your supervisor, or the most responsible person on site. You need a daily diary, even if it's just a notebook or a digital log. Describe some basic things. Who was on site? What work was done? What issues were encountered? Were any instructions given or received? All of these are vital bits of evidence and records.
Jacob Austin 00:16:17 Safety paperwork needs to be collated as well. Accidents, near-misses, incidents on a large project can have serious legal and financial consequences. You will get judged against your risk assessments, your induction records, equipment inspections, operatives ability to use particular plant, and so on. All of these things are necessary bits of paperwork that if things go awry, you need to have filed away neatly to demonstrate you've done the right thing. Now, by following those bits of paperwork and having them in place, you're all the more likely anyway to prevent these kinds of incidents from taking place. But that's the point. If there is an accident. You want to be able to demonstrate that you did all you could to stop it from happening, and you should want to do that as well to make sure all your staff are going home in the same working order and the same clean bill of health that they arrived in. Pitfall number seven. Risk to your reputation. Let's consider the long term. A big project is a big opportunity, but if it goes poorly, big projects are also very visible.
Jacob Austin 00:17:27 Don't let short term desperation undermine your reputation. For example, if cash gets tight, you might be inclined to panic and maybe leave site or do something rash. Let's say the contractor hasn't paid you, and rather than follow the proper protocols of notifying them, you pull your lads off site and you start holding them to ransom. Well, before you know it, you found yourself being held to account for delaying the project yourself because you've not followed the proper protocol. Also, rash behaviour like that will do the rounds in the marketplace and the same will go for quality. If you're doing poor work. It's amazing how word gets around. Think of the big picture here. You want a bigger project to be a stepping stone to more, not to stumble. That means sometimes you got to take a couple of knocks on the chin for a bigger win. Like fixing a defect at your cost promptly to keep goodwill, rather than arguing endlessly and spoiling the relationship. Of course, you can't just be a pushover, but be solution orientated.
Jacob Austin 00:18:33 Working out how to solve the problem. Main contractors remember subcontractors who've helped them solve problems, who've helped them achieve the program, who've come up with flexible ways of working around an issue and they'll want to work with them again. They will also remember those ones who caused headaches. So put your proactive hat on and avoid being labelled as difficult or unreliable. Many large contractors are actually keen to bring small and medium enterprises up through the ladder and up into bigger work. The government is driving them to do that. It's seen as good for social value and many frameworks are pushing for that in KPIs. So if you can prove you can handle it on one job, you'll find that doors will open to getting bigger and better and more frequent contracts. As long as you maintain that reputation. And there we have it. Seven pitfalls and seven ways to avoid them. So I'm going to wrap up with a bit of encouragement. Remember, being small but mighty is absolutely achievable. You don't have to be a giant company to do giant turnover and do great things for the industry.
Jacob Austin 00:19:45 You just have to be smart, prepared and resilient. Each big project you successfully complete will strengthen your business, give you learning, and even give you marketing material. Look what I just did to help you win the next job. There's a huge market of main contractors and clients looking for capable SMEs, subcontractors who can deliver quality without the overhead of big firms and with the right approach, that can be you. I hope you've taken some value away from today's episode. My mission with this podcast is to help the million SME subcontractors working out there in our industry. If you have found today's episode useful, I'd love it if you'd share the show and pass the value on to somebody else who'd benefit from hearing it. And of course, subscribe yourself if you haven't already. And thanks for tuning in. If you like what you've heard and you want to learn more, then please do find us at www.QS.Zone for more info or you can check us out on all your favourite socials. Again at @QS.Zone Thank you once more.
Jacob Austin 00:20:52 I've been Jacob Austin and you've been awesome.
