Are you a contractor stuck in an endless cycle where time is lost and money is wasted? Do you need to restructure your operation in order to focus on the business itself rather than on the manual work? Don’t worry, Profit First for Contractors is the perfect solution for contractors including designers, tradies, couriers, business owners in the beauty industry, and more.

If you are unsure of whether you are an employee or a contractor, make sure to read our most recent blog post, “Are you an Employee or a Contractor?’.’

The Book: Profit First for Contractors

Profit First Professional, construction business coach, and international keynote speaker, Shawn Van Dyke, wrote the book ‘Profit First for Contractors.’ Shawn takes the core concepts from Mike Michalowicz’s Profit First and adapts these concepts to address the specific needs of the construction industry.

The Contractor Cycle

The contractor cycle describes the frustrating and vicious money depleting pattern that too many contractors find themselves stuck in.

Symptoms of the contractor cycle include:

• You’re busy. Clients have booked you for several months, but you still don’t have any money.
• You don’t pay a salary.
• You don’t understand the difference between a markup and a margin.
• You guess your prices rather than calculating your value.
• You have a high closing rate and a fear of saying “no” to new projects.
• You tell yourself that you are investing in your company when you can’t pay yourself.
• You don’t know how to read your profit and loss statements.
• You always seem behind schedule and have to start your next project as soon as the last one finishes.
• You provide free work for potential customers instead of creating your own value.
• Paying your taxes is a mystery.

If you relate to any of these symptoms, it’s time for you to start with Profit First with the help of Profit First Accounting & Coaching.

Challenges with Implementing Profit First

Materials and Subs Account

When you start using the Profit First method, it’s normal to take a few months before you start feeling like you’re making progress. In our experience, the materials and subs account is often the most challenging for contractors. Initially, this account may need to be slightly a higher percentage, whilst you catch up and get into the regular cycles of profit first.

If you find this challenging, working with a Profit First Professional like us can really help. We can assist in figuring out the right Profit First percentages for your business, plus implement a plan to ensure you are heading in the right direction.

By getting this kind of outside help, you can speed up the learning process and smoothly incorporate Profit First principles into your business. This collaboration could lead to better and consistent profitability for your organisation, helping you to get the hang of Profit First and its benefits sooner.

Paying Off Debt

Managing Existing Debt

Another common challenge for Contractors during the Profit First implementation is how to manage existing debt.

Strategy for Debt Reduction

Profit First enables proactive management of your finances going forward. With the right percentages, you can effectively address your debt. This strategy helps manage and reduce debt by structuring your finances to allocate a portion of your income towards repayment.

The Debt Snowball Method

Profit First utilises the debt reduction method, ‘The Debt Snowball’. This involves listing your debts from smallest to largest and prioritises paying them off in the same order. The focus becomes paying off your smallest debt whilst paying minimum payments on all others, until the smallest debt is gone. This process is repeated until all debts are paid off.

Importance of Consistency and Guidance

It’s important to note that while Profit First can provide a structured framework for debt reduction, the effectiveness of this approach also depends on your commitment to consistently following the allocated percentages and making sound financial decisions. If you have substantial debt, it may also be beneficial to consult with a financial advisor to develop a comprehensive debt repayment strategy tailored to your specific situation.

Retention Money

Retention is a common practice in the construction industry. It involves holding back a certain percentage of the total payment that a contractor or subcontractor is supposed to receive. This withheld amount is held for a while after the work is done. The main reason for doing this is to make sure that the contractor or subcontractor finishes their job properly. This includes fixing any issues during a specific time after the work is completed. This can impact cash flow for contractors and needs careful planning. A Profit First Professional will be able to assist you in working out the best way to manage your finances, minimising the impact on your cash flow.

• Ensure that you are recording your retention. Make sure your accounting or project management software is accurately set up to handle and document retentions.
• Adhere to the contract guidelines when filing a progress claim.
• Determine the practical completion date of the main contract, a crucial detail in all contracts.
• Once you finish your part of the contract, promptly submit a ‘claim for practical completion’ for half of the retention amount (typically 2.5% of your contract value).
• Mark the end of the defect liability period (DLP) on your calendar, and when it ends, promptly submit a ‘final claim’ for the remaining retention balance.
• Keep copies of all communication regarding your payments.

If your retention isn’t released, inquire promptly for reasons. If no valid cause exists for the incomplete payment, help is available.

Get in Touch

If you are suffering symptoms of the contractor cycle, it’s time to let us help. Get started with Profit First today by calling 03 5979 2671 or book a free consultation online, here.