A Guide to Money and the
Law Specifically Geared For Contractors
You are a contractor. You know your trade,
and you're good at it. But what about the unique financial and legal
concerns of running a construction business? Do you have the right
tools for dealing with money and the law? Attorney Jim Kramon
provides all the information you need to turn your hard work into
greater financial security.
You'll learn how to:
- Price your work and keep track of expenses
- Resolve contract disputes
- Get all the tax benefits you're entitled to
- Work effectively with an accountant or a lawyer
- Plan for retirement
Drawing the line: Business vs. Personal Finances
In Chapter 5 of his book, Jim Kramon
explains how to make more money and avoid unnecessary difficulties
by keeping business finances separate from personal and family
affairs. You can read this chapter if you click on the excerpt pages
This excerpt is a PDF file and
requires Adobe Acrobat Reader to view and print. The 12-page
download should take approximately two minutes on a 56k modem.
(click picture above for
Jim Kramon recently fielded questions about
money, organization and business law.
I have just received a summons for breach
of contract and not upholding a warranty. It is for $11,000 damages.
I have multiple correspondence with the plaintiffs asking to be
allowed to repair the problem. They would not agree to allow me to
do it. They wanted other things as well, and I told them I would
address those things when we met to do the warranty work. They say
they have lost faith in me. I am in Colorado. Is it not my right to
have the first opportunity to correct a problem?
answer to your question depends upon the terms of the warranty you
provided to your customer. Most warranties provide contractors with
the opportunity to correct their work, provided that they do so in a
workmanlike fashion within a certain period of time. Check to see
that the customer's claim was made within the time period of the
warranty and in accordance with the terms of the warranty. If not,
check with the responsible government office in Colorado to see
whether you have any liability beyond the warranty. If the customer
is going after your bond, check with the government office that
requires the bond to see what steps you need to take.
Financing a home
in Southern California, and my question concerns the financing of
homes to be constructed. Recently I refinanced my mortgage and owe
about $600,000, or 75% of the property value. My wife and I want to
knock down the current house and build a new one that will cost
approximately $500,000. What are our financing options?
does not concern financing of residential property, but I will offer
one or two thoughts. This is certainly a good time to be in the
market for a mortgage, since rates have never been lower. Your
property is apparently worth about $800,000 with the house currently
on it. I assume that the new house you intend to build, at a cost of
approximately $500,000, will be more valuable than your current
house. This will increase the value of your property even further. I
would expect your current mortgagee to be very happy to negotiate a
new loan, since the debt to equity ratio will doubtless improve.
Liability insurance for a small company
changing my business from general interior renovations to a time and
materials kitchen and bath repair company. I have looked around for
new liability insurance and been told that carriers are willing to
continue existing policies but that very few (I haven't found any
yet) will write new policies for small-scale carpentry-type firms.
What do you suggest?
piece of advice I can give you is to review the subject of billing
in Smart Business For Contractors. Every contractor's
business is a time and materials business, although it may be called
something else. The only thing a contractor has to sell is time and
materials. If you bill correctly, you will do fine.
With regard to the matter of liability insurance, I recognize the
difficulties in today's market. My recommendation for small business
operators is to find an independent insurance broker who knows how
and is willing to beat the bushes for you. The incentive you can
give such a broker is all of your business -- home, car, life and/or
disability, and your business insurance. Although a number of small
contractors go bareback (without liability insurance), I definitely
do not advise this.
You may get some help from one of your state offices and/or a trade
association if you are associated with any.
Getting started as a contractor
50 years old, and I want to change professions. I have Always wanted
to own my own business. I have some construction experience -- from
masonry to carpentry, electrical, heating and cooling systems,
plumbing -- you name it, and I have probably done it. my question is
how to get started Any information you can give me on how to get
started would be appreciated.
you have some customers in mind, the best way to get started is
through other contractors. Many small contractors periodically have
more work than they can do, but for good reasons don't want to
enlarge. Those individuals often engage other people as needed on a
job-by-job basis. I know a small general contractor who does this
regularly, and it works out very well for him. If you begin this
way, you will shortly get jobs referred to you by the other
contractors you get to know when they are either too busy or simply
not interested in those jobs. The other thing is to be sure that you
fully satisfy every customer. For a contractor, there is no
reference in the world as good as a satisfied customer.
LLC or corporation?
starting a new construction business and know I do not want a sole
proprietorship for liability reasons. Which is better for a small
builder, a corporation or an LLC? I'd also like to know why you
think one would be better than the other. I feel that a person must
do something to try to protect personal assets in today’s legal
absolutely correct that some form of limited liability business is
very useful for a contractor. There is information concerning that
in Smart Business For Contractors, and I hope you will find
With regard to whether to use a corporation, an LLC or some other
type of business, there are several considerations. One
consideration is the tax impact; another is flexibility in matters
such as adding partners in the future. Some colleagues may disagree
with me, but I think the best person to discuss the matter with is
probably your accountant. If you don't have a regular accountant, I
recommend you get one. This matter is also discussed in my book.
Good luck with your new business!
Merging two businesses
friend and I are both successful masons. Recently, we have discussed
merging our businesses. Each of us uses a corporation that we have
had for quite a few years. What should we be thinking about in
considering whether to merge?
partnerships, and other such agreements have a certain appeal, but
there are serious issues to consider. The most obvious issue is how
you and your partner would determine how much each of you would be
paid. Can you agree upon a basis for salaries? Can you agree upon
how to distribute any excess profits? Another important question is
what will happen if one of you dies or becomes disabled or decides
to retire before the other? Even if you are the best of friends and
trust one another completely (if not, forget about the whole
matter), you will need some written agreements for this purpose if
you decide to go ahead. You will find food for thought in this
matter in Smart Business For Contractors, and I advise you
and your friend to consider it very carefully.
Work not code compliant
an electrician for a fairly large electrical company, and I do some
moonlighting as well. One of my after-hours customers, who pays very
well, has asked me to do some electrical work that wouldn't
completely comply with code. My customer tells me that no one will
know about the work except him, and it isn't dangerous work. What's
is simple: Don't do the work. In the first place, your employer
probably has decent liability coverage, but it would not extend to
you when you are doing work outside the scope of your employment. In
the second place, even the simplest electrical work can be dangerous
under certain circumstances. As you surely know, people don't
respond very well to being electrocuted, especially around water. If
someone was ever hurt by your out-of-code electrical work, most
lawyers today would consider suing you even if there was nothing
intrinsically dangerous in the work. The fact that the work failed
to comply with code would be very unfavorable for you. Good as the
pay may be, turn down this job.
Being a contractor without being an accountant
lot of contractors I am good at my work and lousy at paperwork. I'm
sure I miss things that would help me on taxes and insurance and
probably in other ways as well. But in all honesty, I can't stand
the whole mess. What can I do to get things straight without
becoming a business clerk -- something I would hate?
typical of most contractors I know. One of the big differences
between contractors and people who work with papers most of the time
is that contractors get their satisfaction out of seeing
good-looking finished products. My finished product is a mess of
files that doesn't look good to anyone. When I have a cup of coffee
with a good friend who does tile work, I get very jealous!
The answer to your dilemma is to read Smart Business For
Contractors and do exactly what it says. You will be able to
organize all the necessary matters and keep them organized with much
less difficulty than you think. You will also make money doing this
because you will save time, taxes, and the need for professional
assistance once you get going. If you use the systems that are
explained in the book, your paperwork will take only a little of
your time and you won't find it overbearing. Trust me on this.
Where's my check?
halfway into a $34,000 custom carpentry job in a private home. My
customers agreed in the written contract to pay me every 30 days,
but they are two months overdue. They tell me not to worry about it,
but I'm really uncomfortable. This is my big job right now. What
should I do?
contractor is unpaid in accordance with the agreement, it is
stop-the-music time. A customer who fails to make timely payments
for work is the same as a contractor who fails to show up to do the
work. I tell my clients not to listen to excuses. If you do, you
won't have the slightest idea if they are true, which in the end
doesn't really matter anyway. Tell your customers that you cannot
continue work until they bring your payments up to date. You'll find
more specific information about this matter in Smart Business For
What to do when the pickup truck is in the shop
most important tool for my work is my pickup truck. Like any other
truck, it's in the shop from time to time for repairs and service.
When that happens, I am out of the box insofar as work is concerned.
What do contractors do about this?
you can figure out a way to forego your work from time to time, you
must replace your pickup truck when it is out of service. This will
obviously cost some money. The expense of your truck should be
treated as a general overhead expense in the manner explained in
Smart Business For Contractors. If you make a regular
arrangement for this -- with a dealer who will give you a loaner or
a friend who can lend you a truck from time to time -- you should be
able to minimize the cost.
Don't be one of those "my truck broke down" contractors if you can
possibly avoid it. People lose confidence in contractors who don't
show up when expected.
CHAPTER 1 Money Matters: Pricing, Billing, Collecting
How to Price Your Work
Using the Hourly Rate Approach
Keeping Track of Expenses
Billing and Collecting Payments for Your Work
CHAPTER 2 Putting It in Writing: Contracts and Beyond
Estimates and Contracts
Following through after the Contract
CHAPTER 3 Running and Growing Your Business
Setting Up Your Office
Growing Your Business
CHAPTER 4 Managing the Paper Chase
What Is a Record?
What Records to Keep and How to Keep Them
When It's Time to Use the Records
Getting Help with Record Keeping
CHAPTER 5 Drawing the Line: Business vs. Personal Finances
Legal Reasons for Separating Business and Personal Finances
Good-Sense Reasons for Separating Business and Personal Finances
Methods for Separating Business and Personal Finances
CHAPTER 6 Sizing Up Your Options: Corporations, Partnerships,
Look to the Future First
Should I Incorporate?
Business Expansion: Employees, Job Sharing, Subcontractors
Taking on a Partner
Hiring a Lawyer
CHAPTER 7 Taxes: Plain and Simple
Tax Estimating and Reporting Requirements
For the Do-It-Yourselfers
Tax-Related Issues for Contractors
Selecting the Right Accountant
CHAPTER 8 Insurance: Money Well Spent
Types of Insurance
Insurance to Protect Your Business
Insurance for Employees
Including Insurance Costs in Your Prices
Working with an Agent or Broker
CHAPTER 9 Medical Insurance: How to Live with It
Basic Medical Coverage
Group Medical Coverage
Types of Medical Insurance Plans
Selecting the Right Medical Insurance
Medical Insurance and Taxes
Making the Best Use of Your Health Care Coverage
CHAPTER 10 Disability: Anticipating the Solution
Disability: A Clear and Present Danger
Other Solutions for Dealing with Disability
CHAPTER 11 Retirement Planning: Never Too Early
Defining Your Objectives
Estimating Your Future Expenses
Retirement Income: Putting Together the Pieces
Balancing Income with Expenses
Medical Care during Retirement
Retirement and Estate Planning
Soft-cover, 8 x 10 in., 240 pages