Steve Payne
A deposit is not a picture of my financial failure as a contractor…
John at Bluestone Construction replies to Alex Beraskow of myreno411.com who argues that reno contractors don't need deposits, period.
“About a week ago, Alex Beraskow posted here that contractors don’t need deposits from customers, period. (This was after we reported on Mike Holmes saying in February, in his syndicated newspaper column, that “No good contractor needs more than 10 per cent to start a job.“)
There were a number of replies agreeing with Mr. Beraskow – but, no surprise, a number that thought he was crazy.
Here is one of the better replies disagreeing with the No Deposit idea… It’s from John at Bluestone Construction.
“Mr. Beraskow seems to write a quite enlightened piece, but there are several holes in his argument.
1) In most other businesses or industries you pay 100% FIRST, then you receive the product. He pays 100% lunch at Taco Bell, KFC or Pizza Hut before he recieves his meal. He pays 100% on his doorstep for a home delivery before the item enters his house. He pays 100% for any item at Canadian Tire, Walmart or the Bay before it leaves the store. He cannot drive his new Ford, Lexus or Cadilliac off the lot until it is 100% paid, or the financing is 100% arranged. He cannot have the keys to his new house or cottage by the lake until the financing is 100% signed, sealed and delivered. Yet in home renos where he locks the door and has complete control, he thinks he doesn’t have to pay!!
2) A deposit is not a picture of my financial failure (as a contractor) but a sign to me that this customer is going to pay his contract. It may be a deposit for material that I am putting on order and now have no option of sending them back if the customer changes his mind. It is an equal portion of goodwill that the contractor and customer will engage in throughout the process. Sometimes “he will owe me” and sometimes “I will owe him.” I WILL NOT do work for a customer that refuses to give a deposit. That is a huge red flag.
3) The customer has the control, not the contractor. He goes on and on about how he has no recourse and the contractor has the “hammer.” The truth is, when I leave at the end of the day and the customer locks the door, all the labour, material and tools are at his disposal. I cannot break into his house to get them back. That is a crime, but he can hold them indefinitely and it is I, the contractor, that must jump through legal hoops to try and recoup what my customer has stolen.
4) Lastly, Mr. Beraskow says that I should be properly “capitalized” if I am going to do his reno. In essence what he is saying is that I should pay for his reno, then hope like hell that he will give me my money back. That IS NOT business!! In my early years of renovation I spent way too much time “hoping” the customer would pay. My internal workings financially are my business. There are ways that the customer can be wise and determine if this is a fly-by-night outfit or a legal contractor. Beyond that, just pay your deposit and draws as they come due.
P.S.: Mr. Beraskow – don’t call me, I won’t work without a deposit.”
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Mr Payne GOOD FOR YOU!!
So eloquently said. I applaud you
In my company we will NOT order any product without a deposit of 25-33% of the project total AND a signed proposal for work. We will occasionally get a secondary payment before we start work, depending on the size of the project.
It is not that we are going to run and hide when we get the money but that the Client will at least paid for some of the materials before we begin a project.
With costs broken down to include..
initial visit time and travel, office time to prepare paperwork, sending the paperwork out to client, material costs, travel time and delivery to site– a Contractor MUST get some of his/her money up front in order to NOT have to absorb all the fees in case the client decides to “run out” on the final billing.
We do NO work without signed work proposal/contract which definitely delineates our Terms for the projects duration and payment times.
We have had no problems with this procedure in 38 years of business and we have only been stung 3 times, and in EACH and EVERY case, we did work on Trust alone with no contract…Goes to show you.. 🙁
We once purchased a large unit for a client and he backed out 2 days before installation was due to start. According to our Terms he owned the unit or did not get his deposit back. He did not want the unit so we kept the deposit.
His lawyer called us and we read him our Terms of Cancellation and that he had signed that he had read them…No contest. Said thank you and hung up.
Contractors, GET YOUR DEPOSITS and proposals SIGNED by the client
JIC
Seems like those opposed to deposits have all been burned in the past. Perhaps they should address their lack of confidence by verifying track record and referrals, not extorting work from them. If you can’t trust the people you are working with at the beginning… its likely all downhill from there. If Taco Bell takes 100% up front and only delivers your meal 80% of the time, how many times would you eat there?
If a client asks me to finance the costs of their project, I’m happy to discuss the unpleasant costs and liability associated with the risk. But that is the exactly what Mr Beraskow has proposed we should be doing for free.
In many projects, its not unusual to spend 10% with designer, architect, permits, insurance, and any material deposits. No ‘work’ has been completed? I beg to differ.
Clear communication and expectations between a trustworthy contractor and client. Suddenly, the deposit size doesn’t really matter.
Thanks for stirring the pot Steve… and thanks to Jon at Bluestone for seasoning it!
First, thank you for taking the time to respond to my blog post. My goal is to create a dialogue between homeowners and contractors. It is a huge industry – basically a cottage industry of over 70,000 contractors in Canada – with varying standards and many homeowner complaints. Home renovation is the second largest source of complaints to Consumer Affairs in Ontario, for example. So there are issues on both sides.
I certainly do not want to tell anyone how to run their business. If it works for you on all fronts, so be it. My objective was to tell you what was going through my mind as a homeowner (and business person). Your experience might be totally different. And I suspect very few homeowners would tell you directly their concerns with a deposit. Some may, others may not. However that practice should give every business person “pause for thought”.
When I wrote the bog post, I used that phrase “pause for thought”. Someone added a headline of not my making!
In my article I suggest that if the deposit is used to buy material that the homeowner buy it so that the homeowner retains title. Stories abound where a contractor asked for a deposit – ostensibly to buy material – and then declared bankruptcy, with no recourse for the homeowner. In one case a contractor – a master craftsman who impressed upon me his investment in over $150,000 of tools and equipment – ordered stone, and grossly miscalculated the amount. He then expected me to suck it up when the building supply company refused to take the excess material back (it was still in the original packaging).
John of Bluestone Construction seems to eat at restaurants that demand pre-payment. Is he happy with that arrangement? While there may be fast food industries that demand pre-payment, typically the “financial” exposure is not high. Real restaurants – not fast food ones – do not ask for prepayment. And by the way, if you are not satisfied they will invariably “comp” you with a free dish, drink etc.
He is correct that I pay 100% for stuff I buy in a store, before I leave that store. Of course we both know that I get a chance to inspect the stuff – even maybe try it on first – before paying for it. Moreover, typically that stuff also comes back with an unconditional guarantee – a full refund if I am not happy for any reason. For example, I have returned stuff to Home Depot – unused – many a time, with no questions asked
He then makes the point that his tools may be locked up in my house. That of course is his call. While I am not a lawyer and cannot give a legal opinion, my understanding is that those tools and material – even if bought with my deposit – belong to the contractor. They are your property. As such, should I as a homeowner become a jerk and not return them that would be classified as theft. The police know better how to deal with criminal behaviour than me. I did notice that very few contractors ever left tools behind any way so the point may not be applicable.
Finally he talks about “capitalisation”. Every successful business person should understand that you need working capital – to support payroll, receivables, etc. In the alternate, you are always on the red line, checking constantly with your bank your cash position. There is a better way of running a business than fussing constantly with banks. It is a distraction. Tech colleges should be teaching that point to all contractors so that they can be prosperous.
So if taking a deposit – 10% or 50% – is your standard business practice and it works, continue doing so. To all others I suggest that you pause and think about whether it really does work for you, whether homeowners balk at this prepayment. After all it is a “loan”.
John points out that homeowner’s refusal to give a deposit is a red flag to him. My experience is businesses that ask for prepayment, need it, and as such it is a red flag to me.