Canadian Contractor

By Mahyar Hansotia   

Four tips for managing your contracting firm’s debt

Canadian Contractor

Is your contracting business struggling with bad credit management, poor cash flow and personal use of business funds? If so, read this.

Running a small business can be challenging at the best of times as owners wear multiple hats, from sales and logistics to day-to-day tasks, especially for contractors. But financial issues can throw in added stress that may undermine your ability to run your business. Some debt is often a necessary tool when starting, expanding, or simply managing your day-to-day operations, yet financial obligations outside your control, such as student loans, a mortgage, or an unexpected personal expense can become overwhelming. 

Poor practices such as bad credit management, poor cash flow, and personal use of business funds are usually to blame.To get back in the black, there are several options available for dealing with business debt effectively.

Improve cash flow practices 

The three most common cash flow issues for contractors are the use of the “pay when paid” practice of cash flow management – often waiting for money from the owner or general contractor – change orders, and holdbacks from clients. These items can cause cash flow problems, especially if there are any disagreements higher up the chain and payments are withheld. It’s a good idea to constantly monitor your receivables to see which customers pay promptly, and which are more problematic. If customers are taking a longer than normal time to pay, consider changing your payment options to make it easier for clients to pay you.  You can consider factoring your receivables or offering a discount to encourage faster payment.  This will also allow you to plan your cash flow accordingly and even determine who is worth working with again. In addition, ensure your project managers and  employees understand your cash flow so they don’t purchase materials or log expenses until items are actually required.


At the same time, look for online accounting software that can link to your bank account and help automate many cash flow processes such as scanning and entering invoices for payment.   This will help you understand the exact status of your cash balance at any given time, help you prioritize payments based on the importance of the suppliers and/or overdue invoices.

Before incurring an expense and going into debt, reach out to your network and your regional Chamber of Commerce to determine what government grants are available for you. Employment grants for example, can be very helpful in improving your cash flow and reducing your cost. 

It’s also a good idea to set up a credit line before you get into trouble to help get you through the cash crunch from holdbacks and long receivables to ensure quick access to funds if you need it. It is important to pay down the credit line when the holdbacks are received.  

Lower business expenses

While this may seem obvious, many contractors are  surprised at some of the expenses that can be reduced or eliminated when they do a thorough review of their expenses. 

  • Do you hire too many short-term workers? Consider making long-term contracts with some of the good ones.
  • Look at interest and financing charges. Can you combine your business loans into one payment that will reduce monthly costs and interest charges to help pay debt faster?
  • Are your marketing expenses actually generating more sales?  Are there free or less costly alternatives available? 
  • Review all expenses on tools and determine which ones are really necessary. Can you rent?  Are they being lost or stolen constantly?  
  • Assess your office space. Do you have extra room to sublet to generate income?
  • Most importantly, don’t hesitate to ask your suppliers for a discount

Communicate with creditors and lenders

Creditors are usually open to working with struggling businesses to work out a payment plan in the hopes that it will pay off over the long term. Besides, they will be able to recover more than if you went bankrupt. Even if they charge interest, it will be lower than credit card debt.

If you are already in financial trouble, then look at  consolidation loans. While they help to alleviate multiple debts and higher interest rates, banks may stipulate limits on new spending. Before any consolidation, talk to a tax professional to ensure you’re not missing tax savings opportunities and to help you determine the impact of such an action to your business.

Consider debt-restructuring 

When all else fails, there are firms that can help you in tackling the above mentioned items and if necessary, put forward a proposal with your creditors, including bankruptcy proceedings. The company and your accountant can determine whether your business is worth saving and what steps must be done to turn around your business.  

Bankruptcy is a last resort, as it will affect your credit rating and ability to take on more credit for several years into the future. 

By implementing some best practices, and with proactive planning, you’ll be better able to manage your debt and avoid more serious consequences.

Mahyar Hansotia is president of Sobel and Company, Professional Corporation, and may be reached at

Sobel and Company, Professional Corporation is focused on business owners of small- to mid-sized companies, as well as large corporations, who are looking for financial acumen and strategic business expertise over and above traditional chartered professional accountant services.


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