The risks of cash and how you can avoid them
Doing underground work is a drug you don't want to get addicted to
December 3, 2012 by Robert Koci
By Kim Laudrum
What homeowners risk with cash deals
- They have no protection against bad workmanship. Because the illegitimate contractor doesn’t leave a paper trail, there is no written contract – and so no warranty on work.
- Without a contract, the homeowner assumes all liability for injuries and damage. If a worker – or the neighbour’s kid – is injured on site, it’s the homeowner’s responsibility. If the house burns down during renovation, it’s the homeowner’s entire liability, on their insurance.
- Registering all building permits and inspections becomes the homeowner’s responsibility.
- If the home renovation isn’t registered, it isn’t going inspected. If it isn’t going to be inspected, it could well affect the quality.
- How do you know if the business is registered, licensed and the workers bonded? And if it isn’t and they aren’t, how do you know if the contractor is any good?
What contractors risk with cash deals
- Reputation. Nothing is worth more than your reputation. And the risks to your reputation from something going wrong on a cash deal, are endless.
- Credit. If you can’t show income on your books, banks won’t easily extend credit to you. Business growth will be stunted.
- The ability to collect. Without documentation, a contractor has no opportunity to legally enforce payment or place a lien.
- Good workers. Attracting and retaining good craftsmen and reliable workers is harder can be harder they aren’t covered in case of injury.
- A nasty audit. Once you get on the Taxman’s radar, you will stay there for years and years. You’ll be permanently red-flagged.
- Peace of mind.
- You’ll never be able to sell your business because, on paper, it doesn’t actually exist. Or it will look much smaller than it really is.
What can a renovator do to compete with the underground economy?
- Educate the consumer on the risks and liabilities they expose themselves to when dealing under the table
- Market your company’s benefits: you run a professional firm that is licensed, bonded, insured, and provides a warranty on good, quality working processes and craftsmanship.
- Let the homeowner know that you will be taking care of all the headaches: building permits, and inspection processes, for example
- Ask for referrals
- Build a relationship with the client