Being Your Own Contractor

After job costs such as subcontractors, direct hire labor and materials, a remodeling contractor will earn somewhere between 33- and 45-percent of the project price. This amount is mostly used to pay overhead costs, with the left-over amount becoming the contractor’s profit. For example: If the contract amount is $100,000, after direct job costs, the contractor earns somewhere around $33,000 to $45,000 to cover overhead and profit. After paying office expenses, rent, legal, accounting, payroll, fuel and other overhead costs most contractors net an actual profit that equals somewhere between 10- and 20-percent of the total project amount. Usually, about half of the profit is then paid to Uncle Sam – leaving the contractor with somewhere between $5,000 and $10,000 – or a 5- to 10-percent profit. Among those in the know, this profit range is considered to be very respectable. Why not keep all that money for yourself!?!

Risk vs. Reward

After taking a reasonable paycheck, and then coming home with a bonus of $5,000 to $10,000 in profit (on top of a paycheck), it goes without saying that a bright and conscientious contractor can earn pretty good money. However, being a contractor comes with risks. And when you are considering being your own contractor you should know what a good contractor does to reduce risk. This will teach you what you need to know to reduce your risk whether hiring a contractor or doing it yourself. Keep in mind that a single mistake can cause the cost of a project to double or even triple. You will want to do everything that you can to reduce such risk.

Here’s what good contractors do to protect themselves:

• They carry Workers Compensation Insurance which covers job related injuries and accidents. Without this insurance coverage your homeowner’s insurance policy may be your only protection and may not be sufficient to completely cover all costs. Besides medical bills and loss of wages an injured worker may have to be retrained in another field. We’re talking hundreds of thousands of dollars in some instances. How up to date is your homeowner’s policy?

• They carry General Liability Insurance which covers property damage. Who pays the repairs cost when a worker totally destroys the finish on a baby grand piano or a piece of fine crystal? And once the insurance company pays the claim whose insurance premiums go through the roof for the next 20 years?

• They hold Regular Safety Meetings which are time consuming and expensive, but they are absolutely necessary to keep workers mindful of the dangers associated with construction work. No matter how much insurance one has it is far better to prevent the accident from happing in the first place. Contractors are required to write their own safety training program. However, most use programs available through the government. As your own contractor you must be mindful of this kind of training and the negative impact that could result if you cannot measure the safety-skill level of the workers that come to your home.

• They carry Vehicle Insurance that have extended limits that are 3, 4 and 5 times the minimum limit required by the state and they thoroughly check the background of the workers that will be operating their vehicle(s). You can’t know enough about a person who will be working with dangerous tools or who will be operating a vehicle that you own.

These are just the very most basic steps taken by a good contractor. The actual list is much, much longer. Changing a faucet does not involve great liability. However, a major remodel or room addition involves more than nut and bolts and color selections. Whenever the human element is brought into the picture in a big way there is much to plan for in the way of safety and contingencies. Certainly, be your own contractor, but to so sensibly and methodicly.

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