Contractors, Beware The Dreaded Disease Known As Deposititis
It happens very frequently with construction contractors and it plays like this: You receive a deposit for a job, that is intended to be used to purchase the first round of materials and early payrolls until you get your next periodic progress payment that may be a month or more out, depending upon progress made. Under normal circumstances, you budget the money for the required time projected until you receive the next periodic progress payment, but, if struck with the disease, you spend the deposit on other bills that have been building up and are demanding service. You spend the deposit on other matters-important matters-but not the ones associated with the job at hand. Now, you are in a jam as the current job requires early payroll, materials and other required expenditures intended to be satisfied by the deposit, but it’s already been disbursed and spent. Deposititis has struck and the money is gone.
To most, the answer in this situation is to get another job as quickly as possible and use that deposit to cover the needs of the first job. In reality, you are getting deeper into the black hole, and are about to be consumed by the disease. If you are in dire straights, you may decide to use the second deposit to cover even more stacked up bills from earlier issues, now putting two jobs at risk for lack of funding despite the deposits having been paid. It’s not hard to see how this can compound out of control, and it happens all the time.
What is the cure? Self-control, self-discipline and budgets that you adhere to. You cannot exhaust your deposit stream with outside debts without suffering a huge implosion. It is like a Ponzi scheme that you perpetuate against yourself and your clients and it never works out. You must discipline yourself to allocate the deposit money to the job intended and figure out how to service your other bills out of profits. It’s difficult, yes, actually sometimes seemingly near impossible, but it is critical for your survival. If allowed to strengthen its hold on you, this disease is most often fatal.
Again, the cure is simple: discipline, control, a financial plan and clarity. It may feel good for a moment to pay the old bills but when you default on your new customers, where does this leave you? Dead. Deposititus claims another victim.