When you are documented as doing business essentially illegally, it's going to come down on your shoulders, because you are the professional. You are the business owner. You do this every day. It's not going to come down on the client's shoulders. It's very similar to when you elect to not pull permits, right? The client doesn't want to pull permits. I'm not going to pull permits when you get caught and when you
get fined. It's not going to fall on the client shoulders because they're not the professional, even if they told you they didn't want to pull permits, it's on your shoulders because you're the professional, and you know that regardless, you should be pulling permits. Welcome back to another midweek modern crafts and where today I'm going to be diving into digging into a prompt from a listener that he sent me via
email. So listener Chris, in response to a handful of podcasts and blog posts that I put out recently, wanted my take a little bit of insight on cash offers from clients, and I believe that this was in response to some conversations that I've had around the market, the state of the economy, how clients will begin to leverage people being Hungry for work, just the competitive nature of the industry, as costs have risen for clients, as costs have risen for our business, as work
has slowed down, any ways that potential clients can leverage us, and one of these that he feels he's seeing a little bit more often is clients offering cash to pay for jobs and cash and the potential pitfalls and everything else that may come along with that. So again, with with the market tightening and costs rising for everyone, clients are tending to get a little bit more creative, and I'm sure, just as Chris has experienced, you're going to see more of this, and one potential
way is with cash offers. And on the surface it may sound great, it may sound appealing, but I'm going to break down why accepting cash or entertaining these offers is not ideal for you and your clients, and how you should be sticking to a professional, transparent process, and how that protects you, how it protects your business and and also how it protects your clients and bringing value through that
conversation. So if you are interested in having a question and experience a if you want to prompt me with something for this podcast, shoot me an email, Tyler at TRG, home, concepts.com, and if it's something that I feel is worthy of a conversation, or it interests me, it intrigues me, I'll hop on here and I'll record a midweek based on that topic.
So if you're interested, you can do like Chris did, shoot me an email [email protected] and if it's something that I find will be fruitful to our listeners, I'll hop on here and I'll record something for you. So thanks, Chris. I appreciate it. Let's dig into this topic. So everyone's heard cash is king. I think that that's with respect to to a different type of cash, right? That's cash flow. That's ensuring that you're not indebted to your business, that you have reserves
on hand. But with with regard to cash from an offer from a client. What is my take on that? Again? I think that this is going to become more apparent. I think that it's going to probably be a little bit more frequent. I believe that clients will begin to leverage us a little bit more strongly. And it's not even just based on the fact that contractors are hungry, but also the cost of living has increased for
everyone, right? So people are looking to get the most bang for the buck, you know, if they can save money on sales tax or possibly offering a bigger discount based on sales tax or income tax with a cash offer, they're going to be looking to leverage us, and for me, this is this has always been somewhat of a point of contention, and nothing that I've ever, ever really dipped my toes into for many reasons, and I think when I started out, it was just the need to be legitimate and to
break the mold of the typical contractor, and that we're we're operating cash business, and we're looking to skirt Around the IRS and pay people under the table, all of which has led to a lower cost of work, a lower value associated with our work. And long term, it's just impacting our industry as a whole. So very short sighted of us to consider this and. It's affecting everyone. You're driving the cost of work down.
You are basically creating a more competitive industry and a lower cost of work and price point which is which is hurting all of us. It's hurting yourself long term, because it's not going to be sustainable without creating work practices that realistically are illegal. So for me, it was always just about wanting to be legitimate. And you know, starting out, you want to be taking out loans, you you want to buy a house, you want to buy equipment, you want to invest in your company, you need
to show the money on paper. So for me, it was always I want to be legitimate. I want to break the mold. I want to have money. I would be able to buy a mortgage or buy a house. I want to be able to buy equipment, a truck. I want to show that I'm making money. I was never in a position to say, hey, I can accept cash at this point because I'm set and I can save myself, whatever my my save my clients, you know, sales tax plus income tax, by offering them some sort of a break. I was
never in that position. I never wanted to go down that road, and I always wanted to find a client that valued the legitimacy of my business, the protections and the safeguards that this money is paying for, rather than offer them a competitive rather than coming to them with a competitive offer by saying, hey, I can save you X amount if you pay in cash, or them proposing that to me. So this offer might seem harmless. I've had this happen with clients that I've worked with before.
I've had clients come to me immediately from the outset, offering cash, and my response has always been no, and I'll get into why it's always been a no. You know, some of the bigger picture things like I said, I think that we're hurting our industry. We're driving the price of and the cost of work down, and we're creating just more competition within the
marketplace. And I also just think, from like a legitimacy standpoint, in the image and really standing up and looking to abolish some of the stigmas within the industry, this goes against everything that I've spoken for. So from the client perspective, one, they may think that they're saving money on sales tax, right? There's a lot of the work
that I do on renovations. Remodels is tax exempt based on the fact that it's a capital improvement, but I know that there's a lot of trades that or jobs that require you to collect sales tax. So depending on your state, clients may be looking to save the money on sales tax, right? I don't have to collect sales tax. I don't have to pay sales tax. So we'll wipe that clean for you. To me, that's a that's a small price to pay on
the cost of a job to be legitimate. You know, at the end of the day, that's the cost of being in business. Unfortunately, there's taxation with this, this company in this country, I'm not sure we're going to get around that. So for me, I don't want to do a job and not collect the appropriate
sales tax and pay the state. Or for us, it's the state, the sales tax quarterly, and then get an audit and say, well, you should have collected sales tax, because at that point, I can't go to my clients and say, hey, you know, I need the a little bit less than 7% sales tax for all of us, work that I did, I was supposed to collect it, and I did it, that's going to be on me. So I'd rather collect that money. It's not costing me money, and then I pay that over to the government, so that
that's a small price to pay to be legitimate. One of the bigger issues I see as a contractor accepting cash offers is that there is a a lack of proper documentation, which can open us up to some serious risks. First and foremost, obviously, there's a lack of a formal paper trail, the number on the contract, with the signature, without proper invoicing, without bank statements, you are jeopardizing the integrity of the entire
contract of work. There should be a lot of protections within your contract, and when you start gambling with numbers and and financials within the contract that are not accurate or they're fudged, you're jeopardizing the integrity of that entire contract, which is there to protect you and to protect the client. So the conversation should be had with the client that, hey, this is here to protect you, along with
our contract, along with the paper trail. If something happens, if something goes wrong, God forbid there's a fire, the works damage you've invested this much, you can recoup this much. It's there to protect you, and it's the price that we have. Have to pay to do that. So if you go down this path, you know, we're not selling slices of pizza, we are selling large projects. We're an investment for a family. It's
within their house. There's a lot of trades, there's a lot of legalities, there's a lot of dangers and risks, and it's an investment in something that's supposed to last a long time in their house. So it's, it's not somebody coming up and buying $1 $52.50 slice of pizza off of you and then never seeing you again. You're working and you're creating a space in somebody's house that's supposed to last, you know, 1020, years plus. And there's, there's, there a lot can fall back on you from that
right? You are in in bed and in a relationship with these people that is long standing, right? You should legally, by AIA, have
your one year warranty in place. But you also, if something goes wrong with that project, or something happens with the house, and it's because of something that you missed or screwed up, like you're going to be liable for that if something happens and they need to collect an insurance payment like, all of this needs to be intact and needs to be in place, and it's not necessarily for recourse, but it's there for you to be
able to help your clients in the case that Something happens. So I think that a lot of times, the clients are looking to save the money on the sales tax, make the process a little bit easier, right there, they're looking to sweeten the pot, that the transactions will be quicker. No banks involved. You know, they're paying you under the table. So there's also the
aspect of saving the money on income tax. So right? You have the hopes that I can pay for all this stuff and create these, these expenses with my business, which will come off of my the bottom line of my business, so I won't be getting taxed on that, but then I'm actually making my money on the business off the books, so it looks like my business is not making money, or not making the money that I should be right? We're just running a business that probably isn't profitable. Save yourself
the money on income tax. That's huge. That's a lot of money. But what happens when you don't have the enough cash or liquidity or reserves in your business that you put all this stuff on your credit card and now you don't have the money coming in to pay the bills, and now what are you going to do? Like you can't, you can't dump all this money into the bank when you lowered your
price, right? You took $50,000 from this client, you lowered your price, charged them 30% less, 20% less, whatever it is. Now you got to collect sales tax on that after the fact, and you're going to have to pay your income tax on that after the fact to put that money in the bank so that you can pay your bills. What happens when you need your truck breaks down, you need to go get a loan for a new business, and your business on paper, isn't making money. What if you want to buy equipment?
You want to buy a house, an office building, right? If you are not, if you don't have the liquidity, you don't have the cash reserves, you don't have the equity in their your business, you're opening yourself up to a potential demise for the business by taking large sums of money in cash. So again, you're opening yourself up to risks, and a lot of this, when you look at the potential downfalls and
consequences of this are falling on your shoulders. So you are sticking your neck out there to give this client a good deal, maybe save yourself a little bit of money, but at the end of the day, when things go south, when there is a an argument, when there's a feud, when there's a legal matter that has to be addressed when there's a lack of this formal paper trail, when you are documented as doing business essentially illegally, it's going to come down on your shoulders, because you are the
professional. You are the business owner. You do this every day. It's not going to come down on the client's shoulders. It's very similar to when you elect to not pull permits, right? The client doesn't want to pull permits. I'm not going to pull permits when you get caught and when you get fined. It's not going to fall on the client shoulders
because they're not the professional. Even if they told you they didn't want to pull permits, it's on your shoulders because you're the professional, and you know that regardless, you should be pulling permits. From my perspective, it's very similar to that. There's obviously significant tax implications, whether you're getting paid, cash, check, electronic transfer, it all needs to be reported from a
business perspective. And by skirting around this or entertaining this, you are opening yourself up to major. Your potential problems with the IRS if you ever become audited, there's a lot to keep intact within a business. There's a lot of things that the IRS can exploit. You know, just tracking all of your expenses audits are difficult enough you do not want to create a convoluted paper trail when you get audited, that prevents you or costs you even more money. Business is
difficult. Business is tough. Tracking all of this stuff is tough. Keep it as simple and as legitimate as possible. Again, these these cash transactions, are not going to protect your business, the way that transactions with a digital footprint will whether they are deposits progress, payments typically coming from a bank via a check right there for somebody to pay you money in cash, you're essentially that's word of mouth. There's no documentation for that, that they paid you
that, that they didn't pay you that. So again, you have to protect yourself here, when there's an issue down the road or the client says that they paid you so much, how do you document that? How do you go back and say, No, you shorted me $5,000 No, we gave you $5,000 cash. What do you like? What is there? You have a signed receipt, a handwritten receipt
that you sent them, that they can't show to anyone. So you have to protect yourself here and on the other side of the coin like that's protecting your client when they feel that they've overpaid, they have no recourse if there's no digital footprint of where that money came from how much money was spent, how much money was earned. You, just you. Everyone in this situation is opening themselves up to liability, risk, legal or financial implications later on, another
thing to consider for me. Again, I briefly touched on this earlier, but most of my work is capital improvements. So right? I'm not collecting sales tax on that in the first place. So what am I going to offer them? It would be the money that I would be saving potentially on income tax. But again, if something comes up down the road, if I end up running short on my cash funds, and I need to put that money in the bank now, that
money's getting paid to me at a reduced rate. That's like having money in the stock market and then, you know, things tanking and pulling that money back out, you're immediately losing money. So to me, there's just a lot of risk there, and I can't really offer to provide my income tax and what I pay in income tax as a concession, because I need to protect myself. I cannot offer,
hey, I can save you the sales tax if you pay cash. Because most of my jobs, I'm already not collecting sales tax because
they're capital improvements that I document. As to why. So I'm not sure really what the angle is to sell my clients there, more broadly, right, when I speak about this podcast, when I speak about our industry, when I speak about what I do as a business, who I'm looking to serve as Support for, who I'm looking to inspire, create, just like a really strong and valuable example for these small business owners who are looking to do things right, who are looking to make money, who are
looking to understand their Numbers, to me, this goes against that completely my business, what I'm looking to preach here, what I want my followers to understand is that you can create a viable, sustainable business by understanding your numbers, by selling value, by understanding who your client is, by engaging In pre construction, by selling value add services, by standing by your values and your trade and your craft, and that's a business that's rooted in
transparency and Professionalism and Ethical Practices, and to entertain these offers from clients or sweeten the pot with an offer to a client to land a job. To me, that goes against all of that. You're you're you are setting the wrong tone. You are selling to the wrong client. So for me, I've had clients come to me after I've worked with them for many years, and they say, hey, we'd like to pay in cash. That's fine. There's no discount. There. I can't do anything about that. I have to
put that money in the bank. That's how I operate. My business goes into my accounts for my business, and there's nothing I can do about that. So if you want to pay me cash, incredible, amazing, I appreciate it, but I can't offer you any sort of concession there or discount there. So if it's not convenient to pay you in cash, or paying me in cash is a benefit to you. I still have to document all of this, and it's going to go into my bank account, just as it would if it
were a check everything else, so that it checks out. Everything's aligned and that I'm protecting myself. And again, the sell is that you are protecting the client as well, and you have to be able to advocate for them. You have to be able to articulate how this is protecting them. And so much of that is that money trail. It's the contract. It's when there's a change order ensuring that there's a monetary value assigned to that that right? You're balancing your
spreadsheet. You're balancing your invoices, I'm balancing my business, and that right? My numbers match up. If I'm doing a bunch of cash business, and I go to look at my profitability at the end of the year, it's it's going to be a false indicator of what my business actually looks like, which is the goal there, right to show that you're making less money. But now I don't know
what my numbers are. If my numbers are right, if right, if I only am making money, and my business is successful because I'm doing a bunch of cash work, then realistically, my numbers are often screwed up in the first place, and I'm actually not running a viable, sustainable business, because if I were doing things on the book, and I weren't giving discounts, I wouldn't be making the money that I needed to which, big picture, is really, really affecting and hurting our
industry. It's hurting us now. It's hurting us in the future, and it's hurting future generations. So for me, it's really important that I'm focusing on the clients that understand that, that when these leads come in, if it's an offer right off the from the outset, the conversation is why I don't accept cash, or why I can't get I'll accept cash, but why I cannot give a discount for that cash, because there has to be a paper trail. It has to go into the bank. There has to be
receipts, there has to be invoices. I can't just squash all this. I can't make it disappear. There's too much risk there. And I'm protecting my business, but I'm also protecting you again, if something goes wrong, if there's an accident, if something happens a year down the road, if there's a fire, if you have a storm damage, if there's a leak, I need to be able to have all of the documentation that goes behind this to be able to help you. I need my subs to be legit.
I need my business to be legit. There needs to be a way to back and legitimize all of the work that we're putting in place. And by taking cash and not running through that, not running that through the bank, and not having a paper trail will happen, I'm actually putting you in risk. I'm putting myself at risk. I'm putting my family at risk. I'm putting clients the industry, at risk, and the amount of money that you're saving. From my
perspective, it's not worth my reputation, right? So more broadly, I want to provide a service, and I want to create a business and an ethos that is rooted in ethical practices.
That's rooted in high value, honest, legitimate work. And I think that our industry needs that we need to, again, abolish a lot of the stigmas that are associated with our industry, and by taking cash work and not running it through the books or or entertaining these offers from clients, I think that we we are providing a ton of benefit for them while hurting ourselves, while hurting our future, while hurt potentially hurting our reputation, legalities, of it, financial
risk, everything else. So to me, I would suggest when this, when these emails or when these offers come in, the goal is always for clients to self qualify, right? I want to have a conversation with them that gives them and empowers them to be able to make an educated decision as to how they want to progress based on if they feel that I'm a fit for them and that they're a fit for me. So I want to provide them with all of the
information. Right? A client emails me, if it's a return client, it's a pretty straightforward conversation. Hey, this all. Has to go through my business. It's not, it's tax exempt already, as is, I can't really concede any money. It's going to eat into my margins. I'm not squirreling this money away in a shoe box and burying it under my floor boards. It's going to go into the account. It's going to pay for the
operating cost of the business. It's going to be my profit. It ensures that, you know, I have cash reserves, and ensures that I'm paying appropriate taxes. It ensures that I can take loans out if I need to, because I have a business that actually makes money and not one that's in the red, that I'm saving money on taxes. I think that taking cash business just perpetuates more
cash business. You start paying your subs in cash, you start buying materials in cash, you start paying for other things in cash. And to me, that's just not the type of business that I want to run. So I have that conversation with return clients, pretty straightforward. With the newer clients, the potential clients who are having this conversation with you early on. It's just about educating them as to why this is not a good idea moving forward, contractually, financially,
legally, from a protection standpoint, right? How does operating a legitimate business, the same reason that you pull permits, the same reason that you have a binding a legally binding contract, the same reason that all of your subcontractors are licensed and insured. This is just part of it, and this is part of that, that entire sum of efforts that you're putting together for your business to protect that client in a worst case scenario. And we all know that things go wrong.
No job goes exactly according to plan. And if I have this honest conversation with a client, and this is what I'm looking to do, and I'm looking, yes, I want to protect myself, but I also want to protect you in the case of an accident, in the case of a hiccup, in the case of a disagreement, I want to make sure that you are as protected as a client as I am as a contractor, and this is going to make for a mutually beneficial and valuable relationship and transaction and experience like
to me, that conversation is going to allow that customer to self qualify if none of this matters to them and their biggest priority within their program is saving that 20% that 15% whether it's sales tax, whether it's income tax, whether it's a combination of both, if that's their biggest priority within their program and that's not the type of business You run, then you know this lead is not an ideal client from your funnel, so they need to get worked out of the funnel, and
you need to focus on building that funnel that's going to generate the type of leads that you need, right? So set aside all of the potential legal ramifications, potential issues, this client is looking for a deal if they don't value what you do, what you can offer, the protections, the quality, the
experience, as much as saving a few dollars. Is this the client that you want to work for is being hungry a good enough excuse to throw all that out the window and potentially jeopardize your entire career that you've spent building your reputation. To me, that's a hard No. It's a pretty obvious No. Are you willing to do all of that to save a client a few
dollars and land job? To me, again, know the effort, the focus should be on explaining, educating, allowing them to self qualify, and then spending my time, my effort, my resources, on finding a more ideal, better fitting client that allows you to operate a legitimate business. So that's my take on cash projects. I don't think it's the move. I don't think it helps anyone long term. I think that you're exposing yourself to a ton of liability, a ton of risk, as well as your client. So
again, I appreciate the email, Chris. Hopefully this, better explained and articulated. My point of view, I'm fairly certain that you understood what that was. But for anyone who was considering this, just make sure that you are weighing the potential risks associated with this. Yeah. So if anyone else has any, any any questions, or you have some something your experience, or something is shifting with your business, or something you'd like a little insight into. Maybe, if I don't
know it, I can reach out to somebody. I can get you some answers. You think it's a great conversation topic for the podcast, for a blog post, reach out to me. Tyler at. ERG home concepts, let me know. I appreciate the emails. I appreciate all the consulting calls. Again, if you're interested in a consulting call, that's first come, first serve. I'm doing one or two per week. Shoot me an email, same email
address. I can explain what that looks like. And the last thing Nick and I are looking to be doing monthly workshops based on pre construction, based on marketing, based on scaling business documents and resources that we've created. So they're free. I believe we're going to be doing them on Fridays. I'm not sure when this one's going to come out, but the net this podcast episode, but the next one's going to be June 13. I believe at 12 Eastern time, you have to register. They're free,
but you have to register. And the way to register is to get on our mailing list, because that's where we're going to let you know when the workshop is how to register for it and how to get the free document that we're going to be digging into on the workshop, and the the best way to do that is to sign up for our email newsletter. You can get that at modern craftsman.co you can reach out to me. You can get it through our Instagram
profile. There's a million ways to get that again. You can go right on the website, www dot modern craftsman.co, but if you want to be a part of that, it doesn't cost you $1 you just have to pre register. So we're going to be looking to do that monthly, no pressure. But again, we're going to be offering the documents, the resources, for free, and the workshop for free. They're usually around 45 to 60 minutes on a Friday, so hopefully you can dip out at lunch. You can take an hour out
of your day to hop on there. Come ask us some questions, be part of the conversation, hear what we have to say, but definitely sign up for that newsletter. As always, I appreciate everyone hanging around. Hope you're having a good week. Summer's off to a good start, and I will catch all of you next week.