When a remodeling contractor goes under, who suffers?

The story I read today about the demise of Tim Davis' remodeling company played out in Lakeland, Fla., but it could have happened anywhere.

Davis started his company 19 years ago with a pickup truck and a toolbox, according to the article in the Lakeland Ledger newspaper, and grew to a $4-million company. Here's what happened:

The problems started in early 2007 as construction activity began to dry up in Polk [County]. Clients backed out of jobs as the economy worsened and Davis' annual sales were soon 40% below projections.

By the start of 2008 he had laid off roughly two-thirds of his 24 employees and was under intense pressure from his bank, which froze his accounts and gave Davis a month to pay back $350,000 in outstanding credit. Without enough contracts to keep the business afloat, he finished his remaining jobs and shut down Davis Remodeling, vacating the firm's Harden Boulevard offices two months ago.

So who suffers? As a homeowner, you want to make sure you're not the one holding the bag if a business fails. Even if you don't have money out for work not yet done, having to start in the middle of a job with another contractor would be a major hassle, as best.

Here are the bouquets and brickbats I offer for this story:

Bouquet: Davis is the president of the Polk County Builders Assn. In the world of builders, this is a high-profile, high-esteem, high-falutin' position. You could expect someone in his position to have maximum integrity, and it seems to me that he does, as evidenced by the fact that he finished his remaining jobs before shutting the doors.

Brickbat: According to the article, the company recently did a big remodel of its offices, and that cash outlay was part of the reason the company lacked funds to continue when business turned south. Many in the construction industry knew the crazy rate of growth in 2005 and 2006 was not sustainable. It was probably not the best time to do that remodel.

Brickbat: The story notes that Tim was a high school dropout who later went on to get his GED. That is commendable. But it also makes me appreciate the new type of remodeler I've seen in recent years who comes out of business school rather than up through the trades. Some people are just not cut out for organized education and intuitively know how to manage the ups and downs of the economy. But I can't help thinking that someone with more formal business education could have seen the downturn coming and prepared for it.

Bouquet + Brickbat: Part of the problem seems to be that Tim held on to his employees past the time it was financially wise, according to the story. That's a bouquet to him, for caring about his employees, but also a brickbat for putting himself out of business. Could there be anything more difficult than letting go of a hard-working carpenter with a family?

This story shows why so many contractors have streamlined their companies to use fewer employees and more subcontractors. Then, when business is slow, nobody gets fired.

Observing the photo of Tim Davis above, I have two thoughts: 1) This experience is very personal and very painful, and 2) Tim will rise again.

(Photo: The Ledger)

Comments

[starchy]

"fewer employees and more subcontractors" - How does that make a difference?

Instead of employees, the subcontractors are then out of work. They are also "hard working" with "familes".

So when business is slow, they get "fired" too..

[Jeff]

The comment about this contractor's education was a silly one; there are plenty of well educated business people who have mismanaged the timing of their businesses.
In Miami there are hundreds and hundreds of high-rise apts. that are empty because the developers misjudged the real estate environment and are now out of business. How many of them have advanced degrees? Plenty.
The fact is the contractor in the article ran a very successful business for many years.