The Importance of Business Working Capital for Sub-Contractors

Sub-contractors are different from general contractors. General contractors are the ones who are in charge of a project, and they’re the ones who get to pick the sub-contractors to do the job for them. But sub-contractors aren’t employees either. The agreement between the general contractor and the sub-contractor is not between employer and employee, but a business-to-business contract. And because it is a business, there is a need for business working capital for sub-contractors as well.

The Importance of Business Working Capital for Sub-Contractors

Technically speaking, sub-contractors exist in every industry. A wedding planner may be tasked to create the perfect wedding ceremony, but to do that they have to hire musicians and caterers. Those musicians are therefore technically sub-contractors who are tasked to do a certain job as part of a bigger project. But in popular usage, a sub-contractor is usually part of the construction business. Your job as a sub-contractor may be to deal with the plumbing or with the electrical wiring. You don’t deal with the homeowner directly, and instead the general contractor contacts you with the details and schedule of the job.

If you are a subcontractor, you need working capital for a lot of expenses, such as:

  1. Liability insurance. This is often a requirement, and since you’re not an employee the general contractor won’t provide for insurance. You have to pay for your own liability insurance yourself. Sometimes that’s not the only thing you need; you may also need to get workman’s compensation insurance or risk indemnification.
  2. Travel expenses. As a sub-contractor you need to travel to different places. You have to go where the job is. That’s the nature of your work. And if the work is far enough from your home, you’ll also need to pay for your lodgings and your meals. Unless it is specified in the contract between you and the general contractor, all these expenses are your responsibility.
  3. Equipment. Since you’re not an employee, it is your responsibility to obtain all the tools you need in order to do the job that you are contractually obliged to perform. There’s no other company that will get you the tools you need.
  4. Training. You are also responsible for your own training and there is a real need to upgrade your skills. One reason is that there may be new tools available which you need to familiarize yourself, or they may be new procedures you need to master. And you should also always try to improve or expand your knowledge because that makes you more likely to get the attention of a general contractor.

While you may think of yourself as a freelancer, as a sub-contractor you’re actually a business entity. As a business, you need to make sure that you can perform your day-today tasks, and that means you need to make sure that you have the cash available. Business working capital for sub-contractors is crucial, especially if you want to make sure that you are rehired by the same general contractor who chooses you in the first place.