General contractor

Definition

The builder holding the owner's contract, who hires the trades under it.

Why It Matters

Buy a specialty trade and you are usually buying a book billed to general contractors, which changes what the revenue is worth. You are not paid when you finish, you are paid when the contractor is paid and after retainage is released, so the working capital a lender underwrites has to carry months of completed work. The contractor's own credit becomes yours, and a book where three of them are most of the revenue is concentration in a form a customer count will not show. Read the subcontracts and not the invoices: the payment clause, the retainage percentage, and who may charge back a delay decide when the money arrives and whether it arrives at all.

In numbers: A drywall shop bills $4M a year with $600,000 of receivables, and half of it sits behind one contractor's schedule of values. At 10% retainage the shop is also financing $400,000 of finished work it cannot invoice until the job closes out.