New Business

Manny27

Hey folks.

I wanted to come here and get some ideas and opinions on doing business as a contractor. I am going to be starting a small woodworking/carpentry business with my brother. We have a lot of combined experience, but I want to find out from experienced people in the field, out on their own, what some of the pitfalls are, the things I should prepare for now, so there are no surprises.

I also wanted to know if any of you could advise me on insurance and marketing my business in a cost effective manner.

I don't expect you guys to "write" my business plan, just your insights.

Thanks guys.

twellis007

Be prepared to spend a lot of money. Insurance is a must and it is expensive. Contracts are a necessity and change orders need to be documented and signed by customer. Employees can make your hair turn grey in a hurry. Good employees are hard to find. Cash flow can flow right out of your hands before you even count it. When I first started I took a class at the local community college. The instructor said be prepared to go without a paycheck for two years. I laughed at her. She was right. It can be rewarding one day and heart wrenching the next. Don't try to grow too large too quick. Get a good bookkeeping system that you can understand or hire someone to keep them for you. Contrary to what most people believe, you will not just ride around in your truck and make money hand over fist. Remember, if your profit margin is, let's say 10%, in order to buy something that costs $100.00 you have to make $1,000.00 to pay for it. Have fun.

480sparky

Know your costs. And I mean know them. Don't assume you do. Know them. Intimately. Completely. Passionately.

A business is like an engine. That engine needs fuel. And the fuel we use is called money. Cash money. You won't pay your bills with ARs. It takes CASH MONEY in the bank. Run out of fuel, and the engine dies.

Take some classes in business management. No, not go to college and get a degree in it, but learn how to run a business. You hae the experience the your trade, but running a business is totally different.

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StreamlineGT

I will say it is expensive to start up, but it is worth it. If you already have an arsenal of tools you need, and a truck to them there, that is half the battle. Insurance is key, but it's not that expensive, at least not for me. Not sure about carpenters. Finding work will be the hardest. Network Network Network.

480sparky

But don't use this as a way to lower your price. Owning the tools and vehicle free and clear will reduce your overhead, but it should not lower your price.

It's a false economy to say you already have tools and a vehicle paid for. Tools will wear out, get lost and stolen. Your truck won't last forever. Be sure you charge enough for each job today so you can replace them when the time comes.

More than once I've seen guys start out with a paid-for vehicle, but have to go back to being an employee for someone because they didn't have the money to fix the transmission, or buy a trailer full of tools that got stolen.

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Site : the area or exact plot of ground on which anything is, has been, or is to be located.
Sight : The power or faculty of seeing; perception of objects by use of the eyes; vision.
Cite : To mention in support, proof, or confirmation; refer to as an example.

StreamlineGT

I didn't say to lower his price. I am the most expensive electrician EVER, you don't have to tell me. Oh wait, second to Mr. Sp..... nevermind.

StreamlineGT

That's another thing. Insurance on tools is a must also.

480sparky

But typically worthless unless it is a trailer full of tools that grows legs. If you have a $500 deductable, and have $700 worth of tools heisted, it isn't worth your time to make a claim.

__________________
Site : the area or exact plot of ground on which anything is, has been, or is to be located.
Sight : The power or faculty of seeing; perception of objects by use of the eyes; vision.
Cite : To mention in support, proof, or confirmation; refer to as an example.

StreamlineGT

I was simply suggesting from my personal experience. I have more than a few grand of tools in my van, and they all could walk. Not sure what he has, and even though he might not make a claim for some stolen tools, for the $10 a year to add the coverage, just in case he has something expensive.

rick0913

I must disagree on the tool insurance , unless your most expensive stuff is new and vulnerable. I had an inland marine rider on my insurance, and yes it was pretty inexpensive, but when I had a jobbox full of tools and all my ladders stolen I learned it was practically worthless.
The insurance company depreciated everything based on the age of the tool, 10% per year.
I will admit that many tools lose value quickly but top of the line tools last a long time if treated properly.
Most of my nailguns and saws were 5 yrs old and pretty hard to replace for 1/2 price minus deductible.
What really made me mad is the ladders , I had 2- 40' Louisville fiberglass ext ladders that hardly saw any use in the 10 years I owned them.
Ins co estimated value 0.Other ladders similar story hardly used but when you need them, you need them, worth next to nothing.
You can get a replacement cost policy But it is more expensive & I'm not convinced they would ever actually give full replacement value.

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Of course I can build it ,all it takes is money.

rick0913

The most important thing I learned about contracting jobs was;Don't get too wrapped up in competing for work when submitting bids.
Decide what you have to charge to make money and do the job right, don't worry about it if you don't get the job.
In the long run reputation will get or lose more work than price.
A very knowledgeable GC I once worked for told me "If a regular sub bids too low,bring it to his attention,we don't want a guy to be halfway through and realise he can't make money.If a new sub bids too low, assume he either doesn't know his job or plans to give us a cut-rate,low quality product"

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Of course I can build it ,all it takes is money.

rick0913

To quote a prolific poster & knowledgable member of CT
I never lost money on the jobs I didn't get or something like that.
did I get it right Greg?

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Of course I can build it ,all it takes is money.

Astrix

You might find this hard to believe coming out of the mouth of an insurance broker, but I agree that insuring your small tools really isn't worth it. Most of the time you are better off self-insuring. The rates to insure small tools are high and the way Actual Cash Value is calculated, isn't fair. Rick0913 is absolutely correct in stating that 10 year old ladders could be worth the same as brand new ones, but you can't get Replacement Cost on items over 3 years old (a few insurers will give R/Cost up to 5 years). Replacement Cost is the best way to go if you can get it. Your limit has to be the replacement cost value of the item, not the depreciated value, and that increased limit is what makes R/Cost more expensive. The rate though is actually the same. Also, in order to get the R/Cost, you have to actually replace the item; i.e. show them the receipt of the new replacement purchase.

Even then alot of Tool Floaters have a "Locked Vehicle/Storage Warranty", meaning that there has to be physical proof your truck or storage locker where you kept your tools was broken into. If you leave your tools in a corner somewhere overnight at the jobsite and then they are mysteriously missing the next day, your claim will probably be denied. Locking everything up every night can be impractical so if you can't lock up your tools, then there was no point in buying the Tool Floater coverage. This is where having a good insurance broker/agent helps because they should try to have this warranty removed from your policy if at all possible, and if not they should advise you on whether you should bother paying for tools to be insured at all.

Sorry for the side-line, but to get back on topic:
The previous sentence is my advice to someone starting up a new business. Get GOOD advisors -- insurance, accountant, legal, etc. (Note emphasis on GOOD.) The right people can save you money and give you valuable guidance as you grow your business. You might think you are saving money by doing your own books and taxes, and deciding what insurance to buy or not buy, etc., but you are never going to know all the little tricks and pitfalls that experienced professionals in these various fields know. While you might be paying for their services (and you see this as an expense), they will probably end up saving you money because they will advise you against costly mistakes and oversights that you may not have known about or considered. Again, the key is that they have to be GOOD advisors; don't just go with the cheapest or the first name in the Yellow Pages; hunt around, take referrals, etc. until you find people you can trust to look out for your business interests and success; and not their own service fees.

TommyCon

1. Good point Astrix. You may very well be capable to do things yourself, and it may appear like you are saving money. Don't forget that time is money, and if your spending time on items such as accounting, legal, (not the business your in) most likely you are doing it inefficiently and at a substantial cost. Surround yourself with capable hands so that you can focus on the business your in.

2. Don't forget your family. Its very easy to do. So is shutting of your cell.

jomama

No suprises? Never going to happen. If that's what your looking for, you don't want to get into business for yourself. Actually, most here probably couldn't live without all the suprises & variables that can be around the corner at any given moment. That's normally why we keep doing it, we could never see ourselves getting back into the "daily grind" found working for someone else.

I agree with the others here on the insurance also. General liability is fairly inexpensive, as well as vehicle insurance. Work Comp accounts for about 70-80% of our insurance costs.

Also, re-read Astrix's last paragraph, as that may be the best advice you can get when starting (& continuing) in business. It's probably the best money spent. Good Luck.