Start Up Questions

HomerJ

Long story short. Going out on my own with a partner. Terrible time to start a biz, but my current employment is shaky, and we've been offered a source of biz that will provide us with some regular revenue while we build the biz.

We're looking for an attorney and an accountant, but could use some advice from the veterans here until we find them.

1. I understand why personal and biz finances should be separate. But, I have $60K in personal credit lines available that I need to tap to start this up. I don't think a new biz with no history has much chance of obtaining a line of credit in the middle of this credit crunch. My credit score is 720. Am I just going to have to risk my personal credit lines here? Any other ideas?

2. What are the best sources to find reasonable rates for GL, Auto and WC insurance?

3. Can personal tools owned by me an my partner be sold to the business?

4. I currently lease a vehicle for personal use. I wanna trade that in for a work truck. Again, do I have any shot of getting an auto loan in the company name that has no credit history?

Thanks in advance for any advice.

BirmanBuilders

The banks won't touch the business because of lack of credit, so you will have to use your own for everything.
For the insurance go to about ten different insurance agencies and beat them up a bit they will move on the price. They make 10% of the policy and charge an extra fee on top so try and bend them over a bit. Plus the insurance companies will move because they want the business. You WC is going to be high because its your first year but shop around.

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dirt diggler

Do you have any work lined up - that is to start within the next 15 days?




Do not touch your credit line -
Stay COD right now (you'll likely have no other choice anyways)
Use your personal tools
Figure out a way around getting a truck for now.


I can smell the trainwreck. Ya don't know whatcher gittin into ... take it one day at a time. Do not use your credit line [yet]

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Thanks in advance!!!

rrgeneral

Can Definately Understand ....

Here are a couple of ideas for you that may help protect your piercing the corporate veil (that is if you are an incorporated entity) DO NOT put your personal guarantee outhere... if you are contemplating using your own lines do so by drawing from yourself... investing into your company open a secured line against those funds.... some lenders may offer part of those funds available at a 70/30 or 60/40 ratio. This eliminates the co mingling of your personal credit (guarantee) with business credit. And will ultimately help you with other leases etc.

And Yes, your personal tools, equip., cash, etc can be sold to the business... keep in mind that you want to be very "market price" accurate...

Good luck!

wyoming 1

First thing drop the partner that WILL BE A TRAINWRECK someday. Like said before stay on a cash basis for now I disagree with dirt on the truck if you need a truck get it but don't go out and jump in to a new f450 for $45000 just to feed your ego. Buy something you can afford an will get the job done, you can't pedal with an empty cart

robtlem

When i started my accountant advised me to put 50% of what I earned away to pay for Social security(15%),
taxes (25%ish), retirement also needs funding. keep it simple. Buy only what you need to get a job done.

If you use your line of credit will your partner be there to help pay it off? if things don't work out.

PMI

Hey there,

Seems like you have a smart head on your shoulders so you need to put yourself out there with your best foot forward. Our industry has more better craftsmen than businessmen so use this to your advantage. I would start with a one page webpage (or a few pages) that focuses on who you are, what you do, how to contact you, and ensure to throw in a few SEO (Search Engine Optimization) words so that the Google-Yahoo searches clearly find you in the town-city-state that you work in. Type in a few words for your trade and your location and find out which competition stands out and then look at the words, usually in the text or at the bottom somewhere that will help you see what is successful in being found online. Marketing is a major topic that will get the phones to ring or email to come in.

By the way, please identify yourself more since many forum members may be hesitant to give more information without knowing whom they are talking to.

Good luck breaking in.
Phil

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Phil Tonks
For all your Remodeling & Home Improvement needs in South Florida visit www.pmi1call.com

HomerJ

Good information out there. Here's some more background:

I've been in the residential remodeling biz for 10 years. For the last 6, I've been in the corporate world, hiring and managing GC's, Project Managers and their various subs. I live in Northern Indiana, where most of my current work is concentrated.

My partner has 20+ years remodeling experience. Started as a carpenter, is now a Project Manager for a mid-sized construction firm in the Chicago area. He lives in the north burbs.

As for ditching the partner. I understand the concerns. But, he's the one who identified this current opportunity. He has a solid relationship with the person who's offering it and has more hands on construction experience than I do.

In addition, this immediate opportunity would require a daily presence by someone on the North and West sides of Chicago and another person to handle downtown and Northwest Indiana. I could pursue the venture solo, but I'm not confident I'd be awarded this contract if I did.

Jobs from this contract would begin as soon as the company is legal, but will not provide enough profit to completely support two partners and their families the way we would like. While it will be nice to walk right into a new business with a solid client, this thing will need to grow beyond this single contract in order to make good long term financial sense for either partner.

Things can always change, but we've done our homework and this oppty is for real. We've worked with and trust the guy who's offering it. As long as he's there, and as long as we perform, the work will be there. Realistically, we could continue to have this contract even if he left.

I suppose an accountant could advise us if there's a way to set this up, but I envision the initial investments in the company to be split 50/50. I'd like future personal investments in the business to be made by issuing stock or % ownership of the company based on the investment and the company's current valuation. Anyone have experience with this sort of thing?

The major initial expenses will be our insurance and licensing. We need to carry some heavy liability limits and will get hit harder since we'll be using subs for electrical and plumbing.

He has a truck, I don't. I can't transport the tools and materials needed in my Accord, so I need to resolve that. I would prefer that the truck be owned by the company. Surely, there's a way to do this. His truck also needs to be sold to the business and both should be insured under the business' auto policy.

I don't plan on tapping anywhere near that $60K in credit line that I have personally. We won't need to buy materials up front for this initial contract. Other jobs will likely be billed progressively based on trade completion.

Having said that, I know that cash flow will be a challenge early on, and likely even longer. I don't have a ton of personal savings. Most of it is in retirement accounts that would penalize me heavily for pulling it out.

What other means can a new small business owner use to keep his company going without putting his entire personal financial life in jeapordy?

dirt diggler

So this "venture" is not even going to provide enough profit for both your families.

Well, Homer - I am having a hard time wrapping my head around this now. You do have one advantage though: most guys don't realize what you do realize until after the job has been completed.

I realize that you [all] have been in contracting for what seems the better part of your lives. But how much business experience do you have?. That will tell the tale. It won't be the trade experience that determine's your success - but how well you can operate a business. I can PROMISE you that.


That said, there is no "nay-saying" around here. I was constantly told when I started out that I would fall flat on my face. Guess what? I did - several times. I will fall flat on my face a dozen more times too. So let me say that you'll likely fall flat on your face too. The variable factor in succeeding, however --- is going to be your "response" when you do in fact fall flat on your face.




You won't get away from the risk either. Now, you can manage it ... in fact, you'll have to manage it - or else the sheer weight of it will have you collapsing in a breakdown. I'd be happy to share more advice to you on that crucial element if you'd like. I won't go into it now just because it is long.


$60K will go quick too. It's nothing really. You'll spend it tri-fold just learning about your new venture (and hopefully get more work so you can put your experience to work).


I promise you this. You'll lose money - and for awhile you won't even realize it. You'll lose even more on paper.




So I guess my first piece of advice is to understand that you're about to take a very large risk. Nobody is saying that you will succeed or fail.


What I, or perhaps [we] are saying is that you need to really embrace that risk. Stare it dead in the eyes, hold your nuts and move forward. Don't stop the calvary once you've sent them in -- and you will need to send them in at some point.

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Thanks in advance!!!

HomerJ

That's correct. This ONE client will NOT provide enough bottom line profit to support both partner's families the way we would like. However, it is projected to provide enough steady profit each month to allow us to survive. Thus, the need to build the business beyond this initial client. I think I said that in my initial post. Why is that hard to understand, and why is that funny/sad to you?

I suppose there are large single commercial contracts that run for a period of years that could sustain a company, but I don't know of any residential remodeling companies who can survive off one client.

As for business experience, my career has been spent primarily in managing the business. I'm not a skilled craftsman in any particular trade. What I am, more than anything else, is a leader of people. My partner has way more hands on construction experience than I do.

I fully understand the risks. That's why I'm trying to learn as much as I can about how to protect myself.

In the end, I see it like this:
My current employment situation is tenous.

There are very few jobs I could get in this area, in this economy that will pay me what I'm earning now.

Working for the man has it's benefits (literally and figuratively), but I believe it's just risky, if not moreso to continue what I'm doing now.

This thing is in it's infancy. I'm just looking to pick the brains of some veterans on a couple of issues I don't fully understand.

Thanks for your help.

Bill Z

Hey, it's an exciting time for you, congratulations!

As you think about your credit line and your good credit rating, you can appreciate that your borrowing power is all personal and won't transfer to a new business.

The natural thought is to have the business own trucks and tools, but since your borrowing power is personal, why not own the equipment personally and lease it back to your company? I assume you'll incorporate or do an LLC, keep the corporate assets lean so if things don't work out, there's nothing to take.

You should still be able to expense the trucks through mileage or depreciation, same with the tools. Buy a big umbrella liability policy to cover your personal side, but do your homework on keeping the corporation on the hook for liability, not you.

Look for an accountant and attorney who works with other contractors, there are plenty of smart ways to protect yourself.

And, good luck!

Mellison

My three pieces of advice.
1. Get incorporated
2. Find a good accountant.
3. Buy tools as you need them. Not before.
Good Luck!!!!!!!!!!!!!!!!!!!!

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modterry

A step back? I did not get why your partner needs you? He has the contact , he is the worker bee, correct? Have you both sat down and laid out job titles, job responsibilities , etc. Like in a formal business plan. What do each of you bring to the table?

Is it your job to expand the business while your company works on the job you outlined?

1) Partners are like wives- get a good understanding of wants and needs.

2) Make a plan of who is to do what

3) Make up a plan - how do we get out of this thing if we have to without killing each other.

4) Both of you should put up equal amount of capital - to fund the start up.
Incorporate - get legal counsel

Business Plan - one client is a sure disaster but, it is a start. What happens when the contact at the company you work for gets fired and the next guy likes his brother in law better and fires you guys.

Since there is not enough money to carry both of you in this one job - how are you both going to handle that. It may be just enough to get you started on Marketing for other jobs.

Best of luck - good planning will bring you a sense of direction and increase your confidence.


Terry

HomerJ

This initial client requires someone to work in the North and West Chicago Suburbs and another person to work dowtown Chicago and NW Indiana doing site assessments and to supervise the individual jobs. The daily management of this client is a two man operation and ideally a secretary. (not sure if we'll do that right away)

You're right. We do need to clearly define who will do what beyond this first client. We've begun that discussion but haven't clearly defined it all yet.


Thanks for the advice.

HomerJ

After hearing what many of you had to say about the proposed partnership, I went back and consulted some other professionals and they too were leary of a 50/50 partnership.

So, we went back to the drawing board and as a result, will be forming two separate companies. One serving IL and the other serving IN. We'll continue to be friends and allies, and will work together whenever possible to advise and assist each other.

I think this will work out better.

Thanks again for the words of wisdom.

Mud Master

ANYTIME...I repeat..ANYTIME a partnership is made NEVER make it 50/50...EVER!!!

51/49..Great!...50/50..No!

Wayyy to many disasters waiting to happen with a 50/50 partnership.

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sparehair

I don't think anyone mentioned incorporation yet. If I need cash from personal credit cards I use them to make all my purchases. All cash that comes in (like from your job) goes in to the kitty. Once you have your corporation, put in your initial equity which you amassed from monthly cash flow. Make sure to use any 0 percent cards (which usually only apply to purchases). I would bet you could get 5-10k pretty fast that way and avoid the cash advance fees and get very cheap business credit to start. Naturally the incorporation and seperation of assets protects your personal assets, home and retirement accounts. Their are also plans with iras for borrowing against them and repaying but I bet for short term it would be cheaper to use the cc's.

Logic

I am in a 33/33/33 partnership......I guess you would have all said that is bad idea too?

Meetre

yes!

there is only one captain on a ship...for a reason.

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Logic

I hear ya, but for us, it works cause we all bring something different to the table.....