I have a few questions. I would like to hear ONLY from people who are seriously in business for themselves making decent profits.
I recently completed my second year of business being full time in Home Improvements. Prior to that I was a software engineer who was working on the side building my home improvement skills with the goal of going full time in the business. I was sorta thrown into when I got laid off and had nothing to fall back on. As such I’ve not yet honed all my business skills. After my second year full time I’ve been forced to really analyze if I”m doing things right, or wrong. I have this nagging concern that I”m doing things wrong. I have tons of work, I’ve not had to want for work a single day since being laid off. I already had a foundation of many good customers and lots of referrals by the time I was laid off and it has not stopped a single bit. The last two Winters I was one of a few people I knew that had a backlog thru both winters.
Yet, for as busy as I’ve been I sadly have no money in the bank. One reason I have no money in the bank is that what I DO make is money that I need to take care of myself and two boys (I receive no child support). I am the only income. We get by but some months the financials are slim that we get by by the skin of our teeth. Other months I actually have some money to take me and the boys on a weekend trip.
I have a guy (Joe) I work with, has his own business, and we work together all the time to get away from the “employee” thing. We agreed a year ago to split profits 50/50. At the time it seemed a good idea. My accountant last week said it’s killing me. Why? Because I charge $40/hr when doing time and materials and Joe works with me all the time and he wants to get $40/hr. So when we estimate for time and materials jobs we bill $80/hr to the homeowner. My accountant said I can’t do that and stay in business. I tried approaching Joe about it and he got offended, told me to go find some $10/hr kid. I like working with Joe, we’re friends, and I rely on his years of experience and expertise in times when my own fails me. Yet, I also see that the 50/50 doesn’t work because he quits at 4:30 goes to his wife whereas I am likely to be out doing another job in the evening (so I can make fast cash on the smaller jobs that only need one person when funds are short), or doing a materials run. The result is time away from my boys. I also do the billing, or writing estimates and follow up calls. To me that means I should make more than $40/hr. At the current 50/50 arrangement I’m loosing hand over fist. I’m finding more and more that I am having to work almost every night til at least 9pm to make enough fast cash to stay ahead. Meanwhile I”m likely to be working during the day on a big job and not yet at my next draw from the homeowner.
Also, I’m not getting estimates out timely. I’ve been loosing jobs for this reason. People think I don’t want their work when I do. Yet at the end of the day I”m totally exhausted to sit down and crunch numbers and try to asociate a cost to a job I need to estimate.
I also think my estimating is off, way off, on some jobs, because I don’t know what to charge. I do everything from fixing a faucet to putting in sewer lines or building additions. Very little I DON’T do and I like it that way. But at times I struggle with what to charge, what is a fair dollar to ask for. I don’t know how to answer that question when it comes up. For example, today I fixed an emergency electrical issue. I was on site 1.5 hrs. At the rate of $40/hr that means I bill the customer $60, right? But $60 seems like piddly change. My work van uses $20 in fuel each day, at $60 that’s 3 days of fuel and really nothing left over for real profit that I can use. So what DO I bill, how does one figure out the best price for their business to prosper? With all the work I have on the books and still need to do something is wrong when I have no money in the bank. It’s so bad at times that I have to tap into deposit money people give me to do their jobs only to replace it later on when I go to start their job. I feel like I”m underpricing myself. As in the case of the electrical repair, billing $60 seems like nothing, is that fair, or am I really loosing? Should I instead charge her $150 for the repair? How do you know what to charge and what is fair without putting homeowners in sticker shock? How do you all figure what to charge?
Replies
Sounds like your accountant is giving you good advice, which is what you pay him for. You need to sit down with him and analyze your business model and figure out what changes need to be made. Sounds like you may need a lower wage helper and an increase in your hourly billing rate to make it worth your while.
I've owned a couple of businesses over the years and have since retreated back to the corporate world. After I got married and had kids I couldn't deal with the long hours, inconsistent income, and other hassles involved with running a business.
I've been a self-employed contractor for over 10 years. The business end of this line of work takes a while to learn. You could read an article in a book or a magazine to teach you how to cut a hip rafter, but you'll have a harder time learning what's a fair price for 1.5 hrs. of electrical repair.
I'm constantly changing the way I do business and constantly learning new ways of handling things. There's no set prices. Each contractor charges something different. My prices will vary depending on how busy I am and how difficult the job is.
I've learned that the cheaper I am, the more work I'll have, but on the flip side, if I raise my prices, I have less work, and I'm doing more estimates. It all depends on your financial strength and how long you can survive without income.
As far as partnerships? I couldn't see myself in one. I'm sure it looks nice on paper, but in this line of work it's too risky to rely on someone else's trust, unless maybe it was a family member, like a brother or father.
Estimates are the hardest part of this game. You'll get faster and more efficient with time. What I've learned is that you can't count every nail and hammer swing or else putting an estimate together will turn into a daunting homework assignment that you'll keep putting off until it's too late. I view the project in terms of days, weeks, etc... "X amount" of dollars per day or week plus materials and it's in the mail......next..
"if I raise my prices, I have less work,"that is not univerally true. Many of us have learned that in certain clientele or a business with an already stellar reputation, a price increase adds to the "glow" and makes you more desireable
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If Joe gets 50% of the profits, maybe you should start charging him for the ride. Meaning, perhaps you've failed to account for overhead when you calc your profits, and you end up footing the cost of running a business alone, while your 'partner' reaps all the benefit.
If your discussions end up trite or adversarial, you know it ain't gonna work out. Sounds like you need to go find that $10 an hour kid to me, he might be glad to have a fair boss and some spending cash. Also, forty an hour as a sole prop? You can't stay in business long on that. take your contract, add 15% P&O to your t&m subtotal, and at least pay for your gas and insurance, if not some capital.
"A wrongdoer is often a man who has left something undone, not always one who has done something."--Marcus Aurelius
Gut check time for Joe. If he wants 50/50 to continue, he does 50% of the work. If he's not helping out with materials runs or estimating, invoicing, collecting and records keeping, he's not doing 50% of the work. Most of us know, doing the actual work is the easy part. Pricing and signing the jobs and all the logistics that happen before the toolboxes come out of the truck is tough going. So maybe he becomes exclusively hands on and you shift more to the management side of things.
Sooner or later one of three things will happen: you change your partnership agreement, the partnership dissolves, or you go nuts trying to keep it together as is.
Sounds like you're well placed to go it alone: you have access to clientele as well as pricing experience.
willie.... you could have two employees with benefits for what joe is costing you
and ... on the piddling jobs ?
don't price by the hour.... give them a fixed price before you start
people don't like paying $40 / hr.... but they will pay $200 to hang a doorMike Smith Rhode Island : Design / Build / Repair / Restore
Thanks, Mike.If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Another way to describe it is, Joe is taking away your kids - either their shoes, clothes, or schooling.
Joe's got it good.
Do you have a handle on what your overhead costs really are?
My yearly overhead was about 30% of gross revenue for the years I worked mostly alone. Last year I hired an employee full time so I can't yet say what that did to my numbers, but we have kept careful records since 1991 and the items I consider "overhead" were consistantly in the 30-35% range over the years.
Understanding my costs of doing business helped me immensly. It wasn't much fun, but without that step, I doubt I would be in business today.
Of course, once you get a handle on "overhead", you can tackle "profit".
Huck said it first. I just agreed with him.
Edited 6/22/2007 10:14 am ET by jimblodgett
Sounds like you need to come up with a minimum service charge for under an hour. Then your hourly rate after that hour. Something like $100 for the service call and then your $40 an hour after that. Running for materials you stay on the clock.
After the short time you have been in business you have realized that you are breaking even, are you putting away for taxes? Keeping up on your insurance? If you are, it's time to increase your rates to around $50 an hour. If you have nothing left for taxes then you need to really up yours rates.
Estimating, you should have a decent idea on how long certain things will take you. Figure out a daily rate, a weekly rate. All based on 8 hour days. If you think a job is going to take 3 days bid 4. 2 week job, bid three. Alot of jobs don't go exactly as planned. So give the budget some wiggle room and breathe alot easier when the sh!t hits the fan. Then anything over 8 hours a day is money in your pocket or banked for any issues later on that job.
This worked for me, when I started out I quickly realized my system wasn't the best. I was bidding every job as if everyday was going to be perfect. I found myself working 12 hours a day to break even on some jobs. No wiggle room in my bids then.
Start charging for estimates as well, I grew tired of spending days at a time on getting numbers together only to lose the job to the HO's brother in law. On large jobs that are going to take weeks I take the estimate fee off the bill when they sign on.
I fine tune my rates every year. They are not carved in stone, more like whittled in crayon.
Matt
I lump all my small jobs together for a few days in between the bigger additions, etc. or do them on a Saturday. Charge a minimum fee for small jobs instead of hourly, unless they're all in the same area. If you're not making money, why bother? The name of the game is making money, not just making customers happy. Find the common ground. I find that if you're reliable, and do good work, most customers will wait a bit and pay for your services
Your "partnership" arrangement is a tough one. If you're relying on his experience & expertise to get and complete jobs, there's a price to pay. But if you're doing all the legwork, the percentages need to be adjusted. And those long nights of paperwork & estimates? Welcome to the world of the self employed
Just my opinion, but...
that 50/50 split is going to kill you. Especially if the profits are divided weekly or monthly instead of quarterly. If you keep Joe on you're going to have to make changes with good info in hand. Start with financial statements.
Do one for your personal needs, Mortgage, food, electric, etc. Have Joe do the same. This will set salaries that will plug into the third statement, one for the business that includes the fuel cost for your work truck, tools, inventory (example) like nails, screws, & caulk etc. that you buy to just have on hand. Take all this to your accountant. He / She will have a better understanding of NEED so an hourly rate system can be put in place properly.
When I was figuring my rate, I used NEED divided by a 20 day month. Because I want time to myself and time to find more work.
If salaries are paid weekly, bonuses (read that as profit after business expenses & taxes) paid quarterly, you'll be in a better position to adjust and survive.
Note;
Put 10% away for future capital before you pay out the bonus. The good times don't always last.
'Hope this helps.
Best to you and yours, Chris.
Building as thou art paranoid never harmed anyone.
"people who are seriously in business for themselves making decent profits."
Which you aren't. You are in the business of working.
"I have tons of work, I've not had to want for work a single day since being laid off."
First Rule Of Thumb, ROT, apply to next bid/estimate/quote, raise prices 10%. Every ten sales, raise prices 10% until: A)you are losing 40% of sales; OR, B) you are only working 45 billable hours a week.
"We agreed a year ago to split profits 50/50."
You failed to define "Profit." Second ROT, actually the oldest ROT in business, even older than accounting, divide sales into 4 parts, 1 part for material, 1 for labor, 1 part for the office and 1 for the owner(s). Profit is what is left after everything and everybody, <EM>including the owners weekly salary for hours worked,</EM> is paid.
"Because I charge $40/hr [per man] when doing time and materials"
Applying ROT 3, materials not included, you and Joe should limit your labor burden to $13/hr each, leaving $13/hr to pay for all office expenses and another $13 to maintain and build the business, and just maybe show a profit. Note that in this context, the office buys all consumable and other not itemised expenses on any job, IOW, all overhead.
"My accountant said I can't do that and stay in business."
She's right, you can't expect to take home $40/hr if that's all you're charging. See ROT 2.
"business being full time in Home Improvements. . . I do everything from fixing a faucet to putting in sewer lines or building additions. Very little I DON'T do and I like it that way."
Kind of like writing a Home Control program to control the lights, windows, HVAC, answer the phone, monitor electrical and water usage, etc, AND, be a full featured CAD. A business cannot be everything to everybody.
You gotta ask yourself "Do ya wanna be a handyman, or do ya wanna be a home improvment business?" "Well, punk, what's it gonna be?" "A business has gotta know it's limits." OK, enough mangled misquotes of my favorite business guru.
The basic logistics of a handyman business are, .5 hrs to evaluate, estimate, sell, and get Work Order signed. 1 hr to get materials. 4 hrs for the project. This means that your handyman jobs must average 5.5 times your Billable Rate. More on Billable Rate later.
The logistics of a Home Improvment or Remodeling business are; Sales, 3 - 5 meetings, 4 hrs; Evaluate, 4 hrs; Plans, 8 - 24 hrs; legal, 4 - 8 hrs; Estimating, 16 - 40 hrs; project, 4- 16 weeks.
One good remodeling project client means you have lost, never to be seen again, as many as 160 handyman customers. Since it takes arouond 60 hours to initiate a remodeling project, a weeks scheduled handyman works means you will never start a remodeling project.
The two business models are as incompatable as a Home Controller and a CAD.
SamT
This is from a homeowner perspective:
For example, today I fixed an emergency electrical issue.
40USD/hr is a really, really good price for an emergency. Perhaps you need to add a different pricing category for emergency or after hours work?Do dogs get addicted to licking toads or is that just prey instinct?
"Well, punk, what's it gonna be?" Ha Ha Ha Got a good laugh out of that! Thanks
Good point that "profit" has not been defined. I hope he is not planning on splitting gross profits, rather than net profits.
In a similar vein to your numbers, I average billing 28-30 hrs for each 40-45 hour week. What willie has to realize is he now has two jobs. One as a carpenter, and one as a businessman who makes money providing the carpenter with work, including Joe.
Two weeks ago I had a $35/hr guy help me hang sheetrock. He was billed out at $55 because it took my efforts to get him that work, and I intend to be compensated for that.
"Don't give away anything you don't have extra of...especially time, and money" (Clay Nelson)
Maybe Willie needs to talk with Joe. "Joe, I don't know how I could manage without you......but come Monday I am going to find out!"
Bowz
About Billable Rate:
You must have office time, family time, and rest time. Office time is part of you regularly scheduled work week. Construction time and Office time are going to run at about a 2:1 ratio. A 60hr work week will leave about 40 hrs for Construction time. Office time includes sales calls.
Construction time consists of Billable hours and Non-Billable hours. Non-Billable hours includes evaluating time, maybe estimating time, maybe plan development time, legal time, (permits, et al,) training and safety time if you have employees, etc, etc.
ROT 3: For a 60 hour, 50 week year, Billable time is 1600 hours. For employees on a 40 hour week, it is still 1600 hours.
The second thing you need to know to figure you Billable Rate is the total of: Total office OH, everything from paper clips to rent; Total office Labor Burden, pay rate to health insurance; Total Shop OH, consumables, replaceables, tools, vehicles, gas, insurance, rent, etc; Total shop Labor Burden, inc WC.
The first thing you need to know is how much wealth, you, as the business owner, exclusive of your salary for working for your business, you want to earn at the end of the year from the Profit your business made. Your salary is included in office and shop OH.
Add those three items, office and shop OH, and Profit, then divide by the total Billable hours, yours plus any empoyees.
You and Joe are saying that if you charge $40/hr, you should be taking home $40/hr. Bulls**t! If I owned a business that billed you two at $40/hr, this is how I would break down yours and my pay, assuming I also worked on the project:
Billable Rate = $40
x Billable hrs ratio (.8)
= $32 (times 33%, for office and business shares, = $10)
$32
-$20
=$12 for Labor burden
Pay rate for $12/hr labor Burden = $8/hr. After taxes, take home is about $5/hr.
At the end of this quarter, we will take the monies put into the business part, subtract a bit for advertising, business growth, etc, and split the profits. This will add maybe $8/hr before taxes.
Bad ROT 4: a reasonable Billing Rate for a small, home based, low OH remodeling businesss is $65/hr for every manjack on the job.
***Important***
Go here, http://360difference.com/Freeware/PILAOExcel.cfm, and download Jerrald Hayes excelant Pilao worksheets.
SamT
Sam,
THAT was a LOT. But, I have to tell yoiu, it is probably the most thoughtful answer I've been given over the last year or so when I've mentioned to others that I feel like I"m doing something wrong. The concept of Overhead seems so simple, yet it looks like you adequately put it in it's place as to what it really is and means. Sheesh, for $5/hr I may as well be an illegal Mexican.
That's a lot for me to digest, but I will digest it. Thank you for take so much of your time to explain it the way you did. I wish others out there cared that much. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Want a quick way to get estimates out? Simply tell them your rate, that you'd love to do the project and some very general comment about how long these types of projects take. Total time 5 min.
As much as I hate to admit it, Mike Smith is right about bids vs. T&M. I've worked T&M for years so it's second nature and in theory is better for the clients, but one thing Mike said last year rings true. Even if T&M is less expensive for the client it does not mean their customer satisfaction is higher than a more expensive bid. It's true.
As for your $40/hr. buddy, I don't see anything wrong with it if he's worth it. The problem is you're not making money on what he's doing. It sounds like you're giving away his part of the billables. If he won't work for less either charge more or get another guy. If you start bidding jobs it will be much more clear how profitable he can be to you.
You also may want a $20/hr. guy who can also be billed at $40. For many GC's I've known, their middle range carps are the most profitable since they can be billed at full value and complete many of the simpler tasks as quickly as a full carp.
You should also raise your rates if there are more jobs than time.
Beer was created so carpenters wouldn't rule the world.
When figuring how to split monies between partners, if you will decide the employees' (you and Joe,) pay rate for Billable hours, you can determine what your Billable Rate should be. Profits should be split at the ratio each of you work Non_Billable hours.
IOW, say the two of you decide that you want to take home before taxes $40/hr when working on a clients' project, and you determine that $63.94/hr Billable Rate will cover that, OH, and Profit.
At the end of the quarter, you find that Joe spent 150 hours doing Non-Billable work for the business in Sales, Estimating and tools maintainance and you spent 160 hrs in Sales, bookeeping, and dealing with permits, then Joe gets 150 of 310 parts of the money the two of you decide to take away from the business.
Oh, yeah. You each get paid $40/hr weekly for all the Billable work you did that week.
The rationale is that Profit is for the benefit of the company, not the workers and non-billable work is also for the benefit of the company. Since the company belongs to the owners, the owners have the right to take some of that benefit from the company.
When you have real employees, they will also be paid for their Non-Billable work, but, that money comes from your total Annual Labor Burden funds, ie. Shop OH.
SamT
Praise the Corporation, for the Corporations' highest concern is the well being of the public.
"For example, today I fixed an emergency electrical issue. I was on site 1.5 hrs. At the rate of $40/hr that means I bill the customer $60, right? But $60 seems like piddly change. My work van uses $20 in fuel each day, at $60 that's 3 days of fuel and really nothing left over for real profit that I can use. So what DO I bill, how does one figure out the best price for their business to prosper? With all the work I have on the books and still need to do something is wrong when I have no money in the bank. It's so bad at times that I have to tap into deposit money people give me to do their jobs only to replace it later on when I go to start their job. I feel like I"m underpricing myself. As in the case of the electrical repair, billing $60 seems like nothing, is that fair, or am I really loosing? Should I instead charge her $150 for the repair? How do you know what to charge and what is fair without putting homeowners in sticker shock? How do you all figure what to charge?"
ROT 5: Never think about the customer when building an estimate!
If they can't afford to pay you what you need, you're kids can't afford to pay them the difference.
SamT
ROT 5: Never think about the customer when building an estimate!
If they can't afford to pay you what you need, you're kids can't afford to pay them the difference.
Wow. Well, I DON'T want to think of the customer, and I guess I do. It's just that I feel like I'm "raping" them so to speak if I charged $300 for something that should cost $150 because that is what the market will bear. Or, does the "market will bear" rule apply to what we do in the home improvement business or not?
As to your last sentence....that's pretty powerful, because too often lately I haven't had the funds to actually go out and just get lost doing something with my boys. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
"I feel like I'm "raping" them so to speak:I think that in the sense that you are usining it. yoou feel like you are getting many times the benefit from them that they are getting from you.Leaving aside the fact that it is their right and responsiblity to determine the value of the benefit they recieve, let's look at some of your real costs for that job, excluding material. I do have to make some assumptions about facts.An incomplete list of costs:
30 mile round trip; 2 gals gas = $6; 30 x $.45 = $13.50 vehicle expense;
Life insurance @ %6,400/annum /1600 hrs x 2.5 hrs = $10;
Tools, assume $100 total cost and average dollar life of 100 hours = $1.50;
Total office OH, including salary and other @ $64,000/annum / 1600hrs x 1.5 hrs = $60.
Total short list = $89.50.Driving and material pickup time = 1.5 hrs.That's $89.50 your cost, NOT including your own Billable hours pay; AND including your Non-Billable paid time. That leaves you less than $60.50, before profit and taxes, for 3 hours of your companies time. Billing $150 and using 10% net profit, leaves $45 to pay you and other shop OH.The pay you earn for your time in a customer or clients' house has very little influence on what your company must charge for that time.In order to survive, your company must charge an hourly rate as if all Billable work was done by employees, not the business owner.SamT
<<Wow. Well, I DON'T want to think of the customer, and I guess I do. It's just that I feel like I'm "raping" them so to speak if I charged $300 for something that should cost $150 because that is what the market will bear. Or, does the "market will bear" rule apply to what we do in the home improvement business or not?>>What the market will bear only applies to how much you can possibly charge on the top end and NEVER applies to how little you need to charge just to get the job.If 'what the market will bear' is is lower than the price you need to charge to pay for all the job costs, an appropriate portion of your business overhead costs, and a little bit of net profit then you just go look for another customer (or get in another line of work that enables you to work profitably).
Willie,40 is definitely way too low to earn a living in this day and age.First, to run this as a business, you need to know what it would cost you to hire yourself or a replacement to do what you do on the job.Let's say that is $30. Add to that your labour burden. That would be what you would pay in FICA, WC, vacation, down time, transportation time etc. I know you don't have an "employee, but you are figuring the market value for what you do and that is part of that value, plus, if you get hurt and have to replace yourself or if you grow to bigger jobs or more of them you have to have priced things acordingly first.
So the market value of that thirty bucks is now more like $44Then you need to know your overhead. That includes insurances, transportation, nonbillable hours for management estimnating and billing or bookkeeping, and office costs. Don't forget tool replacements, blades, etc. Even if you have no office space, youhave paper, stamps, computer, etc.
My OH is about 8% but for a bunch of small ones like yours it is probably more like 15%. So that $44 is now somewhere close to fifty. That is your cost, but if this is aa business, which is what you asked about, then you want to make a profit. Ten percent gets you up to 55/hr.Don't forget to apply all the same principles to marking up yoiur materials billing too.
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willie... i struggled for about 15 years doing what you're doing
couple of things ......to me, anyways..
employees are better than partners
if you need it or use it... build it into your budget
that van you were talking about...... any of the car companies will finance it for you
build in the finance costs to your overhead.... and carry those costs wether you are making them or not
need staging equipment ?.... budget for it
employees ? benefits ? budget for them... it's kinda the chicken & egg thing... the goal is the chicken....... the budget is the egg
three things really changed my business ( four, if you count the epiphany of my deciding to change or quit )
one: incorporating... now i'm not only the owner, i'm also the most valued employee
two: a part-time bookeeper.... i meet with him two hours a week
three: a payroll service.. they keep and make all the payroll records for something like $15-$20 a week
attitude is also important.. my attitude is ... we will take care of our customers.. in order to do that we have to stay in business.. to stay in business we have to make a profit.. to make a profit we have to charge what it takes to make a profit
we charge more for the benefit of our customers.... cool , huh ?Mike Smith Rhode Island : Design / Build / Repair / Restore
willie .. have you thought about loading your boys into the car and comming to DinoFest for a long weekend ?
then you can put a face on some of these posters Mike Smith Rhode Island : Design / Build / Repair / Restore
DinoFest? What is that, and where?If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
my gosh, man ... you don't know about DinoFest ?
and i bet you never heard of PeteFest,
CaperFest, TexFest, ReckoFest, RhodeFest,RiveFest & TipiFest ?
they are all "axe-murder's conventions"....
you'd fit right inMike Smith Rhode Island : Design / Build / Repair / Restore
I sometimes feel like an axe-murdererIf at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Well....I actually am incorporated. I did not start running a payroll until early this year because my accountant said no more free ride, the gov't wants to see some kind of payroll from an S-Corp. I ran my first payroll for $500 for one month like they suggested. Out of that I had to pay $104 FICA, some state and minimal local tax and unemployment which I can never collect for myself. Because I'm still learning my way thru this it turns out that that extra expense believe it or not creates a hardship in a time when things are slow. That is, if I'm struggling this month and taxes are due, I don't need a tax bill over my head. So my accountant said ok, let's stop the payroll thing, I ran it at least once so far this year and that will make the gov't happy, now focus on getting things in better order so you can run one all the time like I"m supposed to do. That in part has what led to this who discussion on BT because now that I have my second full year in this I see it's not going as desired.
Here are some hard numbers from my 2006 records:
Gross receipts (sum of all deposits): $84,995
Fuel cost for my work van: $4,446.23
Subcontractor expense (99% of this went to Joe): $19,489
Materials expenses: $37,899
Vehicle Maintenance: $882
New tools and equipment (real assets): $1,166
Office supplies: $1,549
Insurance (G/L and Vehicle): $1,235
Cash that I drew out to pay personal bills, food, etc: $20,916
I prob sepnd 4hrs/week doing office stuff (estimates, billing, entering Quickbooks info).
I know things need to change. I look at what I spent on Subcontractor expense last year and I feel as though I gave away half of the money I needed for my family. Seriously. I feel as though was living sweet and high off a hog from me. 98% of the subcontractor expense was to him (about $18000). If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
mike answered just as I would. If you mark up 1.56 but your business needs a 1.61 markup, you are losing .05 on every sale. Who gave you that figure? Your accountant? Then it is probably good. If a genericc figure, then it is bad for you
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I actually got 1.56 from Joe. We also started using an Estimating book. I started to distrust the estimating book when it told me I was to charge $350 to remove an old toilet and replace with a new one. Or $150 to go over and replace a fill valve.If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
willie... here's the hardest hurdle...
i used to pay me last...
now i pay me first... if i don't get paid .. i don't work..
i used to pay my guys first..... my subs 2d.... my material suppliers third.... and myself last
here's you ...
<<<Cash that I drew out to pay personal bills, food, etc: $20,916>>
after taxes that's about say... $25,000
so 25,000 / 52 weeks = $480/week...... call it $500... or $12.50/hr
for 2000 hours
figure out what you would pay a lead carpenter... with no benefits
what is it $15...... $18....... $20 ?
whatever it is..... file a payroll for yourself every week for 40 hours
(40 hours x $15 = $600 )
get a payroll service... fax in your time...
you have a corporation... you are the most valuable employee.. without you .. no corporation, no business
also.... if you can't make payroll for your most valuable employee... how can you make it for any other employee ?
all that chaff about it costing you money to file a payroll ... that is not the problem
the problem is you are operating a very expensive , very stressful hobby ( as in HOBBY )....
if you owned a car dealership.... or a grocery store.... or god forbid.... a building company... (and i mean OWN... not work in or at )
wouldn't you have to pay someone to run it and manage it ?
then where do you get the idea you can run a BUSINESS ( not a hobby ) without paying someone
my epiphany came when i looked at some of those Social Security staements you get every now and then... there were several years where my income was 0 ( zero, zed, nada.... nothing )
we actually got by on my wife's paycheck.... you don't have that luxury... neither did i
so , the thing about incorporating , to me , was .... i'm just another employee.... remember the part about how my employees always got paid first ?
now ... just like them...every payday... i get paid... or we close the doors
sometimes i have had to loan the corporation money to make payroll,
but i always pay myself
and .....'nudder ting.... my tax liabilities disappeared... my withholding had me covered... only problem comes if the coporation makes a profit
if the corporation makes a profit... that's a good thing... it means i'm charging the right amount .. or at least i'm charging enough to make a profit... so the tax liability , in this case is a good thinkg ... it's an indication that we're on the right track
hey ... you oughta come to DinoFest ( NorthFest )
Mike Smith Rhode Island : Design / Build / Repair / Restore
AS it is, and I"m not an accountant, I paid next to nothing in business taxes on my 2006 return. For my PERSONAL return, I showed $3900 income. Again Im not an accountant, I don't know how they crunch numbers and get all that stuff but that is what my papers are showing from them.
I obviously don't want this to be a HOBBY. And maybe it's being like that as you're saying. I actually have goals and dreams of having employees that are well taken care and make a name for myself in the area as being the best. It's a dream worth having and I believe I can get there. I'm only encouraged when I hear about the stories of other successful people who made a ton of mistakes in the beginning and learned and went on to become highly successful and profitable. If they can make mistakes and learn and get thru it so can I and that is why I'm not giving up, this is what I want to do and I love doing it, I just need to learn the financials and get on the right track. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
I don't even have to fax or call my time in. I put me on salary and it happens even when I forget. ADP takes the money out of my corp account on friday and puts it in my personal account on monday or tuesday and pays the govt over the weekend I suppose.It is painless, and I am the first to get paid
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willie
<<<
Gross receipts (sum of all deposits): $84,995
Fuel cost for my work van: $4,446.23
Subcontractor expense (99% of this went to Joe): $19,489
Materials expenses: $37,899
Vehicle Maintenance: $882
New tools and equipment (real assets): $1,166
Office supplies: $1,549
Insurance (G/L and Vehicle): $1,235
Cash that I drew out to pay personal bills, food, etc: $20,916
I prob sepnd 4hrs/week doing office stuff (estimates, billing, entering Quickbooks info). >>>>
rounding those numbers off.... i see about (4500+900+1200+1600+1300 = $9,500 / 1600 hours avg production = $6/hr for the overhead you've identified above )
then you have a bookeeper, add some legal expense.... a paid vacation for your most valuable employee....... health care for your most valuable employee ( wether deductible or not.. it's still a part of your business )
then you have to pay the estimator.... and your accountant
and you have to make the truck payments for the truck you will need
add those in..... divide by 1600 hours.... more overhead you have to recover in your rate
put a number next to every item i listed... and add to the list
now you're starting to get a more realistic picture of what your overhead ( or any REAL business overhead ) IS
it's a very big number... and you have to recover every penny before you make a single bit of profit
and it all starts with paying your most valuable employee first.. without him .. you have no business.. just an expensive and stressful hobby
BTW... the stress declines as the compensation increases...
or maybe the stress gets manageable and the enjoyment increases as the compensation increasesMike Smith Rhode Island : Design / Build / Repair / Restore
Right now I'm fortunate in that I don't owe on my van. I also do not have health insurance. For me that is about $400/mo. That's a LOT considering I only spend about $120 a whole year for my health.
I think stress becomes more manageable when the compensation increases :) Actually, the last few months I've been stressing so much over knowing I'm doing things wrong. Like I said I'd ask for help and no one knew anyone. Im getting more here than ever. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Right now I'm fortunate in that I don't owe on my van. I also do not have health insurance. For me that is about $400/mo. That's a LOT considering I only spend about $120 a whole year for my health.
Willie,
Doesn't matter that you don't owe on the van. Engine blows up tomorrow or it gets totaled in a hit and run, now you do owe for a new vehicle.
Same thing with Ins. Your healthy now but what happens if you get sick or your kids get sick?
These are real costs that need to be included in your overhead. You gotta put a cost in for all of those line items. It's going to make that hourly rate look sky high but you have to include them. The numbers don't lie, you have got to become confident in how much money it takes for you to be in business. You still need to control your costs, but you cannot exclude costs from your overhead if you want to have an accurate picture of your finances.
As I realized I needed to raise my rates, it changed the market I was in. I can't compete on 120 sf pressure treated decks, but who wants to? I would rather sell my services to the customer that wants a 400 sf IPE deck with a pergola and custom railing.
You've got to be profitable to stay in business.
Whether you owe on the van is not the issue. You are using it so it is deprecciating in value and wearing it out as well. so You should be budgeting somewhere between three and five hundred a month for that in addition to the gasoline when you calculate your billing prices. That way when it up and quits, the money is there.same idea with health insurance. Does somebody else deserve health care more than you? budget the money into your pricing and estimates, then when you need it, it will be there.I learned the hard way too. I've worked for free before too.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Mark-up on material is a tough issue in any business. Essentially, you are selling labor and if the labor rate is right then the mark-up on material is a question of handling and risk. If the material is pine studs then a call to the lumber yard may be all that is required. If the material is mahogany then there are three costs - the time of securing the source, the actual utilization rate, and the "warranty cost." If you have to throw a stud away, so what. If you screw up a piece of 8/4 mahogany it will sure get your attention.
One other experience - About 10% of the market ranks low price over all other aspects of the service. This segment has no customer loyalty and will change to the next low bidder in a second. Thier recommendations are "If you want it done cheaply call Willie." If this is who you are serving, then you will never make any money.
Bill
"If you want it done cheaply call Willie."
That's an interesting thought. I wonder if that plays into my increased word of mouth. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
I ran your numbers to get a visual of what's going on.The attached spreadsheet is what I came up with. It is NOT in any accounting format.PS: When I first mentioned ROT 2, I had a senior moment. It is correctly stated as 1 part for material, 1 for labor, 1 for the store, and 1 for the owner.SamTPraise the Corporation, for the Corporations' highest concern is the well being of the public.
Edited 6/23/2007 12:07 pm by SamT
Here are the same numbers, but this time, because Joe's company was in partnership with Willie's company on some of the jobs, I rearranged the numbers a bit and used the Adjusted Gross for computations.The hard numbers have shaded backgrounds, everything else is formulas.BTW, I have to take Joe's side on him getting $40/hr because that money is going to Joe's company, just as the other $40/hr is going to your company even though your company is only paying you $4.31/hr. Neither you nor anyone else here knows what Joe's company is paying him per hour.SamT
BTW, I have to take Joe's side on him getting $40/hr because that money is going to Joe's company, just as the other $40/hr is going to your company even though your company is only paying you $4.31/hr. Neither you nor anyone else here knows what Joe's company is paying him per hour.
Well, I looked at the second sheet also. Pardon me, I suddenly feel very ill. I feel pretty awful. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Willie,
The most important thing you need right now, IMO, is time. Time to personally heal, time to think, time to plan, and time to improve your company's internal systems, like estimating.
I'm talking about Damage Control. Damage control is not concerned with making the ship pretty or even just mechanically sound. It is only concerned with getting the ship survivable and back to where it can be brought up to par.
I see four things you must do immediately;
Decide if you are going to be a handyman or a builder
Double your rates across the board
Double your estimates across the board
Renegotiate your deal with Joe
1 is because your company can't survive doing both. There are two kinds of HM companies; The one man shop, because all your field hands must be experienced handymen themselves, and the association of several handyman companies under one banner.
The effects of 2 and 3 will kick in as soon as your current backlog of work is done. What will happen is that you will loose about half the jobs you bid on while keeping your income about the same as it is now, yet giving you some TIME because you will only be spending about half TIME working as much as a tradesman.
4; You have to tell Joe that any future work will be handled on a subcontractor basis and he must give you a firm quote for the work he will do. This will stop the bleeding from his cut.SamT
4; You have to tell Joe that any future work will be handled on a subcontractor basis and he must give you a firm quote for the work he will do. This will stop the bleeding from his cut.
I"m not sure I know what you're saying. Could you clarify? Do you mean he needs to flat out tell me what I'm going to be paid, period? Regardless how the job goes? Vice Versa when it's my job?
Let's say I think a job will take 8hrs to do. I tell him I pay him $320 and no more but I should bid it with me being paid $80/hr? In this case the total bid (assuming labor only and no matls) would be $960 and I get to keep $640 to his $320? If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Double your rates across the board
See, I hear what you're saying and I'm with you on this. I know I need to stop the hemmoraging of my finances. But here is the brick wall that I hit when I ponder doubling my rates.....would you pay $600 to have a prehung door installed in your house? Or $300? I've heard other guys do it for $150. If I double my rates am I not completely limited my chances of getting any new work when there seems to be so many out there who can do it for less than what I need to do it for? If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Willie,Taking all your posts' questions in no particular order;According to ROT 2, where in material should cost one of four equal parts of sales, If your sales were $151,596, your material should be around %37,899. The spreadsheet reversed that, Material times 4 = desired sales.Re #4: When you are estimating a job, and you decide Joe can help you make money on that job, you tell Joe exactly what you want from him and ask for a quote on that Scope of Work. Include that quote figure and your markup on it into your bnid to the client.When Joe asks for your help, find out exactly what the Scope of Work is that he wants you to do, and tell him exactly what money you want for doing it.The only way to save friendships when dealing with money is to have very tight and detailed contracts. And no you don't tell Joe what you will pay him, you ask him what he needs from you. Since you and he will now be acting like true subs, you only mark his price up a reasonable amount, maybe 10%, maybe 35%. As a complete newbie to the idea, start with 22%. As you learn your numbers better, you can adjust that up as needed, or down as desired. The adjustment depends mostly on how much of your time and money you spend managing a particular sub. Let's say you have a trim sub who is an absolute artist with wood, but can't remember from day to day where the jobsite is, never orders enough wood, and has to borrow your tools half the time: mark his quote up 35%. . . 50%. . .heck, 100%. On the other hand you have a electrician who never makes a mistake, is fast and clean and all you have to do is tell him where the job is and you know it will be done right: Mark his quote up 10%.SamT
Anybody got BlueEyedDevils' tagline about making yourself a commodity or something like that?SamT
Sam,
Here you go.
I keep this in my BT quotes folder and reread it every so often.
Mike Smith: <!----><!----><!---->
keep looking for customers who want to hire YOU.. all the rest are looking for commodities.. are you a commodity ?... if you get sucked into "free estimates" and "soliciting bids"... then you are a commodity... if your operation is set up to compete as a commodity, then have at it..... but be prepared to keep your margins low and your overhead high...."<!----><!---->
Thanks.SamT
"would you pay $600 to have a prehung door installed in your house? Or $300? I've heard other guys do it for $150. If I double my rates am I not completely limited my chances of getting any new work when there seems to be so many out there who can do it for less than what I need to do it for?"Does this mean that you have decided that you are going to be a handyman and not a remodeler? Because the business stratagies are different between them.SamT
Edited 6/23/2007 11:42 pm by SamT
Does this mean that you have decided that you are going to be a handyman and not a remodeler? Because the business stratagies are different between them.
No, none of that HM stuff. But, ok, the strategies are different, i can accept that. Just what is the difference though? For example, to install a storm door Lowes charges a flat rate of $120 in my area. I been charging the same price thinking it's a good deal considering it takes about 2hrs for a basic storm door replacement. Lowes apparently is not following the handyman strategy. Or are they?If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Willie,First, Lowes is following the "Huge Corporation" strategy.Second, storm doors are handyman work.If your rates are now $40/hr and you doubled them you would charge $160 for a two hr job.Any job that takes less than 1 day is, by definition, a handyman job. Unless you are McDesign, any job that takes less than 3 days is probably a handyman job. A remodel job probably takes a week or more.What kind of work do you want to be doing? What kind of job turns you on and makes you say "Koooool, I got this one!"? Any answer that mentions money is not allowed, because the right business strategy will bring in the money. We have a very successful businessman here on BT who never works more than 6 blocks from home and never works more than 30? hours a week. Jerrald Hayes' company does one of a kind artwork, remodels, software, and business consulting. I think, maybe more. Another gentleman does nothing but works of art in wood that function as stairs.What's your dream?SamT
Actually my dream is to do the big jobs. I like big jobs where you go in and make something out of nothing, or something so much better than it was and I like jobs that fix mistakes or fixes problems. I want the big jobs. I lament that I see Trades people all the time in new homes as t hey're being constructed. and I never seem to get any kind of that pie. I like doing the multifacted work, though. I'm fine with doing handyman type stuff but as I"m seeing it it needs to be a very small part if I"m to do taht stuff at all. The reality is I'd rather be doing what I love to do....build additions, DW hanging/finishing, big electrical jobs....My fortes are in plumbing, electric and DW, I get called on to do that more than anything else. And I love doing those jobs .If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
OK, Q & A time:How do you find your jobs? Out of the blue calls from the YP, neighborhood flyers, door hangers, networking, referals?How far in the future are you currently booked?Any big jobs booked? When? How long are they/it?How familiar are you with all the Quickbooks' reports?Do you know how to use MS Excel?Do you have any scheduling software available?Do you have any Im installed on you computor? I can install GAIM real quick and we can talk/type real time.SamT
Edited 6/24/2007 12:57 am by SamT
How do you find your jobs? Out of the blue calls from the YP, neighborhood flyers, door hangers, networking, referals?
99% is word of mouth. I'm fortunate in that while I was a software engineer I built up a small base of regular clientele working on the side. They kept feeding me workuntil eventually I had work every day. They given me WOM advertising a long time. I do not advertise in the YP, been told it's a waste of money but I had t hought of it. There are a few rare instances when I will do flyers. In one particular instance I so far got about 15 jobs from the flyers out of 170 that were sent out and I expect more to come. Joe gets work the same way as I, WOM. I got two calls from my work van, both of those sorta turned into really bad experiences, one was the guy who owes me $3200. WOM is the most for me, everyone is satisfied with my work.
How far in the future are you currently booked?
Right now at least til teh end of July. A couple of people have called wanting estimates for Fall work and they're medium to large projects. However, they wanted estimates, no committment yet. Based on my current estimating skills I have a ballpark in my head what I think the projects will cost (I didn't tell them yet, though) and I think they'd go for it. But, with all this discussion about having to change I'm wondering now if I won't be so high as to scare them off. I dunno, I have to keep having this discussion to see where it goes.
Any big jobs booked? When? How long are they/it?
Ihave only one really big job, about a 4 week project, but it belongs to Joe. I have a list of projects that are the handyman variety such as install a whole water filter, run a water heater circuit, install subpanel, and more small ones. I have some sewer hookup jobs that I'll be doing in the next 2 to 3 weeks. They're always "profitable" in that I usually walk away with between $600 and $1000 cash for one full days work installing a sewer line from a residence to the public sewer stub. But they're one day jobs. Sometimes for the sewer jobs because it's a Pressure Sewer system it requires a DP 30A an people don't have space in their panels and I usually am able to sell them on a 200A upgrade and I been charging $1600 for an upgrade, the matls run around $350 to $400. I find that I make a lot of money doing 200A or 100A upgrades and the sewer projects. The ironic thing is I consider those easy jobs and consequently it's the "easiest" money I make. If I have to do a 200A upgrade in conjunction with the sewer hookup then it's a 2 day project of course.
How familiar are you with all the Quickbooks' reports?
Not very. My accoiuntant got me to switch to QB beginning of this year. Before I was using Excel and had everything in columns and plugged in the numbers. That was fine for then, but he said QB is the way to go, so I bought QB Pro 2007. In terms of training to use its features he gave me what I needed to know and said he'd teach me more as I went along so as not to overwhelm me. So there is much more I need to learn in QB.
Do you know how to use MS Excel?
Used it for years, mostly basic functions but I used to do the highly advanced functions when I was a software engineer.
Do you have any scheduling software available?
No I do not, I haven't seen the need for it
Do you have any Im installed on you computor? I can install GAIM real quick and we can talk/type real time
I have yahoo messenger. However, what do you have? If anything I'm fine with d/l'ing something to match what you have. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Willie, Absorb these words by Mike.Mike Smith:
keep looking for customers who want to hire YOU.. all the rest are looking for commodities.. are you a commodity ?... if you get sucked into "free estimates" and "soliciting bids"... then you are a commodity... if your operation is set up to compete as a commodity, then have at it..... but be prepared to keep your margins low and your overhead high...."Tape them to the wall in front of the throne.SamT
15 jobs from only 170 flyers?!?!? That is incredible, generally the response rate is 1% - 3%. WOW!I think I see a neighborhood niche opening up for you. The Business Strategy will be "Own Your Customers." Google that. BTW, that concept was originated by a bicycle shop owner.You already have the reputation of being the go to guy for repairs and upgrades, and probably remodels, too. A 10% response from flyers means you have no effective competition.In that niche you would still be doing all the types of jobs you have always been doing. The difference in pricing HM work and remodel work is that HM work is priced from a Menu and RM is estimated with a Recipe. Analyzing your past years work will start you developing a menu for the HM jobs. The attached book3.xls is a crude first model of that analysis. Note that when I conceptualized that model I had not yet had the insight in re your niche.Menu Example:
Replace door with same size: $200 + Door
Sewer Stub: $1200 + $100/10', inc materials
Panel upgrade: $1600, inc materialsA recipe is basically a spreadsheet or workbook that lists all the items of all types of jobs with the unit costs for materials and labor. You fill in the quantities and the SS computes the totals.See attached estimate Form4.zip for an example I DL'ed off the net. You should build your own highly automated system. The more automatic it is the less time you need to generate a good estimate. You will have to use your past work and any estimating books you may have to populate it with data."Own Your Customers" has two basics; provide them with everything they need at a high enough quality that they have no reason to look for any other provider; and, make yourself part of their families.You have the first part down as evidenced by the 10% return on your flyers. The second part means constant communications with your market.I gotta go. Back laterSamT
Sam,
Hey, I"ll look at those SS you posted. I been tied up most of the weekend so I haven't kept up on the posts but going thru them now.
I have an estimate I'm to do tonight. There are a number of unknowns that I need to try and account for, it's tricky. If you're around later this eve I'll run my numbers by you. This estimate is for one of the responses from my flyers I sent out beginning of the year for sewer hookups. If I get it it'll make job number 15 or 16, I forget which. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Willie,Aw rite. My AIM screenname is SamTTech, I'll leave the light on for ya.SamT
You're staying at Motel 6?If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Isn't that the place where an overnite stay turns one into an expert?SamT
nah, Holiday Inn express.If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Hey are ya around? I sent ya an IM, got my estimate done.If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
They're always "profitable" in that I usually walk away with between $600 and $1000 cash for one full days work installing a sewer line from a residence to the public sewer stub. But they're one day jobs. Sometimes for the sewer jobs because it's a Pressure Sewer system it requires a DP 30A an people don't have space in their panels and I usually am able to sell them on a 200A upgrade and I been charging $1600 for an upgrade, the matls run around $350 to $400. I find that I make a lot of money doing 200A or 100A upgrades and the sewer projects.
You are doing sewer hookups and electrical upgrades? Are you in need of the proper lisences for that? You stated your insurance costs were around $1200. I can't believe your insurance would cover you for sewer and electrical work!
Around here if I even thought of doing those, the building dept would tear off my head and poop down my throat.
Anyway, you were looking for more resources. I started on my own in April of '91. I survived and did OK for a while. In 2002 a number of things happened. Lots of area mill jobs were lost, the cabinet shop I installed for was sold and the new owners started using someone cheaper, the mom and pop lumberyard that sent me work closed down, and a few other things.
Kind of had the opportunity to start from scratch, again. But I didn't feel I had a good business knowledge. (I had been depending on others too much) So I bought the JLC CD and sat at the computer for hours, reading, learning, taking notes, and printing stuff off. The attachments below are lists of every business article I found usefull or wanted to refer back to while reading. A few articles have numbers behind them. Those are what I felt were the critical articles, that should be read by anyone considering this business. #1 article would be March 1998 "Simple System For Turning a Profit". Believe it or not, I printed that off and gave it to one of my competitors, who was struggling.
Though book knowledge is better than none, what I read became real in talking with other successful contractors locally, statewide, at the national show, and reading here.
The lists are the same, just that one is a MS Works spreadsheet, and the other is an Excel spreadsheet.
Good luck with it!
Bowz
You are doing sewer hookups and electrical upgrades? Are you in need of the proper lisences for that? You stated your insurance costs were around $1200. I can't believe your insurance would cover you for sewer and electrical work!
Yes, my policy covers sewer hookups. It also covers electrical installations as well including service upgrades. In PA you do not need to be licensed as long as your work is inspected by a state-licensed agency. I have a very good repoire with a number of inspectors in my area. Most of them say my work is better than most guys. Attend montly NEC mtgs where my inspectors and other electrical tradesmen are present and we break apart the NEC and analyze it. I've had training also. My policy was addendummed last year to include sewer because I saw this "niche" open up that Sam referred to. Previously it did not cover sewer. It actualy did not change my premium believe it or not. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Willy, The price you buy the door from Lowes is going to be much higher than what Lowes buys the door from their supplier.In other words, Lowes is making more than $120 to install a storm door. I had made the same mistake on what I should charge. I have also seen the work of the big box stores, extremely shoddy.
The price you buy the door from Lowes is going to be much higher than what Lowes buys the door from their supplier
Holy cow, I never thought of it that way, but I'll bet you're 100% correct. Talk about cheating yourself. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Same goes for what Depot charges for garage door,tile,and all other installations.They have a great advantage over all us small guys, they buy in bulk and get a much better price. I felt like I would be ripping off my customers if I charged any higher but I learned, the hard way of course.
I've been doing quite a variety of work, trim carpentry,tilework,sheetrock, and painting. Plus now and then less than a day, handyman jobs. The way I look at it is quite simple. A handyman has to charge enough so he gets a days pay no matter if he works only 6 hrs., otherwise he can't survive.
It also comes down to what your patience level is.For me after 8 years of doing this work, I find I make the most money if I slow down,and think of how much a pain and how time consuming it is to do what I am doing.
Then when I estimate, my estimates are much more realistic and cover my time and overhead. Don't forget, unlike most of your're customers, they take home a steady paycheck every week and are able to budget. You are taking a great risk in running your're own business which is worth alot more.
Frank
Willie: I hope you forgive my bluntness and please take this with a grain of salt if it doesn't really fit your situation, which I only know from your posts. You grossed about 85K last year. Your net was only about 20K. You work your tail off and take pride in doing a good job. You are concerned about hurting Joe's feelings, the customers might think they are getting abused if you charge too much, etc. You are clearly a very nice guy.
Not everyone is cut out to be a businessman. Some people do better as employees because they can't place their own welfare ahead of everyone else's. That is a wonderful quality in a human being, but not in a businessman. Maybe you should just get a job.
I disagree with you.
I understand what you are saying about putting yourself first, but I think great things are ahead for Willie. He recognized a problem, found some people in the know to give him advice and layed it all out for them.He's a problem solver.A problem solver with a concern for people. Now he'll put together the right numbers and end up being the go-to guy in his area.My money's solidly on my man Willie. He may decide to go the job route, but that doesn't mean it's impossible for him run a business if he wants to.
Maybe you should just get a job.
No offense taken, really. I guess I would just do that if I didn't think that I could become a better businessman. I mean I don't know al the stuff I need to know. I"m learning. I had to take baby steps when I learned to walk, right? I see these first two years as my baby steps. I had some bad experiences and now I'm sitting down, looking at the big picture and trying figure out how to turn the ship in the right direction.
Realistically I have no choice but to make this work and figure it out. My career used to be software engineering. That career in the US has taken a nosedive. I can't find a job in that field any more without it being a contracter services job which means on average ever 3 months I'll be looking for employment again, and again, and competing for other guys whose incomes have been driven down as well. I"m not skilled in anything else and I have two boys. I can't go get training in some other skill or go off to college again or do any of that stuff, I'd never see my kids or get to do anything with them.
No, this is what I want to do, my passion is here in hoime improvements and I won't be deterred. I will make mistakes, but guys like Sam and company seem to care t owant to help me get past those and move forward, and I know I can, I just need help and a good way to change my thinking. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
I looked at the sheet, Sam, and..well.....it's very embarassing. I mean, it makes me look pretty stupid. The reality is that that is how it felt last year, like I was just getting by and the sheet only proves it.
The desired section of the sheet, I'm not sure what yoiu're saying there. You're saying that with the materials cost I showed of $37K that I SHOULD have had some kind of markup to have totalled the total you're showing? If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Don't forget to apply all the same principles to marking up yoiur materials billing too.
I been told to take cost of materials and multiply by 1.56 and that is the markup that includes the sales tax, and some OH&P. Would you agree that is a correct multiplier?If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
then what ?
what do you mark up your subs ? what do you markup your labor ?
what do you markup equipment rental ?
if you are saying JUST mark up materials, then ..no... that is not the correct multiplier
also.. the correct multiplier is the one that fits your business plan.. not someone else's
that's like the guys who price to market ... "well let's see.... roofers get
$100/ sq.. so that's the going rate so that's what i'll charge "
wrong
you charge what it takes to get your O&P taken care of
so you need to know YOUR numbers
start with your 1040 from the last two years
what did you carry on schedule C ( cost of business )
that is your MINIMUM you have to recover... my bet is you are not even covering that.. but use it as a checklist
Mike Smith Rhode Island : Design / Build / Repair / Restore
That would depend on what worker's comp and other individual items cost.
SamT - "If they can't afford to pay you what you need, your kids can't afford to pay them the difference."
That's a really great line. I'll have to borrow that one from you.
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You're welcome to it, ungrammatical as it is.But sometimes, I think, grammar dulls the point.SamT
Praise the Corporation, for the Corporations' highest concern is the well being of the public.
Ya ever notice how often I write 'ya' instead of 'you'?
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ROT 5: Never think about the customer when building an estimate!
If they can't afford to pay you what you need, you're kids can't afford to pay them the difference.
That is going in the quotes folder! Nice!
Working With The PILAO Worksheets
As a businessman, you wear many hats; CEO, Lead Carpenter, Purchasing Agent, Gofer, Plumber, Sweeper Laborer, Salesman, Electrician, Bookkeeper, Payroll Agent, Secretary, etc, etc, etc. . . . . . . .
Assign an equitable pay rate for each position.
As a businessman, you should work 3000 hours in a year, 1000 as office help and management, and 2000 as a tradesman.
Guesstimate as best you can what percentage of those office and managment hours you will spend in each field and assign those hours to each position. Do the same for the Tradesmen hats.
PILAO has a slot for the Billable Hours figure, so I won't go there.
After PILAO has determined yoour Billable Rate, remember that you recieve all the pay for every position.
SamT
Praise the Corporation, for the Corporations' highest concern is the well being of the public.
Well I've got to concur with everything that your accountant and SamT are telling you. On reading your initial post I've got to say you're all messed up in your thinking on money (your billing rate) and how a business relationship should be structured.
"I have tons of work, I've not had to want for work a single day since being laid off. I already had a foundation of many good customers and lots of referrals by the time I was laid off and it has not stopped a single bit. The last two Winters I was one of a few people I knew that had a backlog thru both winters."
Reminds me of a story I told in a post here somewhere just a little while back:
You have tons of work going and lined up yet your going broke. What's wrong with this picture?
There are I think two major hang ups in the way you're doing things. #1 you haven't correctly valued your billing rate. Two guys for $80 an hour in Harrisburg PA? That just jumps right out at me as just being way too low for that region. Using some references I have at hand I thinking that Harrisburg PA rates should be about 12% less than what we see here in the NY suburbs and given that the anecdotal average I see for handyman services around here runs around $85 per hour I'm thinking handyman rates in your area should probably be in the neighborhood of $74.80. For one guy!
But that's not the correct way to go about setting a billing rate anyway. My suggestion to you is to order the book How Much Should I Charge?: Pricing Basics for Making Money Doing What You Love tonight and read it thoroughly. Then as Sam suggests go and get my Capacity Based Markup Worksheet (aka PILAO) and use it to compute a rate for you as a solo operator. If you need help and some coaching regarding how to fill it out feel free to give me a call at the phone number at the bottom of that web page and I'll be glad to talk you through it. Or take it with you to your accountant and work it out with him or her.
Now for #2:
"I have a guy (Joe) I work with, has his own business, and we work together all the time to get away from the "employee" thing. We agreed a year ago to split profits 50/50. At the time it seemed a good idea. My accountant last week said it's killing me. Why? Because I charge $40/hr when doing time and materials and Joe works with me all the time and he wants to get $40/hr. So when we estimate for time and materials jobs we bill $80/hr to the homeowner."
Well the way your describing it you are not splitting the Profit 50/50 your splitting the total revenue 50/50 and that is where you are screwing yourself big time,....again. Profits (Net Profit) is what is left over after you've paid yourself wages and then paid for your Fixed Overhead costs. Your the one doing the work that is part of the Overhead (i.e. estimating, bookkeeping, sales) and not only are you not compensating yourself for those activities you are the one paying for the items like insurance, advertising, & marketing and other general office type expenses. (or does Joe contribute anything out of his $40 cut to those kinds of things?)
My accountant said I can't do that and stay in business.
Your accountant is 1000% right!
I tried approaching Joe about it and he got offended, told me to go find some $10/hr kid.
Joe is an idiot. You would be much better off cutting off your relationship with Joe and hiring a $10 per hr kid (only I would look for a legal $12 hr. immigrant before I would hire an American kid but that a whole other discussion).
Assuming Joe isn't contributing anything to the Overhead costs of running your little operation here's what's happening to you if I reverse engineer the numbers you've given here.
Joe makes a great wage of $40 per hour and I mean that is a great wage to make. On the other hand after the costs of doing business come out of your $40 per hr (probably around $26.40 per hour, (1/3 of the $80 per hour you guys charge)) you're left earning a wage of $13 per hour (if that). That sucks doesn't it. You absolutely need to end this business relationship immediately and metaphorically speaking reboot the business with a different operating system.
As for your estimating problems
#3 - "I'm not getting estimates out timely. I've been loosing jobs for this reason."
and
#4 - "I also think my estimating is off, way off, on some jobs, because I don't know what to charge. I do everything from fixing a faucet to putting in sewer lines or building additions. Very little I DON'T do and I like it that way."
As for #3 I would need to know why your estimates are taking so long to generate but it sounds as though you haven't haven't developed a any kind of set of unit costs for the tasks you do over and over again.
And as for #4 as I've mentioned above you certainly don't have the correct labor cost in place but you may have some other problems going on in there too. Can you tell us a little more about your estimating process?
"But at times I struggle with what to charge, what is a fair dollar to ask for."
Forget about the word "fair" and get it out of your thinking what is "fair" to you is way way below what is "fair" in the real marketplace because you're broke and poor. Everything is going to seem unfair and too expensive to you because you can't afford anything. Base what you charge on objective pragmatism, not subjective emotion. Fair is an emotional judgment, not a pragmatic one.
And 'fair' has nothing to do with anything. Charge what is objectively and pragmatically 'correct' and 'right' according to your numbers.
"... It's so bad at times that I have to tap into deposit money people give me to do their jobs only to replace it later on when I go to start their job." That is eventually going to catch up to you and kill you. I'll go back and reiterate what I already said because it the only way you are going to fix this mess and turn things around... You absolutely need to end this business relationship (with Joe) immediately and metaphorically speaking reboot the business with a different operating system.
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Between you and Sam I'm getting an earful and I've never heard it put the way you two are putting it. I need to hear it that way because I've kept thinking that my thinking IS wrong, but not knowing how to correctly think I just kept going with the same way of doing things. You're right, my family can't afford for me to be making these kinds of mistakes and I'm probably lucky so far that I've made it two whole years full time just getting by. I've at least been able to make my bills, but, as already stated, nothing was left to stockpile in the business after my bills were paid. If something were to happen to me today, like I needed to buy a new work van the way I see it no one would give me the money to buy it because I don't have any residual left over. I've been wanting to change it. Problem is I'd ask someone here and there "know anyone who can give good business advice" and was always met with "I don't really know anyone." That's why I finally came out to BT. I wanted to avoid BT because I want someone I can talk to personally, someone I can just call up and/or go see and talk about how things are going, what I"m doing and what I SHOULD be doing. I don't have that with BT but, so far I'm getting more advice here than I've heard in all of two years.
You asked about my estimating..it's no excuse I know, but to make ends meet I start my day at 7am and usually work til 10pm. No kidding. When I get home, I"m beat and I am a single father and I have kids that need fed, laundry to do and a messy house. When I get time to spend with my kids I do just that. So estimating falls behind, that's the ONLY reason it falls behind. Beat, and overloaded.
I'm having to work late hours now during June to make ends meet. Why? Because Joe got this job and I'm working with him on it. It's a job that wound up costing us $3000 in lost income due to something stupid he said that he didn't realize he said to the HO. It was extra work he agreed to do for the HO. He inadvertantly told the HO it'd cost $500 for the extra work. It wound up costing $3000 T&M. The extra week took us almost 2 weeks to do. It set us back on the orig project we were doing for the HO by those 2 weeks. He billed the HO, HO balked, said he said $500, not $3000. Joe had to suck up as the HO wouldn't pay him $3000, he got paid $500. So that means for over 2 weeks I had no income coming in, then on top of that he underestimated the time it would take to finish the last phase of the contracted job we were hired to do. HO would not pay til job was done w hich was today. Joe got paid, waiting for check to clear to pay me. We lost our shirt and 10 pairs of underwear on that job. In the end for 3 weeks of solid work I'm only going to get paid about $900. I'm not kidding. He made a huge mistake, severely underestimated the project. It was his project, I had no idea how he estimated it, I assumed it was right. End result, I had no income in over 3 weeks and bils to pay and food to provide my kids and self. I had no choice but to work late late and my whole family paid for it.
In recent weeks I've been feeling resentful towards Joe because I've already begun to understand that he's costing me tons of money if I pay him $40/hr. And when he got offended I just didn't know what to do. I just want todo the right thing and because I was thrown into this I wasn't fully versed in the right ways of doing things. I want to end my relationship with him, yet I feel I'm betraying what has been an otherwise good friendship over the last year. But...I guess I'm sacrificing my family for a friendship. I can see how that is wronig and I never saw it that way until yours and Sams posts helped put things in perspective for me. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
I wasn't even going to get into the partner thing. That is a whole separate problem from pricing your work, but I SEE YOU ARE ALREADY AWARE OF THAT
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
By the way, come to think of it now, you should also probably get the companion book Where Did the Money Go?: Pricing Basics for Making Money Doing What You Love too since it goes along hand in hand with How Much Should I Charge?: Pricing Basics for Making Money Doing What You Love .
And then when you get a little bit out of the woods (don't spend any money on anything you don't absolutley have to right now) then you might want to take a look at the rest of the stuff on my My Suggested Syllabus and Texts for for a Hypothetical Contracting 101 Class and my Estimating Book Recommendations.
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Jerrald, I'm going to buy those books you suggested. I once looked for books to help me and was VERY overwhelmed by the number of books out there all with ideas of their own. So I stopped looking. I needed someone with a head for business to recommend some books, and you've done just that. I thank you. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Remember, you should not be charging what you would pay. Every hour of a work day has to have a job assigned to it, it is not your fault that someone lives an hour away. If the example of 1.5 hours onsite of electrical work for $60.00 is normal--that is the problem right there. I like what most people have said about how to figure it all out but to stop the bleeding, you need to go right to 65 an hour RIGHT NOW (first hour is the service call and it is 85 to 130,depending on distance and other factors you need to think about). You will do so much better bidding, if you are realistic about how long it takes you--and don't count on much going right any day.
I did this stuff for a year without hearing no, if you are not hearing no then you need to go up again.
You are currently at 40 and figure thirty hours a week==1200.
You could go to 80 at 15 hours and make the same money with even less overhead. Do you think you would really loose half of your business if you started bidding everything and in your head just know you were at 80????????
You and I are the same age and in the same business--if you were here and only charging 40 an hour, we would have the Quit Whoreing Out the Market Talk.
Quit with the guilty feelings, I could go on and on but you are just hurting your own family with that crap. Now go do better.
.
.
.
Wow! Sounds like a mirror image of my life. The only difference was that I laid my friend off last March. I decided to work alone and only bring in people when I needed them. I found that although I was able to do alot more work, I didn't make anymore money. I felt responsible for his financial situation and I found that I would worry about his bills before my own. Wierd eh?
If getting rid of your friend is not an option you might consider using him to run a second crew. Then go 50/50 on his jobs. Yours you keep for yourself.
.............or do what I did. Work alone.
Dave
everything i do is a bid and i rarely work by the hour, If i do its just a few hours hear and there, If i was to work by the hour for 40 bucks an hour i would just go back to the union, I think the base pay is around 30 with benefits and insurance, Why work for yourself unless your stubborn like me and dont like to have a boss. One time i had a partner he loved me cause he made the same and had no expenses i did all the bidding and advertising, I brought jobs in for both of us but he kept all his gravy for himself, I was played like a fiddle and in the end he still resented me
at 46 and have'n my last "job" @14 I guess you can say I work for myself... I tell my wife I work for her...
I've had something you can't even put a value on.... older people that liked me and offered advice...
I don't always follow all of it... because everyone is different in their wants, needs, and way of doing things that makes them happy...
but this advice i got years ago applys to you....
there are coal mines and there are gold mines...
with hard work both will make you a living... (you can figure out the rest)
You might enjoy doing "everything" but I think you'd enjoy it more if you had money in the bank... I know you don't want to offend anyone with your prices and it sounds like you aren't... except you are offending yourself and your kids....
what you have now is a job not a business.... treat the business as a partner and figure in $20hr min that goes to the "business"
at the end of the day you have a few simple options...
spend less, or bill more...
good luck
p
Willie,
I read through this thread and can tell you that you are getting advice from some of the best business minds on this forum. (Jerrald, Mike Smith, Piffin, Sam etc.)
I started on my own about three years ago and had much the same feelings/thoughts as you. My first job was so underpriced because I priced it according to what I thought the market would bear. It never occurred to me what I really needed to be in business.
I finally got to a point where I needed to either drastically change how I ran my business or I was going to go back to my office job. I spent quite a bit of time reading and lurking in this business folder. Reading the books Jerrald recommends, ("How Much Should I Charge" and "Where Did The Money Go?") completely changed my business approach.
In a nutshell- Forget what the market will bear. Your customers don't know what construction costs, and most of your competition doesn't either. (Just ask other contractors how much it costs them per hour/day/week to be in business. Most can't tell you, those that can know that $40/hr isn't enough to be profitable). Use the PILAO spreadsheet to determine what you need to make and charge accordingly, including profit. Don't be apologetic for your price, present it confidently to customers.
Another tool/book that really helped me is The Contractor's Legal Kit. The story you shared about working for basically nothing to cover Joe's screw up might not have happened if there was a good contract in place between Joe and the Homeowner. That $3000 worth of work wouldn't have been done without a signed change order.
I recommend reading the entire Legal Kit even if you don't think you will want/need that level of detail for all of your jobs. It helped me to include things in bids that I otherwise wouldn't have thought about. Like who pays to repair the landscape after the house addition is complete. Or that you will not move the owner's property/furniture around the site. The T&M contracts also spell out what is a billable job cost including, travel time, material runs, change order prep., invoicing, and so on. Even if you never use a T&M contract, these are good reminders for the costs you incur and need to be included in your jobs.
I hope this doesn't sound cocky or arrogant. I still make plenty of mistakes along the way, but I keep getting better and I learn a lot from this site.
Good luck!
Thanks for the encouragement and support. You're learning and making it, I know I will do the same.
The $3000 loss was Joes fault. He never had them sign a change/work order. He should have. After this happened I vowed never again. If he asks me to do extra work I'm going to say no until I see a signed form authorizing it and the agreed cost.
Joe and I got burned 4 mos ago from a guy who ripped me off $3200. I had no agreement in place, the HO took advantage of it and stiffed me. I vowed no way again. Joe assured me he learned from that mistake. I merely assumed he got an agreement in writing authorizing us todo the work because he said he learned. I was wrong, he obviously did NOT learn. Now I want to see proof from now on. In fact, when it came time to stain the HO's logs I made the HO sign an agreement saying she was fine with the stain color. This HO is one I fear will come back to haunt us. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
Willie,
I recently wrote about my first partnership, one very similar to yours, in another thread. I learned a lot from trying to make that one work, 50/50. Mainly what I learned was that a partnership can never really be 50/50. One person has to lead. That should be the person who finds the work and signs the contracts.
As important as experience and skills are to any business, they're secondary to booking jobs and getting paid. That's coming from someone (me) who takes great pride in his carpentry, who looks upon it as a much higher calling than dollar business. But I can only enjoy working at my trade when I'm earning enough money to satisfy my needs and fulfill some of my desires.
Your partner, Joe, has served his purpose in your business life. From what you say, he's not going to take less than 50%, for doing less than 50% of all that needs to be done. So it's time to cut him loose. You've learned as much as he can teach you about the trade. And he's had a good ride too. So you've both gotten what you wanted/needed from the partnership.
Start over, using the good advice that's been offered here by many people who have been in your shoes. You're bound to be a much bigger financial success, very soon.
Best wishes, Peter
Willie, hope I qualify to respond. I am in business for myself. but like you I am looking for the profit end to show up, and am working hard to solve similar challenges that you face. I sure can relate to the exhausted part. I end up falling asleep with my boys when I put then down, only to wake up at eleven left with having to do 3 hours of paperwork.
Actually when was reading your post I had to double check to make sure I hadn't wrote it. I two was force into sudden self employment when my wife checked into rehab for 3 months and I had to quit my job to look after our two boys. long story short she couldn't stay clean and I was forced into single fatherhood and trying to run a business from scratch with only my carpentry skills to go by.
I have one question for you...do you get all the jobs? or does your partner do quotes as well? I have a partner as well and we agreed that we would each bring our own jobs to the table, and would work for a about a $10 dollar per hour less rate when on the "other" guys job. The idea is we won't make money in the long run working for only a wage. we need to have guys that we can make money off of. as well as some on mark up.
I have two part time helpers and my partner has one full time "carp". There is no way we can be competitive at pricing and make any profit at all relying solely on our own labour. we are still working out bugs. but we like working with each other and are able to discuss issues that come up.
we don't split profit. we each run our own business as a separate entity, and simply bill each other. Like I said I'm not "there" yet and am learning like you as I go. But I think you need to have that $10 an hour kid as well as your partner ( and also some $20 an hour guys) so that you have someone to make some money off of and come in a little more competitive on pricing. also so that your business can grow. I think it's good to start to teach guys so that you won't be the "ones" doing all the work the rest of your life. what happens when you get to old do the hands on work all of the time. It would be nice to start to establish a business that consists of more than just the two of you.
anyway...just some of my thoughts, hope you don't mind that I responded as someone in same boat as you.
Edited 6/23/2007 3:29 pm by alrightythen
hope you don't mind that I responded as someone in same boat as you.
Not at all. I mean, comfort comes from knowing others have had the same struggles and got over the hump somehow and start making it.
I guess your story relates that I'm not the only one in a similar situation. I used to be a software engineer who loved working on the side doing Home Improvement projects. After honing those skills I began to really want to be in biz for myself. when I got laid off the 3rd time I decided I wasn't looking back, I was going for it. All I had was my skills. Granted, no business knowledge, I just knew I like doing this stuff and I seen a lot of "bad" work out there or low quality. I'm the opposite of that and I figured I can make it and prove I'm better than the next guy. Ok, so I'm struggling along the way. Sucks but I'm gonna get this figured out somehow.
Joe brings some jobs to the table that he gets and I work with him on those jobs. I get MOST of the work, however, maybe 90%, no kidding. He works with me, I work with him, split down the middle when it comes money time. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
You don't recon old Joe is playing the old game called, I can't pay you because they did not pay me--keeping all of the loot to himself?? Seriously, this is a good thread with good advise, when I started to understand my true cost of overhead, it changed my attitude about business. If you come across as a professional, you should have no trouble getting your income to where it needs to be. The way you tell it, Joe is riding you like a stolen Mule--hard and wet. Ditch him and watch your income go up.
Looks like Joe is only working about 500 hrs/yr. (~20000 divided by 40.00/hr)
So he really is a part timer. You should be able to fill in where needed. Hire him as sub contract labor.
In this 50/50 partnership I see only you having the expenses. Does Joe shoulder some of the expenses? If Joes 20k is for wages but your 20k is for wages and expenses that seems a bit lopsided.
When its Joes job he buys matls. When it's my job I buy matls. We take the bid price, $1000 for example, subtract all the matls we had to buy and what's left over we split. It was that simple.If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
You don't recon old Joe is playing the old game called, I can't pay you because they did not pay me--keeping all of the loot to himself??
You know, the sad fact is, human nature makes that kind of game tempting doesn't it? I really don't know if the HO never paid him or not. I suspect not because I been around the HO as much as he has been and if he were lying he'd be nervous I'd suspect that it might come out as I interact with the HO. Still, you never know. I trust Joe, though, any good "partnership" has to have trust.
I have a problem, though with Joe on this job in that we lost every penny we made, or should I say recovered. The HO owed us $3500, Joe promised a second coat of stain to appease the HO, that was another $500 in matls which left $3000, then the sprayer broke, had to rent one, another $100 out. He hired a $10/hr kid and we worked 40hrs week and we lost 3 weeks. So $400 for the kid per week x 3 is $1200, so take that off the remaining $2900you see where this is going. I made NOTHING for 3 weeks of 40hr work week. I personally think Joe should pay me all he gets. He's the biz owner and it's his job, he has to pay himself first. But that screws me royally to give me only pennies on the dollar when this is my sole income and I have two mouths plus mine to feed and $20 in gas RT everytime I went to that jobsite just so he could Cover his arse and get the job done so he wouldn't get sued for breech of conrtract. If I truly get $850 I'll be totally surprised. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
I'am going into my second year as a self employed contractor and had a helper that i work with suggest the 50/50 thing with me .
I told him that since i get all the work, do all the estimates, supply all the tools, carry all of the overhead, etc, that 50/50 was only going to work if he wanted to take on 50% of the risk. He changed his mind and works for me on a regular basis with no complaints by the hour. he's a great worker and a good guy but my time as well as yours is worth something. I only hope joe will be as understanding.
Hey Willie,
I feel for you. I read the first twenty posts and decided to reply cause I'm tired. anyway, I have been running a small remodeling business for 10 years. I'm still learning a lot. each year I have been able to increase my income a modest amount so I'm at least on the right track. There are two things to look at here. First, you need good record keeping. you need to invest in something like quick books to track time and expenses (both billible and non). you will invest time into learning how to use the software but if you track everything, you will know what your overhead really is . that includes time related to billing, tracking, payroll, filing, estimating, phone calls, etc.
second, you will have to assign a price to that unbillable time to build into all of your projects. say 30 % of your hourly rate goes to this for an example.
Another thing to look at is this. You and Joe are "partners". what does that mean? is there a legal entity binding you together? is the business in your name but joe is your sub contractor? does joe have his own insurance if this is the case? are you carrying all of the legal, and liability risks of the work while providing joe with equal share of the profits? If joe is technically hired help, then he should be paid an hourly rate for the work he actually does. you will need to back out the costs of insurance, liability, overhead from his rate.
otherwise joe is getting a free ride. Now I'm not saying joe is getting paid too much, this may or may not be true based on your area. if he is getting a decent rate then you need to charge more.
I agree with mike smith on charging for items instead of hourly. people seem to digest the nimber better that way.
Finally, if you seem to be doing most of the business end, then hire joe a helper and spend half your time in the field and half your time doing administrative tasks. I tend to work 30 - 35 hrs on the jobsites, spend 5 - 10 hrs week running around and 10 hours a week doing office work. phone call s happen throughout the day. communication is key. call people back asap. 1 st responder usually gets the job regardless of rate.
Estimating my friend is a learn by evaluating past estimates versus actual costs which again come down to good record keeping. A good book which I read based on a rcomendation I got on this site a while back is defensive estimating. got it from amazon.
take some time to evaluate your numbers and what they really mean. good luck. we all need it in this business.
Jay
"it aint the work I mind,
It's the feeling of falling further behind."
Bozini Latini
I do have quickbooks but I use it only to track the dollars. Every dollar that comes in or goes out is traced with QB. My accountant trained me in how to use it properly and set up the company profile for me.
Joe and I are partners in name only. No paperwork or legal stuff, we just choose to work together. He claims to have his own insurance. I have my own insurance, $2M GL policy.
Thanks for the encouragement. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
<<He claims to have his own insurance. I have my own insurance, $2M GL policy.>>
RED FLAG!
You can't rely on a verbal when it comes to insurance. If you show payments from your company to his, or him directly, eventually your insurance company is going to want to see that they are not going to be on the hook if Joe has a problem.
He needs his own policy as well as his own worker's comp and if you are audited by your insurance company and do not have proof of his insurance they will take it out of your hide with a sharp upward, retroactive assessment.
Same with the state worker's comp and they will want MORE.
willie,
thanks for starting this thread---we haven't had a good one like this in quite some time.
The way I see it-----you have basically 3 related problems
1) getting a handle on overhead and costs
2) your "partnership with Joe"
3) classifying the work you do
in reality----everything is solved by sorting out 1) overhead and costs-----------which mike and sam and jerrald have you well on your way to handling
when you get a handle on your overhead and costs-----the logical solutions to your partnership with Joe and the type of work you choose will appear with crystal clarity
you will see that you need to change or end the relationship with Joe.
Personally I would choose to END it as friendly as possible----rather than to modify it. simply tell Joe that you are going to begin working solo from now on in order to simplify your life and free up time for your family. make it a pretty clean and amicable break----because to try to salvage the situation and work Joe as a subcontractor----isn't gonna work----face it, Joe will resent you. think objectively here.
also--------- the type of work you do.----here is the problem------the work you say you WANT--- bigger jobs building things------isn't what you are really good at.( I have the same problem!)
to me----it looks like what you are really good at----are the smaller 1-2 day jobs.
in fact-----it's your expertise with these smaller jobs----doing them "on the side" at night and on weekends---which has kept you afloat this long. i guess to keep it as simple as possible------you have been subsidising Joe and your customers with these side jobs----while working pretty much for free on the big ones
If you really study your numbers----- I think they will back me up on this .
thinking clearly----big jobs are REALLY about making someones dreams come true---a new kitchen, an addition, a new house-----you must deliver the dream AND be a great business man to avoid selling your self and your children short. Personally, I don't have that ability-----and i suspect YOU don't quite have it either. Believe me---it's fine!!!!!!!!
Because those 1-2 day jobs--the ones I am good at---and the ones I believe YOU are good at----are your real money makers.-see THOSE jobs are about solving problems---not about making dreams come true.
trust me on this----people will pay unbelievable amounts of money for you to remove problems from their lives----things you consider "simple"---are a nightmare of inconvienience and worry to them. they will PAY for you to disappear their problems!
very best wishes to you,
stephen
I will add my 2 cents worth here the big jobs are hard to do without a good set of subs and much attention to detail and planning.
I am a single person handyman/remodeler I have a good clientale that use me over and over.
Big jobs for my regular customers are time and material with a 10% profit and overhead at the end of the job.
If I do a big job for a new customer and they want a bid I will estimate how long it will take and then add in every mistake I can think of that will delay me and add that in too.This method is not very business like but I don't spend alot of time pouring over the books and decifering every aspect.These bid jobs are usually profitable and my method helps me catch errors early on before they break the bank.If I lose the job for being too high I might take a second look at my bid but I find that if I get slow for being too high I will spend my free time with the kids and not think twice about it.
I have a better situation than Willie as I have a wife who has a good income and is my source for insurance.
I often under bid the small jobs but try and learn from my mistakes and my regular customers will be understanding and without me asking will bonus me for going above and beyond.
I too need to make more money per job as my expenses have definately gone up.
ANDYSZ2WHY DO I HAVE TO EXPLAIN TO FRIENDS AND FAMILY THAT BEING A SOLE PROPRIETOR IS A REAL JOB?
REMODELER/PUNCHOUT SPECIALIST
WW,
I started out 8 years ago doing just what you are doing, without the partner. I did handyman work and remodels when I could get them. At the two year point I hired my first employee. I live in a small town (40k) where prices are low and people are cheap. I argued that I couldn't raise my prices and found out I was wrong. You will lose some clients that you currently have but find an entirely different level of client ready to pay your rate.
We now charge $65 just to show up for small work. $55 an hour for any type of remodeling of size. These are still low numbers compared to many on this board. But my system has gone as follows:
1) If I am booked out 2 months then the price goes up 20% on all quotes. I have yet to lower my price and have raised it 4 times.
2) If I am booked 2-3 months out I start looking for another employee.
3) If I have 2 "A" grade employees my next hire will be a "B" grade that I think might work into the "A " grade level in time. This person floats as a helper between the 2 "A" grade guys.
4) As business has grown I have narrowed my scope some. It helps in setting standards and training for new hires to not have to duplicate yourself entirely. I have found 2 guys that are as well rounded as I am though.
5) If you want to grow your business and raise your prices you will need to advertise at least some. You need a steady flow of new potential clients if you want to drive prices and demand quickly.
If you want to remain at the same rate give or take a little and work alone or with a helper stick with word of mouth as everyone who hears about you will know what to expect. Nothing wrong with either approach, just what you are comfortable with.
6) You will never think clearly in terms of business when you are physically tired at the end of the day. Same is true with quotes. Hard to be accurate when you are beat. I used to do sales calls in the evenings but do the quotes on Saturday mornings so I was at least semi rested.
7) All the advice in the previous posts are good stuff. One of my favorite senarios was written by Mike Smith (I think).
A guy does roofing on the side while working daily at a factory. He makes $14 an hour at the plant and charges $20 an hour to roof. Feels he's making a killing. Over time he buys a couple new ladders, new compressor, and a couple of new guns. And because he has a steady job has a new pickup. He gets laid off so decides he will just roof instead.
In two years time he has 2 junk ladders, 2 worn out guns, a crappy compressor and a half wornout truck. Because at 20 an hour you can't afford to replace your equipment. I never forgot that idea and try to keep my trucks and gear nice and newer. And to do that you have to make money. Hope this helps. DanT
There is lots of good advice here, but there is one issue that needs some emphasis. There must be a higher mark-up on the short time jobs. If you are doing 1 1/2 hour jobs it is tough to get more than three done per day. At that, you get 4.5 hours pay for 9 hours, or about 50%. If you are doing 8 hour jobs, you will generally spend a couple hours staging so that you get eight hours pay for 10 hours or 80%. If the job is three weeks long your ratio might get a bit better, but not much.
I often have the necessity of answering your basic question. In a nut shell "Double your prices. You will either begin to make some money and prove your value - or you will starve to death, but you might as well find out now.
Finally, from a man that has failed in three partnerships, there is no such thing as equal contribution. You can call him a partner, but both of you must know who is boss.
Bill
I am in business for myself, have never been serious about anything in my life and I am broke. So, I don't meet your requirments to post, but I 'd like to:
Thank you for the post and ask you to post a few months down the line and tell us how things are going.
Thank you for the post and ask you to post a few months down the line and tell us how things are going.
Sure thing. I appreciate the encouragement. If I can do it, so can you. Einstein failed, so did Edison and they went on to become legacies for all time. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
It took me around 7 years to really dial in where i needed to be, Strange i had a few years i grossed a whole lot and made less after everything was paid, too many employees killed me, A common trap is to get a lotta work see big numbers and figure your gonna get a piece of the pie, step into the water slowly, sounds as if you can do some bid work and fill in with per hour stuff your doing ok, it takes 3 to 7 years to build a customer base
Not sure if your still reading replies but if you want two more cents worth here goes.
We started out like you. Small handyman jobs that have lead to a much larger scopes.
Self employed to employees.
Growing pains at each step. What we have learned over the years is that great carpenters don't make great businessmen. And that only some businessmen make great businesses.
Here are a few thoughts and I will get off my soapbox.
1. Figure out what you need to make to pay your expenses. All of them.
2. Figure out what it cost you to run your business. All cost.
3. Figure out what you want to pay yourself. Salary that you pay yourself every week.
This is your basis. If you are not making at least this much you are losing money.
4. Charge a fair profit. Aim for 10% for this year.
If you are doing at least this you'll be OK
5. Keep meticulous records of how much time everything takes YOU. Not what you think it should have taken. And most definitly not what someone else told you it will take.
6. Never believe your Client about what they think something should cost or how long it should take..
7. Be honest with yourself. And with your clients.
8. Do quality work. Back it up. And never piss off a client. if you chose to work for the wrong person, suck it up, finish the job, and never work for them again. Learn to recognize that person the next time and avoid that job.
9. Do not be afraid to not take a job. If you are good they will come to you. not working is better than working for free.
10. Find good subs and let them do what they do. Pay them on time and respect them.
Have faith in yourself. There are a lot of folks in this forum that have been in your shoes.
Do quality work. Back it up. And never piss off a client. if you chose to work for the wrong person, suck it up, finish the job, and never work for them again. Learn to recognize that person the next time and avoid that job.
We practiced number 8 today with excellent precision. A PITA client wanted us to do more work after insulting us by telling us she thinks she paid too much for the interior work we did and she wants us to do something extra on the exterior. Uh, no way hosea, I told Joe no free ride, and she paid the right price. I said we need to move on, let her find someone else to do the exterior job she wants done, it won't be us. And really, we have plenty of work on the books to do yet from people who always pay us on time. If at first you don't succeed, try using a hammer next time...everything needs some extra persuasion from time to time. -ME
good on ya'
On Joe, if he wants $40 per hour. Are you paying him as a 1099 sub? is he licensed? workers comp? Liability insurance? Truck? Tools? Pays for his own Supplies? Free to come and go as he pleases? Schedules his own work?
Until you get to the point where all that is satisfied the powers that be consider him an employee, and the burden is on you to pay his payroll taxes and carry workers comp to cover him if he gets hurt. If you are operating on your license he is a bigger liability so you need more insurance.
If he is all that and indespensable then maybe he is worth it and you should have "that talk" about what each partner brings to the table.
The company needs to make money for every hour an employee works. And they need that money to cover the cost of labor inefficiencies. A $40.00/hr burdened employee needs to bill out at +$50.00 per hour depending on your O/H and where you are doing business.
Also remember taht if JOE quits, leaves, screws up, or causes damage. YOU are still the one they will come after. That is why you are the contractor and that is why you deserve to be paid more.
Goot get off my high horse now.
Have a good night.
Clap! clap ! clap! very good Romero. To the point and precise. I'm going to print that one out and stick it on the wall.
roger
If someone wants 50% of the profit then they must assume 50% of the risk and be willing to spend 50% of the total time and assuming 50% of the responsibility for the success of the business and losses which are incurred.
I own a residential cleaning business. It is a franchise, and as such, the franchisor has a recipe for being successful. For pricing, the recipe is to take the direct labor hourly rate and multiply by 4 to cover overhead!
We work in Teams of 4 and charge $150 per hour for cleaning houses. You (as a Team of one, in a skilled trade) are not charging much more than people pay for house cleaning.
We have a minimum of 1 hour for a one-time clean otherwise it's simply not worth going out.