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OK, I spent a few hours goin’ back through my financial records of the past few years, tryin’ to determine just what my “overhead” really costs.
Here are the monthly categories I came up with, in no particular order;
1. insurance
2. business license and performance bond
3. electricity for shop and office (% of house in my case)
4. taxes on shop and office
5. vehicle expenses (either mileage or actual expenses)
6. tool allowance (averaged over 4 years)
7. 4hrs labor per week bidding/billing
8. education (books, magazines, seminars, trade shows)
What did I miss? What else do you consider “overhead”? Thanks – jb
Replies
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Hey Jim.
It's 3:00 am here right now, so I am only looking at this lightly.
On top of what you have already listed, what I see right off, without too much in depth thought, is:
1. Office Supplies
2. Gas and maintenance for your vehicle(s)
3. Disposable shop supplies (sandpaper, shop towels, soap, etc...)
4. Advertising costs (can be postcards at Christmas, actual ads, etc...)
5. Work Clothes (ESPECIALLY safety items)
6. Membership fees to professional organizations
And there's probably a lot more that I just can't think of right now. I basically consider ANYTHING I spend for my business to be overhead. I figure if I weren't in business, I wouldn't spend money on these items, so they are considered by me to be overhead costs.
James DuHamel
*Jim,A ouple of days ago I made my yearly trip to Office Max and picked up most of the years office stuff,including my yearly copy of the "DOME simplified weekly bookkeeping record". About 4 or 5 pages into the beginning of the book is Appendix D which lists something like 3 pages of allowable deductions for trade,business or profession.Many of thes things could easily be classified as overhead,including the $9.49 the Dome book costs me.I gaurantee there are plenty of things you haven't thought of yet....How about checking account fees? How about internet access?Happy hunting,Stephen
*Jim.....If you are a Sole Proprietor business, then you file Schedule C.....pull your 1040 out for the last 2-3 years and go to Schedule C...THAT is the minimum of your Overhead, and most small business do NOT document all of their LEGITIMATE deductible expenses....I've seen some very good business plans that were 100% based on the Schedule C. Its all there.... Gross Sales less Direct Expense = Gross Profit less Overhead = Owner's Profit (what you were REALLY working for that year. Divide your bottom line by 3000 hours (60 hrs x 50 weeks) and you have your hourly rate of income. (This is where you start thinking flipping burgers might not be so bad)Now you know how much you have to add to your BILLABLE hours to 1) Pay for your Overhead and 2) Increase your bottom line...guess what ..you can't increase your hours , because then we'd miss you here at BTAll the Business Plans are going to be variations and embellishments of the basic Schedule C....its almost like Uncle actually knew what he was doing.
*Hey you guys - Good comments, keep 'em coming. I have a master list right here beside the keyboard.Bank fees! Cost of debt...checking account fees...James's "disposable shop supplies" is an excellent example. I buy a lot of sandpaper and don't always charge it to a job, so even though I write it off on my taxes, it is an expense I might not get paid for. That's what I'm tryin' to spot, not so much the expenses, but the expenses I might not bill for...like sharpening...the new roof on the shop...the loose ends I take care of between jobs, or when I get time...the cost of stayin' in business.
*Heer's my operatiing expenses - two man operation:Major medical - SonnyMajor medical - DaveOffice Equipment supplies (includes computer/fax/etc.)Office suppliesPostage stamps & shipping (UPS)Professional fees (Atty & CPA.)Magazines & booksBusiness taxes on profitsTelephone Cellular phone/2-way radio (Nextels)Travel & entertainmentSeminars/Trade showsUniformsSmall toolsSoftware & upgradesGas & oil changesMarketing (excess profits if not used)Advertising ( ditto)Vehicle depreciation Office Equipment depreciationVehicle repairs (tires also)Verhicle insuranceVehicle misc ( plates & other misc.)Liability InsuranceBad debt (1% of sales)Guaantee work (1% of sales)Future Capital Expenditures (1% of sales)Owners weekly draw (Note:This is an expense, same as if I were a CEO of a larger company. It's a draw because I'm still a sole prop. Whan I become a Sub-S it will become a "salary.")Bookkeeper part time (wife - $100/week)Vehicle monthly payment ( paid for already but this goes into a reserve account)Billable adjustment hours (no one works 40 hours per week consistently with rain days, screw ups, etc.)Employee leasing company handling fee - about 2% of payroll.Remember, I use the Proof system, so all overhead goes onto labor. Subsequently, my average labor cost for Dave and I with me working on jobs about 24 hours per week, is $51.39. We use a leasing company. Their fees including workers comp, FICa and Fed employment taxes is 18% of payroll - a deal. So workers comp is not listed in the overhead expense list.
*.....my list is the same as Sonny's except we have 4.5 employees me, 3 carps, and a part time bookeeper....we are Sub-S (after 25 years as a sole prop.) and I use a modified Proof system that I learned from the same guy as Sonny. Since we have regular employees, all our taxes and Work Comp are part of the OVHD, and I"ve tracked hours over the years and find that 10% minimum are not billable (my guys, not me) so those 200 hours (4 hrs / week x each man) go to overhead also. If you are paying a premium, say you're insured for health coverage on your wife's plan, then the difference should go to overhead. But I would also assume that that number (the total health premium for family plan should go to OVHD, what if your wife 's company dropped the coverage?)Any thing YOU cost the company that is not billable hours , should go to overhead.... because if you wern't there, your company would have to hire someone to take your place. If you run your business thru a check book, every check should be a deductible expense or an Owner's draw.
*Sonny - could you give examples of "marketing" and "advertising" that illustrate the difference between the two? Thanks - Jim
*Mike - If your wife's employer provides health insurance, do you still charge that part of the overhead and stash it away for a rainy day, like Sonny seems to with his vehicle payment? Or do you reduce your overhead that much? Thanks - Jim
*I don't know what sonny considers marketing and what he consideres advertising but in the text book definitions:Marketing is all the stuff (okay not verbatim text book) you do that is not directly trying to get a lead such as demographic research, competition assessment, surveys, etc.Advertising is just that...advertising.
*Sandpaper, wire wool, screws, lacquer thinner, mineral spirits, etc., etc.. All that stuff that I can't possibly, and don't keep track of per job as a furniture designer and maker, I have down as an b Indirect Expense in my accounts. As a builder, you'll have more of that kind of thing. Anyway, I automatically add a 5% charge, plus another automatic 20%b Markup on this charge, on top of theb Direct Materials element of every estimate for a job, and it's included, of course, in the final bill. (Did that make sense, or was it as clear as mud?) I can't say if this helps, but it seems to work for me, and takes care of all those "sundries" that might just get lost elsewhere as some sort of 'general expense' of doing business. It ties them to a job, if you see what I mean. A true accountant speaking,.........not.
*Jim........I reimburse her for the difference between what her company provides her (single plan) and the additional amount for the family plan...that check amount went to overheadAs a Sole Prop., Uncle only allowed a percntage of that as a Tax deduction....but as a Business Ovhd. I used the full amount... and what I'm saying is that American Business assumes that a health plan is being paid by the company, so you should build your company AS IF that was going to be a company benefit SOMEDAY (when you incorporate and decide to offer it to all of your employees as part of the benefit package ) I'm assuming that this is part of your long range strategy for keeping the good employees that help make your business a success.Then when your business is ready, its already built into your plan, just like setting aside an amount for the new truck, even if your's is 9 years old just like mine.
*Yeah thanks. But what I'm thinkin' is, since the wife's policy pays part of the bill, should I be putting the ammount her company pays into savings and still consider it overhead? If she wasn't working (we wouldn't be eating) and the cost of that insurance is legitimate overhead, then isn't it legitimate to include the same ammount as overhead but set it aside for when I do have to pay the whole thing (and rates will be higher, because we'll be older)?You know Mike, very few guys are willing to share their business knowledge like you and Sonny. Thanks, really. - Jim
*Jim, any "anticipated" cost increases should be included in your overhead for those particular categories in that year. For example, in November, we will call several insurance companies and ask if we should anticipate an increase in the following premium or policy anniversary. If the answer is Yes, we immediately adjust that overhead expense to reflect that additional monies. I want to have it when it's due, not just start charging for it after I've already paid for it.Also remember, these "reserves" may be considered by the IRS as excess profits. It depends on how your accountant sets up your accounts and allocates your expenses. We recently switched to a CPA firm that's a hotsy totsy here in Naples. Not cheap, but he redid my taxes for 1997 and got me (just received it) a refund check for $7689 that we had overpaid on those taxes. Gong thru all of the overhead and income and making the necessary forms cost me bout $1200 but Ill take that $6500 difference evey time.I use the advertising category only for business cards and envelopes since I don't advertise and don't use signs.I use the marketing expense catergory for things like a flowers and dinner certificates for clients. Also for if a client doesn't like something after it's been installed or even if I just thave to take that time to change it, if I decide to eat the associated costs, I type a note containing the info and put it into the marketing expense. That way I get great PR and get to deduct those PR costs. I also consider sending cards and a newsletter as marketeing moreso than advertising since in reality, those things are to maintain a pertetual "marketing" program. The seem thing if you decide to inplement a system to visit completed jobs one year after completion. Say it costs you 1 hour per visit with travel time. Write a bill to "marketing" to recapture that lost time by including it in your overhead expense covered by the marketing category. It is marketing because generally, those visit generate about 6 of each 10 visits, a client who will say, "While you're here, we were thinking about........." And bingo, another job with no competitive bids.Those inspections work best if done about 3-6 months after completion - no other contractor does that - and again about one year later. I schedule the appointments for when I'll be in that area anyway, so it's only an extra 5 minutes or so in travel time, and a few minutes in the house. Planned right, each visit is a 30 minute marketing/PR advantage over the competition. Imagine the client telling their friends about the contractor who not only takes care of any call backs, "HE EVEN CALLS US TO MAKE A SPECIAL TRIP TO INSPECT THE JOB MONTHS LATER. INCREDULOUS!" It's the cheapest and among the most effective marketing/PR program you can have. - AND deductible
*Yes, but I don't know what the tax consequences are...but as far as the business goes, your health ins. is a legitimate expense that every good business should have as a benefit to their employees, all your town and school employees have it , so should you.... it should be included as a part of your OVHD.. and then , when you get your bottom line, you'll start thinking like a business man who happens to like being a carpenter.If your wife's benefit stops for whatever reason, you're gonna have to pick up the slack...so bank it now and save it to help grow your business or save it for a rainy day
*Yup, I was thinkin' about anticipated cost increases, since our business changes quite a bit from year to year. Good point.And that return visit marketing, genius. If nothing else they will be chattimg with a friend and you will be the first person they think of when the subject comes up - kind of like having your company name on you truck might not get you much work, but it reminds folks who already know you that you're in business.What about depreciation of major tools and the shop. That would be overhead, wouldn't it?
*Jim, all major tools are depreciated. Just remember to first reduce the depreciated amount by the tools "salvage value". So, if a $3000 table saw is worth $300 as salvage value, it reduces the original $3000, then take the depreciation. Also, I'm not sure of the IRS allowed amount currently (check with the accountant), but I write off totally any small elec hand tools like circ saws, cheaper drills., etc. Back in Michigan when we built Lindal Cedar Houses, I added a $100 saw in the price of the estimate. It would be trash by the time the house was built anyway. Or, if you use a worm dirven Skill like I used, I included a "tune-up" cost for it at the end of the house, also included in the estimate. Might try that on larger framing jobs. In any case, the saw or tune-up is a direct job cost item. So, if the current allowance for small pieces of equipment (printers, table calulators, etc also) is up to $150 or $200 now, you can just deduct the entire amount this year under the "Small Tool category, or Office Expense Category.The IRS allow that because they realize it's not worth the paperwork for them (screw us), to keep track of annual depreciation amounts of lower dollar amount items like that.
*Can I shift the topic a little; how did you folks arrive at the 'right' number of employees relative to your overhead, and was it a conscious decision? On this board we run from one man shows up to guys running several crews; the guy with several employees has to deal with a similar nut as the one man show when it comes to overhead, but he has a lot more producers contributing to it. This is how one man shows become two, or three, or four, or whatever: it's hard to pay the overhead, deal with the administration, do the work, etc. etc. when it's one guy. Add a guy, your labour cost goes up, but your overhead stays about the same, and you can bill for double the hours. Add another guy, same thing.Sonny, you have obviously thought about this; I was suprised when you said you only had one guy plus yourself, but you are obviously making it work. Mike, you run several guys right? Did you just level out at a point where you were making money?
*...Adrian, who said anything about making money ?I was in a survival mode from '87 until '97 and then I started making decisions about where I wanted the business to go. You know all the dumb things we do to survive, lay off all the guys, work with subs, try Independent Contractors, compete on price.........you name it , I've done it...A couple things made it easier to run a BUSINESS instead of an expensive hobby....Licensing in Mass & RI, and Workmen's Comp reform...now if you want to run a contracting business in RI you can compete and have real employees with real insurance and Employment Security, and the public is learning to look for these things ...As far as the right number of employees, I arrived at it over time, Had as many as 6, no fun, too many problems..couldn't keep 'em happy and working..could level out the workload,too many personalities Tried one, and that was no good cause if I wasn't there he was just one.Two is ok , but I found that we really like to work a job and three is a good team, they can crank out the work big or small, we can split into (2) 2-man teams, or I can run the business while the 3 of them run the production. Or if we have a roof open, all 4 of us can hit itAnd I can generally keep the work comming in, as long as I do that we're pretty efficient, and our many skills can really shine on remodeling. We don't have the efficiency for framing as a specialty and there doesn't seem to be any maturity in the framing business, its more like a commodity.So , for me, 5 too many....1 not enough.....2 becomes 1 if someone is out sick,...... and 3 plus me is just right..I've always had a good handle on my OVHD and most of it goes to labor, so if we're running 3 guys and me and I sell the job for what it's worth, then my OVHD is covered and we're in a position to make a profit....The other thing I did to force myself into running a business was to go Sub-S and put myself on the payroll, amazing what that little discipline does..so , this is the first year filing other than a Sole Prop. and I'm reasonably content that we've got a plan and we're working the plan.How 'bout you ? You make any changes and adjustments ?
*Adrian, in Miichigan I had 26 employees. In Naples here, had 16, but I sold my business to my two sons recently. I'm 57 and let my wife and sons talk me into thinking one heart attack at 45 and two minor strokes (TIAs) in '97 and '98 was enough. Soooooo, now I'm also startng two other related business. Go figure.Anyway, to the overhead business at hand. One mistake most of us (me too) have made in the past and some presently, is that as employees increase, production doubles, tripples, etc. Not so,it's the otherway around becasue so does the "adjustment" for production losses. Number one, it's typical, that no employee will be as efficient as the owner, nor think in terms as a owner does. So, one cannot estimate as though s/he were doing the work. I used to use a 80% production factor. So that meant a 100 manhour job was estimated at 120 manhours. I never, ever, used the "usages" of estimating books. Mose are set up for "ideal" situations. As we all know, almost no paroject is "ideal". I'm a romantic and an optimist, but I've learned to keep those two in my personal life. In business I must be a "realist."So, if you add your first employee, you can definitely NOT assume "doubling" the billable hours. Use that 80% factor and you're safe. I'd like to have the money spent on time just explaining and clarifying situations, speical instructions, etc. And that doesn't include supervision. We must always "average" our productivity.Also, as your number of employees increase, so too does your overhead. Iin 1998 we had a 34% overhead factor. I sold the business in Feb of 1999. I let my sons run the business, literally, during 1998 as a trial run. Before they took over, I convienced them to convert the business to using subs nearly 100%. That has reduced grief, reduced weekly time (owners) and doubled the net profit. But that's another discusson.Similar to Mike, both in Chicago where I started, in Michigan (13 years) and here, I've found that it takes about 4-5 field staff to support a NON field working owner. Still, the owner should have a full time person to be the receptionist, answer calls, handle basic accounting, files etc. S/he should be paid well since the constant interruptions demands an organized, sharp person. It's cheaper, and smart to hire someone who can do the cheaper positions. It you are drawing a salary of say $1000 per week, why would you answer the phone, do bookkepping, filing, etc. if you can hire someone at $10 - $12 to to that . Minimize your "cheap" time to mazimize your "expensive" time - running the business.I think I mentioned in a post above, another thing to remember is "billable" hours are NEVER "working" hours. So, that "difference" must be included in overhead. That overhead expense is a legitimate "production cost" factor. That means that in you have roughly 2000 manhours per year per field person, in reality they will not work 2000 hours per year, but they will get paid for those 2000. Down time from rain, screw ups, etc. will cut that 2000 to - I figure 4 hours per week lost - or 1800 man hours. So, the cost of those other 200 hours is overhead - "production loss" or "productivity factor".I personally think one really has to decide what they want and what, as their personality or character can handle. For some it's working alone; for others it's with 1-4 more, but able to assume that added responsibilites. For others, it's a dream which will only come true if it's realized. I had a dream. Gee, I think someone else said that too.In my case, I know I could only make so much by myself and with another helper, or pro. My "dream" was to attack the standard "assumptions" of our industry, and prove them wrong. Some I did, and some I didn't. One thing I never worried about was overhead. It's because I knew that if I sincerely embraced the concept of "Customerization", the monies would flow in, and regardless of the overhead percentage, substantial profits would still greately exceed that overhead. That was one of the "I dids". But, it's not for everyone.OK, I got off the subject a little, but hope my overhead comments helped. Finally, as Mike stated, and most, and I mean most, don't realize, is that a business must be run as a business and not as a hobby. There is simply too much at stake. Furthermore, as a "business", there is 10 times the knowledge needed as there is in learning a single trade. The reason is that learning a trade is something "tangible" we do as we do "it" and learn "it". Business is replete with "intangible" "concepts" and is done with the other side of our brains. Compound that by the fact that as humans, we "naturally" avoid things we don't like to do. Learning a trade is what they "want and enjoy" doing. For most "technicians" who become self employed, learning a business is not. That's why I keep a saying on my desk and on my dashboard as a reminder to me: "Successful people form the habit of doing the things that failures don't like to do." Even as 57, I need to be reminded to force myself to call the irate customer, say "I'm sorry" to my wife, tell my adult kids "I love you" and when necessary, say to an employee "You're fired". On the flip side, I've also learned as one remodeler posted on another site by Bennis, who stated, "None of us is as smart as all of us." Howeve,r I still have to learn how to make short posts on these forums. I'm working on it.
*Have you ever considered giving seminars Sonny? Or writing something up for publication? You write really clearly, and many of us could benefit from your knowledge (and you could make a few bucks writing/talking about something you obviously care about). It would make a nice legacy. - Jim
*I've turned down a couple of opportunities to give a seminar. It sounds corny, but there are some thngs that take precedence over making money. In fact, making money on helping others sort of taints the "purity" of it's purpose. I think the best legacy an older person can leave is to help others whenever possible. At 57 I've found that the "stuff" most of us accumulate during our years does not "hug" back. Friends and relationships determine life's value. What have I done? Not what do I own? I am appreciative of what I have and not envious of that I have not. Perhaps when the next stroke or heart attack precludes owning a business, I'll start on the book I outlined and sell it at cost. Until then I'l make more mistakes, learn more, and put that knowledge into the "drawer" for the book.What my wife have already decided, is when the time comes we will liquidate everthing we own, buy a used motorhome and spend months at a time touring the states visiting the many people I've met here, perhaps spending a few days with each. Thank God for cellular phones and laptops. Hell, we want to be Aunt Mame' to our grandkids anyway. When they get bored, as they eventually may, we'll just fly them home and continue on. What a great way to end it, eh? Maybe we'll call it an "Odyssey of the Temple of Zeke."
*I heard a thing once. The person who told it to me said she had read it as the introduction to one of those self-help books. The jist of it was..."Imagine you are at your own funeral. What will the people there say about your life. What would you hope they say? Then, you should set out to live your life in such a way that what the people who cared about you most, those at your funeral, would respect" I have always remembered that. Do I want folks to say stuff like "he sure made a ton of money" or "he spent most of his time working" or would I rather hear "he sure loved his family" or "he sure did a lot in his community" or stuff like that. You know, made the community (on whatever scale) a slightly better place. Still though Sonny, you could really contribute to our community of tradesmen by writing or teaching, even if you donated the money to a charity. You and Mike and many others have so much that you could share. I don't mean to imply that you aren't doing that right now, but you might be able to reach more folks through some organization.
*Jim, several months ago on the RO site,I tried to generate some positive discussion about a new organization, one of my “dreams”. After having to type in the word “organization” so many times I gave it a temporary name - Team of American Contractors (TAC). I suggested that this would be an organization unlike NAHB, the Remodelers Council or NARI, all with their own purposes and agendas.I wanted TAC to become a national group of the finest (mainly character) in the construction industry including builders, remodelers, specialty contractors and various related artisans. Our claim to “fame” was to be our impeccable integrity, business expertise, financial stability, commitment to the philosophy of “customerization” and absolutely 1st rate workmanship. It would be open for both the one man or 50 person operation. It would be a true “partnership” and as such, provide organizational skills to everyone involved, and by everyone. Our criteria and standards would set the industry on it’s head, and those standards would be the criteria for membership application. Business & trade expertise can be learned and taught - "character" can not. We are what we are.This idea is not new. It is already in effect in the manufacturing industry. I wanted to see it in ours.However, our client base target market would not initially be the middle income bracket, but instead, the upper income bracket. The middle income bracket usually buys “price”. The upper buys, and can afford, “value.” Our “Licensees” would provide the “WOW and “Incredulous” service unheard of now except in pockets here and there. Our licensees would become the Lexus and Mercedes of our industry, catering to that segment who appreciates 1st rate quality, 1st rate service, 1st rate “business and personal “standards”, but moreso, ready and willing, even eager, to pay the pricing mandated but such a market philosophy.I had already talked to bank presidents and a few lumberyards owners that stated they would support such an organization. That’s money. Of course they would. To the banker, no more anxieties about the builder or remodel project for their client going under, or fudging the quality, or payment. To the supplier, no more late payers, no more contractor bankruptcies sticking them, and no more contractors bringing back a cracked toilet tank saying “Gee, it was like that when we opened the box”. When they know damn well someone at the site dropped it. Instead they will hear: “George, one of my guys dropped the tank. How quick can you get me another one and put it on my account.”TAC was to set a standard for others to aspire to become members. Through our “systems”, TAC members would be able to obtain premium pricing, which in itself would allow them to literally double their net profits. Do you think Mercedes gets the same net profit as Ford? Do you think the net on a S10 is the same as on a Silverado? What differentiates a .60 cup of coffee at McDonalds and a family style restaurant cup at $1.50 - it’s the experience and the perceived, and delivered, “value” by the customer.We are “customers” at K-Mart and most of our suppliers. Ours would have become “clients”, and serviced as clients.As Bennis stated: “None of us is as smart as all of us.” Boy! What we could have done together! TAC would have revolutionized our industry, and it’s concept is way over due. It would drive clients from the high end market in droves to it’s members. How could it not? Who among is doesn’t want to deal with members of the caliber of a TAC type if it occurred in the auto repair industry, appliance repair industry, etc.? What lenders and suppliers would not want TAC members as their recommended “clients”, and at our prices.What contractor would not want to align himself with the finest people in his industry, double his net profit while reducing his weekly hours, and at the same time be able to run a much “happier” business with a fraction of the stress and grief? We would have had our own web site with members listed along with other info. so, when my client here says he wish he knew someone in his Northern home area, I could say to him, “Call Joe Blow. He too is a TAC member and operates in your area.” Instant peace of mind, what we really sell.But alas, it was a dream never to be realized. It died for lack of interest. I knew the thoughts: “What’s Sonny trying to do, run my business?” or “AHHH. It will take to much trouble.” As though the way we currently operate in NOT too much trouble. And I forgot about the #1 factor that works against success - ego.I thought that TAC would have been one helluva organization an a legacy to leave as a founding member. But, it was one of the “dreams” that was not to be.So, I go solo, and do what I can.
*I'd be honored to be associated with a group like that Sonny. I don't think I'm worthy, but I'd be honored. How would you determine who qualifies to be a member?
*About 3-4 of us decided to persue TAC further. That was one of the many questions we listed. I saw the question as one of what characteristics would each of us say would be attributed to a "good" person. After all, each of our businesses is based on each of our characters. We know the type of people we would want to be assoicated with, but it was not easy to actually list those attributes, especially for business purposes.I suggested we create a private forum further persue TAC and one of the people involved created a private forum chat room at his site where one needed to use a password to enter. I didn't want some of our ideas to be stolen by others (one or two were). I'll see if the forum is still there. The comments made there were old, and an extension of serveral discussions we started on the RO site, but the basic premise is at that forum. If so, I'll email you with the URL, instructions and password.
*A novel idea Sonny and one with alot of merit. Too many of our builder organizations are giving the customer a false sense of hope. To merely "buy" a sticker from the local HBA does nothing to make a reliable contractor. Experience has shown me several times that titles and associations can be misleading. Number of starts and volume of business does not necessarily mean good or exceptional.I work strictly on referrals and these come from several sources. Former customers are a big part. However, I certainly could have fooled them. Suppliers are still another source. A little harder to fool them, but maybe they are thinking it will mean more sales. Building inspectors would seem to be a safe bet, till you read about or even run into those that have that little replacement window operation on the side and "I could steer you to a cpl. jobs". Other trades will refer me, but again, it could be just a "thanks" for my using them before. I don't know where I'm going with this, but can you see what I might be saying. Even with these personal referrals, I could still be a bozo with absolutely no anything including character. Still, working on the referral basis has given me at least a foot in the door. What I do after I get in the door is my own problem. It does make a big difference that I'm not a name out of the yellow pages or a business card from the supermarket bb. I carry around a cpl. of letters of satisfaction written by some customers that really meant a lot to me. They attest to my work ethic, quality of product and my character. And as you suggest, that part of me that stands above others that do the same job on occasion has gotten me the work even tho my price was higher. Some will pay more to know they are getting more. I will be here tomorrow. I will not have gone out of business, and be back with another name. I will not destroy their rose bushes or lose their cat. I will show up everyday till it's done. Outside of the Job, all this other stuff to me is the character part.Sorry for the ramble, but it was early and the coffee was hot and reading your post about the association really got me thinking. Nice talking to you.
*Mike and Sonny; thanks for the responses. I've been considering all you have to say. I am definitely trying to make that transition to a real, sustainable business; lots of growing pains involved, and it's hard in the fairly early stages of a business to get some perspective.In my case, I am largely shop based, and cabinetry is pretty heavy on the design/drawing end. Also, sourcing the material I need takes a large amount of time, as I live on a fairly remote island, and all the specialty material has to come from away, sometimes from a long way away. So a big part of my overhead goes to heating, renting, and lighting a shop I may not even go into some days, while I'm doing the other stuff, and I would ideally like to have production people helping with that burden. At this point, when I have the work, I have one guy with me as much as possible, (and occassionally a third), but he is basically an apprentice, and the only way in this area I am going to end up with the 2-3 trained guys it seems to me I'm going to need is to train them. That training is pretty much an overhead expense in itself. The other complication in my case is the economy is very down here, and although I am growing slowly (in fact I'm ahead of where I thought I would be, and way ahead of what people told me I could expect when I moved here), I'm still getting established and sales is the big constraint to committing to employees and building a team of guys who know what they are doing. Anyway, I've benefitted from a lot of info available on other forums related to my specialty, but there is a lot of common sense, good advice here. I appreciate all of it. And I like Sonny's idea of an association; any attempts at professionalising the industry is okay by me.
*The TAC sounds like a wonderful idea. Too bad it isn't already up and running.I have a gut feeling that most contractors are getting tired of being associated with the same ol' groups. These groups used to mean something, and actually carried some clout for its members. Nowadays, these groups have no purpose, or their purpose gets lost in the politics of large organizations. They do not seem to help the business owners much, don't do much to allay the fears of potential clients, and they cost a fortune to be associated with (dues). I can understand the lack of interest in TAC though. It seems like a secretive organization that only the few elite "friends" can be involved in. Gotta have a secret web address to talk about it? Gotta have a password to get involved in the discussions and see what it's all about? How would your membership benefit a member 1,000 miles away? Questions like these will most definitely pop up. Contractors (ESPECIALLY the good ones) are reluctant about organizational memberships. I would be most interested in a group that represents the character, honesty, integrity, and professionalism of our industry. All I know about TAC is what I've read here today. Just a thought...James DuHamel
*I and another, are resurrecting the TAC concept, probably with a handfull of the original interested owners. Looks like it may in up being a "licensing" agreement between it's members. The agreement would be a standardized system of operation which would benefit all involved, and of course benefit us via increased profits and the availability to tap each others expertise. There is a lot involved and once we get the discussions going again I'll notify whomever is interested. Just email me with your interest and I'll add you name(s) to the list for the discussion forum site. As to the licensing arrangement, it would be similar to the "Better Homes & Gardens" name when used with real estate local realtors. The key is to market the hell out of the TAC name and what it stands for, and make sure our members maintain the exceptional business standards agreed upon.
*This thread is a great example of how powerful and rewarding this forum can be. Sonny's advise and insights on running a business are more helpful and important than ten college educations. I've been a carpenter for over 22 years, a business owner for 18 years, but a good businessman for probably only the last 6 or 7 years. For years, providing quality workmanship, great service, and keeping the business afloat were all I strived for. I get a lot more satisfaction today from providing not only top notch products and services, but also from running an efficient company and making nice profits. For the business owner wanting to increase revenues and profits, my advice is to reduce the time in the field and spend more time in the office. The TAC concept sounds like a winner. I agree its success would depend on heavy advertising and promotion. I would love to learn more about it and would be honored to be considered for membership. Other organizations alluded to here, (possibly the NAHB?)don't exist to give any particular member credibility. I belong to those orginizations to help better the image of the industry and not to better my own image. When legislation, rules, regulations, tarrifs, ect..., are passed that restict us and make it more difficult to run our businesses, we all should be concerned. The NAHB does a great job for our industry and everyone benifits from their work. My dues are only $450. per year. The money I have saved on the costs of running a business from efforts of the NAHB has more than paid my dues for life. Joining this group was the first step I made 7 years ago toward becoming a good businessman.
*Sonny:Can you tell me more about the Proof system? Or at least where to get information on it. ThanksDave
*
OK, I spent a few hours goin' back through my financial records of the past few years, tryin' to determine just what my "overhead" really costs.
Here are the monthly categories I came up with, in no particular order;
1. insurance
2. business license and performance bond
3. electricity for shop and office (% of house in my case)
4. taxes on shop and office
5. vehicle expenses (either mileage or actual expenses)
6. tool allowance (averaged over 4 years)
7. 4hrs labor per week bidding/billing
8. education (books, magazines, seminars, trade shows)
What did I miss? What else do you consider "overhead"? Thanks - jb