All,
The business folder has really been shakin’ the past month or so. I REALLY enjoy reading here, it is my favorite part of BT, and I am always disappointed when there is nothing going on here.
My business sucks and I am committed to changing it, or at least giving it a good try, before I take the advice of the wife and pack it in to do 40 a week with a boss. I haven’t had a regular job in at least 10 or 15 years. It’s NOT something I want to do.
My nose is in Gerstel’s Running a Successful Construction Company. I have a couple of questions, and thought I would solicit your feedback.
Gerstel recommends a working capital fund. Good so far.
Where do you keep yours, and what percentage of your gross sales do you maintain it at?
He’s light on tax talk. I know this is a question to put before my accountant, but I’m gonna ask anyway.
How do you figure what portion of your gross sales to put aside for the purppose of paying your income taxes, and do you set it aside from your general fund? I’m expecting answers all over the board on this one, because the amount has so much to do with one operating costs, and I think that is going to vary greatly from one co. to another.
Going back to the first question. For all practical purposes, assume I am basically broke. I have gl, license, tools, equipment, and office, a list of 100 or so past clients and a very soft schedule currently.
Give me one or two solid peices of advice as to what you would do in my situation in an effort to revive and redefine your company.
Thanks,
Eric
Replies
Eric,
Do you have any good connections with any local Real Estate people? Around this part I know of many who get large amounts of work by having ties to the local Real Estate Cos. Quick EZ jobs that pay well.
Something about networking your biz & self goes a long way. Maybe drop a line in some format to the 100 past customers & see what happens.
When I was slow I would go to the local building dept & see who was pulling permits & make some cold calls to line up work. Scored many a trim job by making the cold call.
Maybe drop a line in some format to the 100 past customers & see what happens.
Thanks Glenn,
That's in process. I usually do postcards, and I get a few good leads and or jobs out of that.
Networking is something I do need to work on. Thanks for reminding me.
To clarify my point more for others, I have structural problems that need fixing, so I'm looking for some sage advice.
btw, I saw that pic of skier boy! Very nice out there, WOW!
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
Like Bob Barker says on the Price is Right," Come On Down!' You got my address!
We have been soft for the last 2 months and recently have had a surge.
But I assume you are saying that you have not had the business levels you would like all along. Advertise. Network. Market. Without a continual flow of new customers it is difficult to build up your referals. And almost impossible to agressivly raise your rates.
I keep 10k in the bank 90% of the time. I consider it the minimum. It will dip below occasionally but only till a bigger job is finished. I would like 20.
I don't do the tax thing etc because I hate book work. I have an accountant as I believe if you have a weak area then hire it done. My accountant does the payroll and sends me quarterly notices of tax payments. DanT
keep 10k in the bank 90% of the time.
That sounds reasonable.
Let me ask you this though.
If you were dying to save money to purchase a house, and had no health insurance, how would you justify or change that if you would?
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
Eric,
First lemme say that I respect you for being forthright about your business and wanting to have feedback in improving it. My own business is taking freaking forever to get moving since we relocated, and it makes me insane some times, but that's another story.
The tax question is an easy one--have two company checking accounts, one for general operations and one tax account. Checks from customers are deposited into the general account. Payments to suppliers and subs are made from that account. I'm an employee of my own corporation so if I want money, I have to write myself a paycheck, also from that account. Withholding, FICA contributions, unenjoyment insurance, and workers comp amounts are transferred into the tax account and those amounts are paid out as the returns and payments become due. There is very little guesswork about your tax liability if you do it this way.
I think the good marketers are the guys who pound the pavement. I read in amazement some of the guys who do cold calls and walk into realtors offices to sell their work. Wish I had big ones like that...
My wishes and personal goals have nothing to do with how much base I carry in my business. In my mind my business is its own entity or own person. It needs a base of money to operate. With out that base I can't comfortably take on a job that requires a little extra capital or get through a slow month without panic. In my mind when panic sets in you start taking jobs that are price wrong, wrong type etc. and that is when the spiral down starts.
Frankly I don't know how guys that pay for there own health insurance do it. In my area for a decent family policy with no special issues you are talking 6-800 a month which means you would have to do about 2k in business every month just to cover that. My wife carries our health insurance. And her income allows me ride out the ups and downs without penalty.
While I enjoy the independence of my own business and like the freedom of movement the fact is I made more money working for someone else. But I am to the point in life money isn't the only factor for me. The way I got my bank account built up was I worked my business in the afternoons and weekends and worked a job during the day. I took no money out of my business for personal needs for the first 18 months. Tough at times but it allowed me to build a base. I also put a couple of cd's together for a financial cushion in case I couldn't pay myself. Still have them I am glad to say. Hope this helps. DanT
eric.. for years i operated with no working capital.. it was never a problem. it was damned uncomfortable though...
but still .. my working capital is not for my business.. it's there as a cushion..
i work for people who own things.. so do you.. anything that we do for our customers becomes a part of thier asset...
so i do not knowingly invest my money in their assets.. in other words , when i go to work on their house, we're using their money , not mine
as to taxes.. have you incorporated yet ? are you on the payroll ?
do you have a payroll service ?
if you are chapter S and you pay yourself and your employees thru a payroll service... all of your taxes are already withheld.. the only taxes you will have to come up with at the end of the year are any profits that your corporation makes which will become part of your normal income..
a much smaller nut to handle
have you read E-Myth Contractor.. and Rich Dan , Poor Dad yetMike Smith Rhode Island : Design / Build / Repair / Restore
Thanks Mike,
I here you about the uncomfortable. I was originally gonna ask if a knowlegdeable, well equipped tradesperson could go into bus. with no working capital. I think you answered that question.
I never, or should I say rarely invest my money in a project. Perhaps the only time it happens on a short term basis is when something changes in the scope, and in an effort to keep things moving, I will invest my labor or a small amount of materials in the project knowing that I havn't been paid for them yet.
I always get $ upfront and progress. Sometimes I may be a little behind, but it's never been a real problem. I'm also very careful to keep finals as small as possible. I don't do walk throughs or punch lists, I do turn key.
Not incorporated, sole proprieter. That's where the tax problem began, but that's a whole other story. That I am learning more, I can't think of a worse way to set up a business. To much room for problems, finiancially mostly.
Sole Prop makes it too easy to look at the profit as all mine and forget that you have a partner, esp. when things are tight.
Right now my son work with me. I took him on a couple/3 years ago, so I could keep him close to me. That is a whole other issue as well. He's not on a payroll.I know, shoot me! Hadn't planned on him sticking around, but it's better than dodgeing bullets in the desert.
Both books are on the list I keep. I'm in Gerstel right now. I'm pretty much shot right now. I have the bones of what could be a decent company, it lacks structure and discipline. I'm at a point where it feels like it is going to be more difficult to fix what I have than to start all over, but I realize that makes little sense.
If I can't fix this thing, I'm stuck with having to work for someone. I have in the past and I never liked it. I think a lot of that had to do with the personalities and ethics of the people I worked for.
Thanks again,
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
if you read Rich Dad , Poor Dad.. you'll never work for someone else... unless it's temporary
believe me.. i've been in the trouble with taxes bed... it ain't no bed of roses..
incorporating and the payroll service.. and a change of mindset.. changed all of thatMike Smith Rhode Island : Design / Build / Repair / Restore
Not to nit pick Mike, but just so no one makes a dangerous mistake, you misspoke about payroll services in re: withholding taxes. They only pay the taxes IF you specifically include that in your services, and give them access to the funds to do so. All they are are essentially is a bookeeping service. In my former business, they gave me checks made out to the IRS, State Rev. Service etc and it was my responsibility to submit them on time...
PaulB
paul... yup . you can get a service like that .. but why bother?
i've got a full service payroll company
i used to spend hours doing payroll.. then more hours doing my estimated taxes.. then more hours filing my 941's...
now .. i pay about $19/ week for weekly payroll.... almost all my guys are on direct deposit.. the payroll company pays my payrol taxes.. they file all of my returns..
and for insurance audits... my payroll records are right up to snuff
i spend at least 60 seconds / week on payroll related items..
one fax to the payroll company with the hours on it.. and i'm done
lot's of guys have their wives do the payroll.. but i bet they can't get the records and service i do for $19 - $20 / weekMike Smith Rhode Island : Design / Build / Repair / Restore
Mike, I would agree that using a payroll service is one of the best ways that most small contractors can effectively spend money. I started out using Paychex yaars ago and would recommend it to everyone.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Sorry Mike, maybe I didn't make myself clear. My service did everything you're describing, except actually make the tax deposit. The only advantage for me was deciding exactly when to pay it. My only concern was that someone might think their taxes were paid when they may not be, but I'd never go it alone as far as doing payroll myself. Money well spent...
paul.. i got into trouble deciding when i was going to pay my withholding..
this way.. it's paid.. all i have to do is make sure the money is in my checking account...
how're things going . all moved out ?.
Mike Smith Rhode Island : Design / Build / Repair / Restore
Yuppp...all moved out Mike. Eric stopped by a day or so before the last day to pick up a compressor and can attest to the pandemonium. So, now my occupation is officially "Contractor" (God Help Me ;) )
Things are going reasonably well, I'm in the midst of a big (for me) project and trying to line up the next one. But it has been a huge adjustment. Knock on wood for me, my friend...
Yes there are diffent kind of services.There was one here a few years ago that did it all.Don't remember if they drafted out of the employor's acount or the emplyor sent them a check.But they did it all including filing and sending in the IRS payments.Except they wheren't.They kept all of the IRS money. And it took 2 or 3 years for the IRS to catch on and then go after the employors.A number of companies got hurt bad.
I would save 30% of your paycheck for taxes. Any monthly profit you have either spend it on a business expense or put 30% of that away as well. This is conservative but it's never a bad thing to end up with money left over after tax season. Open up an account at http://www.ingdirect.com to keep your savings.
Secondly, download the proof spreadsheet that Jerrald Hayes has on his site. Get comfortable with it and make sure you charge what you need to in order for all of your expenses to be covered.
Market yourself like crazy.
Jon Blakemore
55234.4 in reply to 55234.1
I would save 30% of your paycheck for taxes.
I need to argue that.
If I receive $10,000.00 for a job completed, only a portion of that is my profit and thus taxable.
Trying to get a handle on figuring that # out, I think I'm getting close.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
I can relate.
About a year and a half ago business turned soft for about a month (and I wasn't too busy this January). In August '03, two jobs I was counting on fell through (one after I had already worked for two days and the owner said, "Oh I can't pay for this."--since then I insist on a deposit) For two weeks I worked about halftime on odd jobs. I flipped out, I hadn't stashed enough cash to ever not have work (was used to always having work). I should have been marketing to ensure steady work but word of mouth had worked before. Should save an extra 3 months income too.
Now I make marketing stops anytime I finish work early. I drop off biz cards and a reference list and show my portfolio at real estate offices, insurance offices, banks, and mortgage companies. The reference list includes a current project (so people can stop by and see work in progress) and references from each of the past 4 months and highlights from the past 3 years. I was too cheap to pay $2000 for a booth at the home show, but I went and networked with businesses who complimented mine. Looks like I will get to bid on gazebos and arbors, etc. for a prominent landscape architect--so the show was a success. The landscape guy invited me to a Business Network Inc. (BNI) lunch where I networked some more and got two more referrals (one to build a $4000 doll house).
Now I'm going marketing crazy--New website, ServiceMagic, Overture and I'm pricing yard signs and signage for the work van (based on what I read here).
This is a good place to get advice and criticism. I don't really know what I'm doing--that has become obvious here as well. I've been taken down a notch or two here and been inspired too.
Two bits of advice.
1)Build up your working capital. You should have six months income (not revenue) stashed away, either saved in a liquid asset or as cash in your business. You should pay yourself less and keep the rest in the business, to be used for slow times and taxes. If you do this for five years, you will have saved enough for your working capital and you will have good financial habits to sustain you.
2)Figure out what you really like to do that people will pay you to do. You need both these elements to succeed, but you do need to figure out exactly what your business is. Then you can market the hell out of it and let everything else go. You will be focused on one set of activities which you will be known for, you can raise your quality and efficiency, lower your costs and raise your profits. It all starts with knowing what you want to do and the market to sell that service.
Develop a solid business plan and stick to it!
Market the hell out of your company. Don't just hand out business cards and stick signs in the ground. You are providing a service. Turn it into a product! Make a portfolio of your progress on your jobs. Compare the actual progress to the projected progress (goals). Show potential customers pictures of what you have done. Know what you do well in business and explain to them how it's valuable to their specific situation. Americans are great at buying TANGIBLE products, but we suck at buying INTANGIBLE services. A simple portfolio can differentiate you from your competition.
I keep 10 to 15 K in the checking account at all times. I never dip below 10. thats my baseline. If I have only 10 in there I consider myself basically broke.
As for withholding taxes I have the luxury of a wife with a good job. She withholds more than she should so I only have to send in a minimum quarterly. I find that strategy works out quite well because we dont miss the money from her checks and we only splurge when I make a good hit.
Have you developed a business plan, a marketing plan, and a cash-flow plan?
If not... you REALLY need to do so (if only to go through the process). developing these tools will give you a plan to control the buisiness... not the other way around.
See if you have a SCORE office near you. The help is free.. the advice is sage... and it will really help you to take control of your business.
If you do not have a SCORE office near you... then I highly recommend three programs (that all integrate with each other). Cash Plan Pro, Marketing Plan Pro, and Business Plan Pro (the central part of the suite of programs). These will walk you through the business, marketing and cash flow planning processes... and assist you in developing the model that you will follow to a successful business.
Whether it be through SCORE... or through the business planning process on puter... you must be honest and always looking for ways to adjust or improve what you are doing now.
The business plan (and marketing plan and cash flow plan) will act as a road-map. Much like a roadmap... if you stray too far off the roadway.. you will get lost. USE the plan... WORK the plan... and make that piece of paper have more wrinkles than your forehead.
there is an old saying to "plan your work... and work your plan". That saying is SOOOO true in so many ways.
Best of luck to ya in your journey.
Eric, you've already gotten some stellar advice. It's good that you are brave enough to ask for help.
If you are still struggling with the basics after 10 or 15 years as an independent it tells me two things. 1)your are resilient 2)you haven't done a lot of homework in the business knowledge department. Don't take that as a slam...most of us are like that. If I had gotten serious after only 10 years, I'd be a wealthy man...
Obviously you're not taking your tax consequences seriously enough. Once you start doing that, you'll stop undercharging.
How do I know your undercharging? Because you don't take you tax consequence seriously enough! So, instead of asking for the right amount of money, to pay all your expenses, you are using your family's income to subsidize your clients.
How's that been working so far?
I don't know about proof, score, or a lot of other things, but I do know when I'm going broke and you should too. If you can't buy health insurance, raise your rates $6 per hour. That will return you $840 per month if you work 140 hours.
Now, don't take this in a bad way, but you really have to stop babying your son. When I was 20, I was willing to work 80 hours a week. I was thrilled to death the first week that I ever grossed over $200! You're not doing your son any favors by paying him cash and effectively delaying his entry into the real world. Also, make sure you are paying him what he is worth. Don't overpay him. When he's good and ready to step up to the plate, he'll get serious about your trade/business or leave and get another job.
Lastly, if you are paying rent, you can afford a house. You really don't need any money for a downpayment on a house if you have some "special" knowledge. There are many ways to get a house with very little down using alternative financing methods. Most people think that the only way to buy a house is with conventional financing...10% down and a mortgage, but that is very wrong, there are many, many different ways.
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Please tell me more about this buying a house with no money down thing. Where do I go for this education or do I need to buy one of those late night info-mercial packages?How much of the no money down process relies on finding a seller willing to change their expectations of how they will get paid?F
Frankie, I'm sure those late night info packages would give you the info, but a 15 dollar book will also give you enough info too.
After you figure out what you need to do, you'll probably have to stumble through a couple dozen attempts, but in the end, if you really want to do it, it will happen.
Probably the most important thing you have to understand is that you won't be looking for a house, then attempting to do this kind of a deal, but rather you will be looking for a situation that has a "motivated" seller. Essentially, you are finding a motivated seller, then backing into the property. It's possible to do that in reverse, but you will have to look at a looooooooooooooooooooot of houses and piss off a loooooooooooooooooooot of people.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Thanks Blue,
I'm in a bit over my head to respond but I give it a quick shot.
You will not hurt my feelings with honesty. Thanks.
Still going after 25 years. I just turned 47. I do excellent work, and deliver to my clients exactly what I promise to.
Obviously you're not taking your tax consequences seriously enough. Once you start doing that, you'll stop undercharging.
How do I know your undercharging? Because you don't take you tax consequence seriously enough! So, instead of asking for the right amount of money, to pay all your expenses, you are using your family's income to subsidize your clients.
How's that been working so far?
hhmmmm, let me think about that one!
Ok, I'm done.
It's Not!!
About the kid, right on. It's a little complicated though, but becoming less so. I ain't doing him no favor at all. He should punch me in the nose.
The house thing is a work in progress.
With a tax lien (or 2) I can't be on the papers, just the wife. That's a personal issue, not sure if I need to do that now.
We qualified for a motgage, she just needs to trust me enough to select the right house based on my knowledge, NOT, Oh, that's a cute house!!
We ain't buying shoes honey.
Thanks Blue,
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
she just needs to trust me enough to select the right house based on my knowledge, NOT, Oh, that's a cute house!!
Do yourself a favor and let her pick the house. If she thinks it's cute, then other women will think it's cute. Most women pick their houses, even if the men think otherwise. IF you let her pick it, it probably will be easier to sell.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
You don't know my wife!!!
This has been an off an on again process.
Every single house that she has liked (every one!!) I balked at, guess what??
They all sat on the market, many are still there over a YEAR later!!!
I can drive by a house and almost instantly access the situation, combinig what I see, with what i have seen driving there.
Where we are looking, it quite to semi rural if you get what I mean.
I'm not tossing our money into something next to white trash next door and across the street that's still gonna be there in ten years dragging down the value of my home.
This is my area of expertise. Women make emotional purchases. Cute is NOT a reason to invest our hard earned money. I'm not spending the next two years investing my time fixing up cute.
I'll make something cute for the next buyer, that I get.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
Eric,
Here's an SS I made from IRS Sched C.
SamT
Thank you Sam.
Eric
I Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
"How do you figure what portion of your gross sales to put aside for the purppose of paying your income taxes, and do you set it aside from your general fund?"
NONE!
The business won't have any taxes. Whether you are sole propritor or LLC or sub-S corp you are taxed on your profits and/or salary.
You are working it backwards. When you bid or set your rates it should have been based on a certain salary and profits.
What those are in terms of the gross income will vary drastically from job to job.
So you should know what what the salary and profits are for THAT JOB. Then you can set aside a percentage of that amount.
Now 30% might be a good staring point. But with the deductions, progressive rates, and SE taxes I would start by using last years return and looking at the sch C profit (assuming S.P) and then the taxes. It will be a little more complicated if you wife also works.
good advice , bill... any sole prop who has been in business for a couple years can pretty much set up their books based on their Schedule C..
comparing the l previous three years will give you a pretty good picture of how you really ran your business Mike Smith Rhode Island : Design / Build / Repair / Restore