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Over the past couple years we’ve discussed a lot. But we’ve never really defined just what a business is. Often it is pretty obvious the Poster doesn’t have the mind set of business. The Poster is still thinking in terms of being whatever kind of tradesman he currently is.
Likewise, some folks look like they are living off other income and just doing building as a hobby, although they don’t realize it. They are much like the mid-western US “farmers” who have full time jobs doing something else, or their spouses do, and they farm on the rest of their time. The farm is really a hobby that occasionaly actually provides a profit.
These are just a couple examples to get things going. I’m interested in your definitions. After all if you can’t define it how do you do it?
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Replies
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I prefer to think of it as a "lifestyle", farming, that is. I am one of four sons who are all full time employees who all return to the farm on most weekends to farm. It is the lifestyle of the farm that pulls us back. The enjoyment of the work and sweat and the chance to play with really big toys. Our father is 72 and still refuses to retire from his full-time job. We all invest our own money on equipment, supplies, tools, etc. And we all take turns on the big toys. Just the opinion of a weekend farmer.
Lefty
*My point is that for a lot of people, the lifestyle is what is important, not necessarily the money, glamor, etc. The idea of building and working with other builders is the key. The independence and risk/reward of creating things is a thing that is not available in very many professions. This is a dangerous perspective if not balanced by the reality of providing for a family. I believe it must be a balance of reality(profit driven), enjoyment, and challenge for a successful business. Too much in any one area can sour the experience. Just my opinion.Lefty
*fred.. i call myself a builder.. because a lot of consumers are confused about what they want to hire...but i'm really a contractor.. we write and execute contracts for building..in the early years i was confused about the business part, i came from heavy construction and in the winter we went into engineering and worked up the bids for the new projects coming out.. so i knew about overhead, production rates, and profit...but in the residential end.. all my competition were tradesmen.. and they primarily thought it was all about working for a wage.. anything more than that was ripping the customer off...so i was conflicted...joining the Rhode island Chapter of NAHB opened my eyes .... after the greed decade.. the '80's.. i finally figured out that there was no money in new construction and turned all of our efforts to remodeling...where we can get our price we need to deliver the level of quality our customers want...sure has been a long strange ride.. but one i'd do again...here's one...we all go to a lot of seminars... ever wonder if the people leading the seminars are really as successful as the intro says ? do they really have companies that can function without them ?....i mean some of these guys have been running seminars as long as i've been in business... some of 'em started when paul harvey was a pup....... i gotta wonder....
*Maybe those seminars ARE their business, and the construction stuff is a hobby of theirs?I treat my company like a business, and am in this for profit, not wages. I can make wages working for someone else, without worrying about the expenses, accounts, and the rest. Knowing the difference between profit and wages, and conducting BUSINESS so that your company refelects that is what it is all about.James DuHamel
*This is a good topic for me. I'm trying to run mine like a business. Profit...Hmmmm, When I started earlier this year I was doing it for wages. then Sonny took the time to explain alot of things to me and now I'm figuring in my overhead and such into my pricing. I would have shown a handsome profit this year if I hadn't been investing it into equipment but that's part of it too. now I'm at the point where I have the majority of what I need and will actually be able to start realizing my profit.
*Hey Steve!Nice to see you back on the boards.When I had a job my biggest bitch was that I was wearing out a $25,000 truck and that our company's gas allowance policy didn't benefit anyone who didn't live next door to the office.Now that I am self-employed and charging for overhead/profit I have a "company" truck and when I fill it up I smile knowing that my customers are paying for the fuel.Thomas
*Define "business".....That's a good point, FredB.I am in business. I offer services for money.But does that make me a businessman?The way I do it, yes. The way some do it, no. Even though they are offering services for money.I have one guy on the crew right now who has a general liablity insurance policy and invoices me every Wednesday for a check on Friday. I pay him straight time as a sub. No tax deductions, no company benefits (if you want what we offer "benefits").He thinks he's in business, but he's not. Granted that because he offers himself up for hire as a "one man operation" and he does have business insurance to some degree, he calls his own hours (nothing over 40 is OT because of this arangement BTW) and supplies his own tools, I can hire him legaling as a sub as far as the IRS and the Labor Board are concerned. I suppose he could be considered a businessman in the loosest sense of the word.Why, you may ask?In my opinion:He has no other emplyees other than himself. He has no DBA nor is he incorporated in this state as a business. He doesn't have a commercial bank account or credit of any kind listed in the name of his DBA (remember, he doesn't have one), and no physical shop or place of business other than his home address. He also has had no other clients but me for the last year and a half or so, and referes to work he does after leaving our jobs as "side work". He doesn't even make quarterly tax deposits on his income. No business cards, no printed invoices, no advertising of any kind.But this guy will swear up and down that he is in business.In the construction trades, the words "in business" are used way too often by people who really have no clue as to what a REAL business goes through each year. And although I meet all the criteria above, there are people who run BIG BUSINESS like insurance companies and manufacturing plants who would think I'm loosely using the words "in business" to explain my situation.I run a small business. I believe that any business with less than 50 employees is considered a small business. We have 18 right now. All our employees are W-2'd and covered under an accident policy written in the name of our business. We withold taxes, match the FICA, and make the deposits for them every week. I call the hours, I tell them when, where and how. I supply all the large equiptment and have a 3500 sqft shop for building cabinets and storage. I find the work and set the price. We are incorperated with the state and have a DBA listed with the city.I may not be Microsoft, but my stock is worth more than theirs per share right now, and no, it's not for sale.Ed.
*Hi Fred B & Internet friends,When I wrapped my head around the home improvement business it was long after I had been in the "business." Simply put, I worked for others untilgoing on my own.And during the transition from employee to sole proprieter I re entered the world of business anew.And there are no sweethearts in business. In fact,embarking into my own enterprise has been everything the thread says and more; business, hobby, trade andsurvival!I work out of my home. I have an office, garage and workshop but rarely do clients come here. Most business is conducted at their home. Having a store front or commercial space isn't necessary for my little entity. And rightly so as my image is based around lean and not mean, (ha ha). I'm pretty much of a residential re modeler and wear many hats during the course of a work day. Many of the tasks to complete a job are repetitious so I've devised a system or method or way of doing just about everything. You have to in order to turn a profit. And that's what defines me in the trade as a business man. Organization. Method. Alacrity.Now ole Ed in Dallas has a lot more on his plate than I do but I'll bet he and I aren't so different.I may even sound funny to him but if he were to watch me go about my business it wouldn't look strange at all. In fact, he may even say that's how we do it. Imagine that Ed!Take the line, leave the line or split the line..and if ya don't use yer head you'll use yer feet!Yours in the country, the "cranky yankee",Dan-O
*Hi, Ed- Please correct me if I'm wrong. You are, or should be, filing and providing a 1099 to your guy who works as a 'sub'. He is NOT your employee, and he IS actually in business for himself and as such should be reporting what you pay to him as income and paying taxes on it.........Sounds to me, from your description, that his ducks are not in a row as far as the IRS goes. Of course that doesn't jeopardize you- unless you're not filing the 1099.............Hey, I'm not a goody-goody or a tax agent- in fact having been self-employed for 25 years, IMHO I've been screwed my share by the IRS. Just wanted to know how YOU handle this situation? Thanks- Ken :o)
*Hey Ken,Yes, we have sent him a 1099 for 2001 already. His ducks may be off center, but my arn't.Having thought about it a bit more, I guess he is in business. He may not be following all the rules, but that's his problem and not mine. He follows just enough rules to keep me out of trouble.It seems to me that the words "in business" are a gray area. I guess it depends on who is taking the risk.Ed.
*I'm self-employed! Not to say that I don't run things like a "business".Like a Dentist, MD or Lawyer with his/her own office, if I don't show up to work, the business does not make money. To me, a "business" can continue operations for extended periods without the presence of it's owner.Scott R.
*Great input!To me it has always been very helpful to define terms. The process of arriving at a definition many times is all that is necessary to answer the question.On this Board many times we have talked about someone being in "business" when what they were really doing was selling their services without being on the payroll. Or, like the lifestyle farmer above they were really in a hobby that they used to define who they are. Nothing wrong with either; they just aren't being in business.By the way, my understanding is that you don't need to issue 1099s on money you spend with another business. That you do is one indication the other guy isn't really a business.Back to what is a business and what isn't: Just for a flyer:A business is when someone is selling a good or service for profit. There may be other benefits to someone. But the primary motive is profit. They leverage their own and other people's labor to maximize that profit. They may provide some, or all of the technical expertise. But if they use only their own labor they must be able to achieve a mental separation between technical production and operating the business. In other words they are wearing two clearly defined hats.Other definitions? Definitions for the other terms?
*I think that full time farmers thinking of themselves as being in a "lifestyle" are the ones who are likely to fail. Farming must be thought of as a business, just like any other business.
*There's an excellent thread on the JLC board about this topic. Although it's been discussed a million times on sites, this one seems truly original: http://www.jlconline.com/cgi-bin/jlconline.storefront/3c711031001a25e4271a401e1d2905de/Catalog/1142?read=4781
*All I can add (little at that) is about a friend of a friend's out of state farm. I didn't pay strict attention, so I may have this wrong. They got their farm mostly because she keeps horses for pleasure riding. Her mom had passed recently, and they bought a barn with the inheritance. The farm house and 30+ acres just happened to come with the barn, to their thinking. That was 4? years ago. They have since gotten some cows, sheep, chickens, ??? what else. I found out over the weekend that they "registered as a working farm", or something to that effect. I guess that there's some tax benefits to be had by being a working farm vs. a "hobby" farm. To qualify for the benefits they have to show a profit once every seven years. Another friend then piped up with "That's BS, there's a ton of farms around here that haven't shown profit in 20 years..."The conversation ended with advice to talk to accountant/lawyer to determine the right avenue. It reminded me a lot about how some of these threads go. Anyway, I hope that might explain a bit about all the people who farm, but don't FARM. My friends are really doing this for their hobby, and they'd probably be the first to admit it. But, I could see some people doing it at least in part to take advantage of some tax loopholes.
*http://www.jlconline.com/cgi-bin/jlconline.storefront/3c71b82300ae0f94271a401e1d290640/Catalog/1142?read=4781Fred, what Peter Bush posted on the JLC forum is about the initial question you asked in the title of this thread., I think you'll enjoy it.
*What is it about JLC that just rubs me the wrong way?Is it just me?Ed.
*Ed,i Is it just me? Nope. Me too.James DuHamel
*> Business, Hobby, Trade, or Worker Survival?You forgot school. That's what the past few years have really been for me. Learning how to do the work, learning how to price the work, etc. After a few years of that, now I am ready to go into business: incorporate, hire employees, charge enough to pay them, pay me, and then have profits.Rich Beckman
*FredB,Good thread, as always you keep on the main point. A business is about profit.The problem is there are so many "wage earners" that we, or at least I, are having to remind folks of our primary purpose.........to make a profit.Sometimes I offer a price and you can see the wheels turning and calculating. Time to go. Many people resent the desire of a businessman who offers services of a trade to create profit rather than simply a "good wage".Thanks again for the idea......"Well, his price is cheaper because he's really not in business".Off to south of the border for a week.......and the ability to enjoy that didn't come from earning a wage!
*Thanks Sonny. I hadn't been over there is quite awhile.While the post is interesting in a pretentiously academic kind of way it totally misses the point as far as I'm concerned. He strains at knats to differentiate between kinds of business and misses the main thrust.To return to this thread; we've all seen examples of that I'm talking about. I'm sorry I used the hobby farmer as an example because it got us diverted from the real meat of what a business is about.Worker Survival: This is the guy who is doing construction(mainly framing or dirtwork) because it is easy to get into, he needs the money bad, he really doesn't have any talents beyond the hammer and pay him minimum wage or top dollar he is still broke just before payday.Trade: This is the guy who is really good at what he does. I mean when this guy frames or finishes or roughs in wiring it is a thing of beauty. Not only does it look good; it is good. But, he hasn't the foggiest idea how to leverage financing, other people's labor, etc. Can't supervise more than one or two othe people. As for seeing the need for a business plan, let alone writing one, well forget it.Hobby: You know this guy. He is the one who is always building something, maybe even is a GC. But he just can't somehow be bothered to learn how to handle the grunge work. You know the work like accounting, supervision, creative financing, studying the market, etc. So, for him this is always a hobby. Lots of these guys have working wives who, when the tax return is filed, acutally provide most of the spendable income. Some of these folks have the biggest trucks and fanciest tools in town. But they still have a hobby mindset.Business: This guy studys constantly. He has learned that learning never stops. He has put in the effort to learn accounting, business law and all the other things that let him run his operation with profit and good service in mind. He has learned that a fine home is the one that matches the customers ideas and budget, not his. He leverages other people's labor and money to his best advantage. He may make mistakes, and even lose his shirt. But he if he does, it is because humans make mistakes; not because he was stupid, ignorant or lazy. In short, he has a mindset that running a business is a separate thing from being good with the tools.
*Wow! Was that l-o-n-g! Hope I didn't set a new record! Sorry.
*Fred- I've seen 'em a whole lot longer than that! .......What a great post- a very good description of each, and a flair for good writing. Thanks! -Ken
*Anyone not working for wages is in business. It might be bad business, but it's business.The IRS has funny ways of classifying wage earners and business earners. I'm quite positive that the sub that Ed uses would not pass muster with the IRS. I'm quite sure that the IRS could require Ed to make up all taxes not paid, including late fees and interest.If you don't believe me, call your attorney that specializes in tax law and ask him.If I really cared to know, I'd call mine. I don't care to know, because I won't hire a guy on a 1099 for extended periods of time.blue
*Fred-Thanks for a thoughtful thread."In short, he has a mindset that running a business is a separate thing from being good with the tools. "I think that this sums it up. All of the successful folks that I know in the construction business understand this. They may be weak in many of the areas that are covered in our discussions here, they may have started out as simple tradesmen who were good at what they did, they may still take pride in a small job done well, but they do know that they are running a business and that part of the work is vital to putting bread on the table for them and their employees.Most of us find ourselves in the slot between trades and business partly because we like it that way and partly because we don't know how to change. Thanks to everyone on this board for working to eliminate this second reason.
*Blue,Everything we do is on the up and up, and yes, I did check it out. The general liability policy that this guy carries is the key to him being a self employeed person.I too worried about the length of time he has worked for us. But we just have that much work going on. I'm greatful to have him. Is it a crime to keep his business that busy? I don't think so. I wouldn't put all my eggs in one basket, but I'm glad he does. I know a mill man here who was kept busy full time by one builder for over two years on a 50,000 sqft house. Did the length of time make him the builders employee? Or was it just good business on the mill mans part. It's hard to turn down that much work.Ed.
*I agree, if its a full time farm, it must be run as a business. In our case, we are weekend farmers. Its an escape. We work in other professions, mostly engineering in the manufacturing end of things, and the farm is an escape to a place to do something productive. Like was stated here somewhere, its a hobby. But more than the hobby aspect, the lifestyle of growing crops, building barns, sheds, garages, etc. and raising livestock is a lot more enjoyable than a part time hobby. This is off the building trades topic but the lifestyle of the hobby is more important than the hobby itself to me. Just the opinion of a full time lurker, part time contributor.Lefty
*Lefty:Thanks. You obviously have a clear idea of what you are about. Plus, you have helped others figure it out for themselves.Lots of times people run their business for profit but they really aren't having that awfully much fun. Plus, it isn't really "them". So to have fun and; as Maslow says, "Self-actualization"; they have a really fun hobby. Good on ya! You figured it out and are living your life.
*This may be of some interest re: a sub vs an employee, it is from a site irs.gov Home > Businesses Small Business/Self-Employed Independent Contractor or Employee The tax law covering independent contractors is very complicated. Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty.Who is An Independent Contractor?A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor and not the means and methods of accomplishing the result.Example One:Steven Smith wrote a screenplay that has been acquired to make a movie. He sold it to XYZ Film Productions to make a film. The work he's done has been completed independent of the motion picture production with no instructions from XYZ. Steve is considered to be an independent contractor. He is required to pay Federal and state taxes, and receives no benefits from XYZ Film Productions. XYZ will file a Form 1099-MISC (PDF).Example Two:Photographers' models who worked through booking agents, had no continuing relationship with any particular photographer, charged hourly rates, typically furnished their own make-up and wardrobe, and "used their own initiative, ability, and experience in interpreting the roles assigned to them," are not employees of the photographers, despite taking directions, etc., from them.Who is An Employee?A general rule is that anyone who performs services for you is your employee if you can control what will be done and how it will be done.Example One:Jack Jones, a staff writer for XYZ Film Productions has been instructed to perform modifications to the screenplay that has been acquired from Steven Smith. Because Jack Jones is receiving direction from XYZ Film Productions, he is an employee. Jack also receives benefits from XYZ. XYZ is required to file a W-2 for Jack Jones.Example Two:An actor or actress who provides his or her own costume, delivers a few lines from a script, and took technical instructions from the producer is considered an employee; an announcer who took technical instruction from the producer and advice from the client is also an employee.Example Three:Models who performed services under the agency's name, were not permitted to do free lance modeling, were graduates of the agency's modeling school, and in general functioned only through the agency, are employees of the agency.For additional information on how to determine whether an individual providing services is an independent contractor or an employee, see Publication 15-A, Employer's Supplemental Tax Guide (PDF).Still Not Sure?Employers and workers may file Form SS-8 (PDF) to request a determination of the status of a worker for purposes of Federal employment taxes and income tax withholding.If you need the IRS to determine whether a worker (or class of workers) is an employee, file Form SS-8. This process takes approximately 120 days.ED, yours would be an interesting case - probably depends upon how much is in it for the IRS. Personally, I won't care for the obligation of making up the FICA, penalties, interest, etc, etc. to the IRS. MDF_USER
*"more than the hobby aspect, the lifestyle..." Totally agree with this statement. Seldom (if ever) post in Bus. section, but there must be a hereditary thread to the hobby aspect also - Great grandfathers, grandfathers, father, brothers, most paternal cousins, etc. have built or totally remodeled at least one house. As to a business tie in, I figure the house I built 30 years ago has netted me $20K a year "off the books" in avoided mortgage, etc. for each of those 30 years at today's $$ value. A profitable "business hobby" was also logging, the reforestation writeoffs of the '80's paid for 2 JD crawlers. My admiration to those of you who can manage a large group of people AND associated BS paperwork. That's one of the skills not passed to me hereditarily, and many of us are to lazy to learn that type of skill. I don't recall the source of the quote (could be Marx), but "the only source of enormous individual wealth is the labor of others"
*FredBI really enjoyed your definitions and had never thought about business quite this way, Thanks.I fall into several of the categories you describe. I am consumed with the idea of being a craftsman, and this is only exceeded by my desire to be a good businessman. I'm glad I don't have to chose one over the other. My current struggle in business is with expansion. I've been in business 20 years and can easily ride out my current work log to an early retirement. This holds obvious appeal, but I'm also in a position to expand safely and create a business which outlives me. The second option is being advocated by all of my past and current clients because of the benefit they receive from my services. The second option also holds some allure for me. Can I do it? Why? My biggest desire comes from wondering if I can. Knowing the satisfaction I feel from my current position makes me wonder what it would feel like. Does this sound like a businessman to you?Terry
*I have been remodeling homes for a couple of years. Although I have a GC license, I have only worked for myself - fixing up homes that I have purchased personally. I have recently agreed to act as a GC for a colleague of mine, but don't have a clue what is typically charged for such a service. Does anyone know of any good resources that outline how to set up contracts, pricing, etc.? Personal experience would be more than welcome.
*A Businessman knows that the customer is right and will do whatever it takes to satisfy him and make a profit doing it.A Tradesman knows that the job is right and does whatever he can to perform the job well so that the product does what it is supposed to do. People are glad to reward him for this and seek out his services.An employee thinks that the paycheck is right and does the minimum work needed to get his at the end of the week.A hobbyist loves what he does, who needs a paycheck?
*Done good Piffin.We all know down deep somewhere the difference between these. The value of this thread is bringing that up to the surface where we can use the knowledge to keep us on track. Your definitions definitely do that.
*Well, shucks......thanks, by golly!
*Piffin,I don't think you can group all employees into that mind set. That's not really true in some company's, although it is (sad but true) in many, many cases.Most all of the employees that work with us know that how they do the job and how much time it takes are paramount to all of us staying in business. Perhaps it's because they know that they ARE the business. Not just me. Without them doing their best, none of us have a chance.Not all "employees" are slackers.Ed.
*Ed,Just general rules of thumb so lets not get too technical. grouping is general. Definitions might be more specific. If I were to belabour the point, I would argue that your men are tradesmen who happen to be working for wages and that the IRS forces them to be defined as employees. I Didn't really meaqn to create a standard of measurement with it but to explain attitudes. By attitude, your men are tradesmen and it is only the IRS that cares whether they are worked as subs or as employees.Another way of looking at it is one of progression. I might look back through my own life similarily. Compare to the old guild systems.The employee would be like the apprentice.The tradesman would be like the journeyman.The Journeyman might graduate to businessman.
*Piffin,I like that much better. Most of the men that work with us are for sure "Journeymen". Knowing what I know about what we do, I would consider some of them "Master Carpenters", in my opinion, if I may be so bold to say so.However, they don't want to be businessmen. And some days, I envy them.Thanks.Ed.
*And some days, I envy them. AMEN to that!
*PiffinI don't want to belabor your original definitions, but I agree with Ed and even further, I believe that only an unhappy fool views his job as just a means to a paycheck. If he had a brain he'd realize the percentage of his life that he gives up for his work, and he'd try to maximize his efficiency by doing his best so he'd maximize his rate of pay. Sadly there are plenty of fools out there.My guys, unlike Ed's, are just apprentices, but they won't last with me if they adopt a dead end attitude. They want more, as we all should, and they see me as a means to that end, as I see them as my means to this end.Terry
*OK, I won't belabour it either
*Ya'll have a very good track on the intent of this thread. That is to stimulate everyone to define just what we are talking about. The first step in meeting a challenge or solving a problem is to define it in language you understand. I think everyone is doing that.
*Onward thru the fog...I AM a tradesman by nature.Responsibility is constantly placed on my shoulders which has forced me to learn the skills of a businessman/manager, one of which is how do I make money at this ...
*Piffin,Can you put into words what you do and how you make a living?How would you define your job and the process of how you make a profit?Ed.
*Later - it sounds like a long one coming up.Is your intrest in me - my philosophical approach to this. or mechanics of what I do to put money in the bank?More I think about it - the two are intertwined.
*My business is pretty simple.We are carpenters for hire. Remodeling and new interiors mostly.I charge more than I pay out.Simple.Ed.
*Ed, That interpretation of the business may be simple but not your performance. I'v eseen enough of your work to know you do above average. To be sure of always charging out more than you pay out means you have a supply of clients willing to pay proportionately. Those clients only come from having a reputation for good work. That rep only comes from consistently performing.One key to continuing client satisfaction is the word, VALUE. A client must percieve value in your work. How we get them to see it is open to lots of chapters of interpretation.
*Besides value, we service the hell of of 'em.Call, and we come running. It's the main advantage of having such a large crew. You tell me when to be there, and I will do the very best I can to make that happen.Ed.
*Ed: What you just said strikes a chord with what I have learned working with people. Get to them promptly, and if you cant, tell them so.
*Stan,I can't tell you how many people we work for who complain about this very thing. Why would anyone in a service business think they can put-off people or leave them hanging without a word?I hear complaints about it all the time concering other people who don't keep up with business.Yeah, sometimes we can't get to something when we want to, but I will ALWAYS be in contact with the client and let them know what's going on before the fact. Big job or small.It's just plain common courtesy. And it is such an important aspect of a people related business.If I have an appointment time with someone, and I'm gonna be a few minutes late, I'll call them and let them know I'm runing a little late.Come on people......wouldn't you want to know? Why wouldn't they? Don't call them AFTER you're late, call them before.Relate everything in your business with respect to as how YOU want to be treated and you'll do OK. Start blowing people off and you don't deserve to reap the rewards of being in business.Ed.
*"Relate everything in your business with respect to as how YOU want to be treated and you'll do OK. Start blowing people off and you don't deserve to reap the rewards of being in business."Amen Brother!