I am a retired Industrial Tech teacher. I taught for 28.5 years and worked my own construction gig during the summers for 27 years. The construction thing started by accident when another teacher asked me if I could build her a deck. I have been doing custom decks, gazebos, screened porches, and finishing basements ever since. Since this was a part time business and all of our work came from friends, co-workers, or word of mouth referals, it was loosley organized. Two other retired teachers and I are now wanting to do this on a “more” full time basis and need to get organized. We are taking some classes on starting your own small business, developing a business plan, etc. We are discussing setting up a partnership, but I am not sure how we should distribute the profit. One of my co-workers has worked with me for about 13 years and the other for 4 years. Both are primarily carpenters (one obviously has 3 times the experience) who show up and put in a good days work, but neither share any of the other responsibilities. I do all of the designing, bidding, contract work, ordering/picking up materials, call-backs, and serve as lead carpenter. I think I have been too generous in the past since this was always a part time venture. Now I am finding myself still working after hours and on our days “off” getting ready for the next job. I want to make sure that what we set up will be fair. Any suggestions on a fair distribution of the profits? Thanks in advance for your time.
Discussion Forum
Discussion Forum
Up Next
Video Shorts
Featured Story
This compact detatched accessory dwelling has an efficient layout with a vaulted ceiling that enhances the sense of space.
Featured Video
Highlights
"I have learned so much thanks to the searchable articles on the FHB website. I can confidently say that I expect to be a life-long subscriber." - M.K.
Replies
couple of questions.
Are u seperating salary from profits? IMO the company makes the profit, u each collect a salary before the company profit.
why aren't they sharing in all the other things that need to be done if this is a partnership. sounds like u are in for problems if u don't all decide on how all the work will be divided.
bobl Volo Non Voleo
Sounds like you're the "owner" and they're "employees", based on them "putting in a full day's work", and you running around taking care of the business.
As was already stated, you need to separate "salary" from "profit", and you need to include both in your pricing. If the other two aren't willing to help out beyond actual labor, why give them a piece of the ownership of the company? Let them be employees. If they are willing to take on more, then you need to establish salaries or hour rates for everyone, and then come up with a profit distribution plan for whatever's left after wages are paid.
Bob
Profit = earnings – expenses
Expenses = materials + wages & salaries + taxes + insurance + depreciation + other things like fuel for the truck, payments on the truck, new or replacement tools, etc (talk to your accountant for the fine details)
A company's Profit would usually be split into two parts Retained Earnings and Dividends. The company's owners decide how much of the profit is retained and how much is distributed as a Dividend.
Dividends are always distributed in proportion to the percentage of the company owned by the recipient. You should have a partnership agreement to establish the proportion of the company owned by each of your partners. Things you could "value" when doing this are: equipment brought into the company by each partner; the dollar contribution each partner makes to establish the company; useful skills brought in by each partner; the client base associated with each of the partners. In your case, it sounds as though you are bringing in critical skills in the area of project management, estimating, and sales.
Retained earnings are used to expand the capital base or build the company. The capital base would normally include large items like the truck, large (read expensive) tools, office equipment, and the like.
Hope this helps
Ian
here's a simply way my electrician partners up with another electrician....
Both are fully licensed ...insured....all that....
Both are primarily in biz for themselves...
So if who ever's job it is ....Bob or John ....they both work it ...but if it's Bob's job then John's the hired sub ..and if it's John's job then Bob's the hired sub.
Each has their own share of contacts. For jobs that overlap ..where the GC knows both of them ....they just split everything down the middle..and divide up the work as much as possible. Since both are fully competent .....they both know what's needed.
One wouldn't whine if the other said he had to spend the day shopping for materials so U go start doing the layout .....
This way ..the owner of the job get's the profit ..as well as the risk. Job goes south ....the "helper" still get's paid the agreed upon price. They agree on a scope and price up front ..then take and split the change orders as they come ....if one's doing the lighting and one's doing the repepticals ....if the HO wants to double the rep's ....that's a change order directly thru them ....all the HO see's might be a different name on the c/o invoice. I haven't hear them say it causes much confusion.
Your situation souldn;t like you are being taken advantage of ....either split/combine as pro's all around .....or hire them as employees. They should understand ..if not ..they're not ready to be partners anyway.
Jeff
Buck Construction Pittsburgh,PA
Fine Carpentery.....While U Waite
I have been involved in a partnership for almost 25 years. Over that time we have had five different partners and now have three. Though we all have our individual strengths, we also share completely the responsibilities of running the business. If you are not doing this with your partners, you should look at another form of business. A partnership is based on trust and nothing undermines that trust more than the feeling that someone is not pulling their weight. If you feel this now before you have even started, there is no chance that this feeling will go away in time. Good luck in whatever you do.
Seems to me the first thing you all have to do is agree upon the division of responsibities. I strongly recommend buying "The E-Myth Contractors" by Michael Gerber for all three of you to read.
http://www.amazon.com/exec/obidos/ASIN/0060938463/qid=1064543586/sr=2-2/ref=sr_2_2/002-8911856-5107221
Another excellent book is "Mastering The Business of Remodeling" by Linda Case and Victoria Downing."
http://www.remodelersadvantage.com/
here's some numbers for you to consider from my own experience:
30+ yrs= length of friendship down toilet
11 yrs= business in operation
7 yrs= before business became reasonably successful
1 yr= time it took after business became successful for partner to become totally worthless and only want half the money, not half of all the work that came with it
3 yrs= time it took my lawyers to get rid of him after he agreed to be bought out
x = amount of money i offered to buy him out originally
one seventh of x = what he ended up getting after my attorney explained that if he thought i was a tough business partner, wait until i was his landlord (he had done a few things that had left him, shall we say, legally "exposed")
$80,000= money spent on legal bills + lost income, sleep, time, brain damage, etc
the moral of the story- choose your partners verrrrrrrry carefully. imho, do not EVER go into business with anyone who has a history of substance abuse- no matter how long in the past. those problems can manifest themselves in many other ways for many years to come.
the somewhat happy ending?
6x = what i am currently negotiating to sell the business for. bwahahaaaaaaaaaaa!
do the math.
m