Replies

1. 
   Hooker | Dec 12, 2004 09:17am | #1

   Welcome Opie

   I'm gonna just jump right in because I was in the same situation.  I started 3 years ago.  I would suggest hanging on as long as possible if you can.  Build a nest egg to fall back on and use only for emergencies.

   The biggest mistake I made was to not have enough cash to float through the longer times.  I ended up taking more work and not being able to get anything done on time, thus prolonging payments.

   Be sure to stay commited to bookwork.  Write everything down, if only for later reference.  I think you'll be glad you did.

   One more thing, try not to overextend yourself, as it never works. 

   Try the search function for many other threads on the same topic.  Also, I hope others will chime in to provide more info.

   Good luck

   ADH Carpentry & Woodwork

   Quality, Craftsmanship, Detail

2. 
   blue_eyed_devil | Dec 12, 2004 02:28pm | #2

   Opie, good idea to ask questions before jumping in. So, Ill ask some.

   How much are you going to charge per hour for your companies services?

   blue

   Warning! Be cautious when taking any framing advice from me. Although I have a lifetime of framing experience, all of it is considered bottom of the barrel by Gabe. I am not to be counted amongst the worst of the worst. If you want real framing information...don't listen to me..just ask Gabe!

3. 
   SamT | Dec 12, 2004 05:01pm | #3

   Hey Opie,

   Welcome to Breaktime, you're gonna love it here.

   One word of warning though, WATCH OUT for that guy who calls himself Blue Eyed. . . ooops too late.

   Anyway, could you check your notes for me and see how many cubic feet of waste is generated when you demolish 12 linear feet of 9' nonbearing wall finished with stucco and DW with two 3-0/4-0 windows in it?

   And how many man hours it took respectively for site prep, demo, and cleanup?

   Just kiddin'.

   SamT

    

    

1. 
   SHG | Dec 12, 2004 05:24pm | #4

   Sam's not kidding.  And he's right.  Before you're ready to start a biz, you need to know how to run a biz, which involves not only getting the biz but knowing how to price it profitably, do it right and grow it.  Keep your day job until you're in a position to be able to eat from your new biz.  And don't spend all your profits on tools.

   And watch out for Blue. 

1. 
   dieselpig | Dec 12, 2004 05:48pm | #5

   And don't spend all your profits on tools.

   Uh oh.

1. 
   Jemcon | Dec 13, 2004 04:41am | #11

   I made the same mistake. There just too tempting. OOPS!!

4. 
   JustinT | Dec 12, 2004 05:48pm | #6

   In my opinion you need put your focus on your your cost of doing business. Their are two different approaches that come to mind. Find Gerrald Hayes and research his methods and then find Michal stone over at JLC and research his methods. Decide for yourself what method you are most comfortable with and then apply that pricing religiously. I think you will find that most contractors are loosing money with their hourly rate not with their ability to estimate waste. Im in Indiana and our hourly rate is $60. That rate covers my overhead and 15% profit. So if your thinking you can just charge $15 and still make money you have a long road ahead.

1. 
   blue_eyed_devil | Dec 12, 2004 06:28pm | #7

   Dang Justin...I was setting Opie up and you let the cat out of the bag too early.

   Hope he's listening...

   blueWarning! Be cautious when taking any framing advice from me. Although I have a lifetime of framing experience, all of it is considered bottom of the barrel by Gabe. I am not to be counted amongst the worst of the worst. If you want real framing information...don't listen to me..just ask Gabe!

5. 
   bruceb | Dec 13, 2004 02:21am | #8

   Opie,

               I've worked for myself a fair portion of my adult life. I don't now due to reasons beyond my control. As I near the end of my current commitment, I find myself doing much soul searching regarding if I re-enlist or strike out on my own again. Part of that soul searching is looking at my business, how I ran it and what went right and what went wrong. The whole experience is very revealing.

              If I could do it all over again here's one thing I would surely do, Ask people about there failures and set backs. I'm not sure how many will be willing to share. The reason I say this is that for everytime I suffered a setback, someone would say " oh yeah, that happened to me". There are many pitfalls to this business and a big part of being succesful is avoiding them.

           As for what i've learned looking from the outside in? Where to start?

            Decide what you want out of your life and your business and set out down THAT road. I know guys who are perfectly happy to work at there own pace and bring home maybe $45K a year so long as they can be home every day by 3pm to fish or ride their bicycle. I know others who consider the year a failure if they didn't make at least $125K for themselves after expenses. I say this because you'll need to qualify the advice you get along the way and see how it fits in with your plan. Neither guy is wrong. It just depends which one you want to be.

          you're not charging enough. And after you raise your price, you're still not charging enough. I made the same mistake as a lot of people here. When I first went out on my own I thought it was a big payday if I sold a job at around $30 an hour. After having looked real hard at this, I would shoot for no less than $60 and someone will be along any second to tell you thats way too low. They're right.

        Cash flow and profit are two different things.  Cashflow is money moving thru your business. Profit is whats left after you have paid the expenses of: the truck that drags you and your tools to work, the cell phone you use to order materials and line up the next job, wear and tear on your tools, your insurance, your office operating expenses, a little set aside for your old age and a salary that covers all the hours you worked (in the office and on the job). I'm sure there are more expenses but you get the idea.

         Have a plan. When I got serious one thing I did, and would do better at this time, is a marketing plan. Besides the proper, professional looking marketing material I would set a goal for myself. It would be something like: " This month I will talk to 6 builders, 4 designers, 4 stair shops and I promise to be nice to the lumber company guy no matter how stupid he is".  Contacts don't usually pan out right away but you'll be surprised how many people call you 6 or 8 months later.

     Treat everyday like a work day. If you get up at 5am on a work day, then get up at 5 am every weekday, even if you don't have single thing to do. Clean the truck, go talk to the lumber salesman, stop by a job trailer and see if the need a trimmer or punchout guy, just do something. Everyday Monday thru Friday is a work day when you first start out. Thats how you get to be the guy putting out enough bids to sell the jobs for what you want, and not caring about the ones you didn't get.

    I've got a few more but I've got to be somewhere. I'll be back if you thought any of that was of any help.

      

          

   
   

   ---

   Edited 12/12/2004 6:22 pm ET by robert

1. 
   zendo | Dec 13, 2004 02:36am | #9

   ugg, my year was a failure, I didnt even make enough to go fishin.

1. 
   bruceb | Dec 13, 2004 02:48am | #10

   Been there. Funny thing is, thats what makes the decision so hard.

2. 
   opiegarden | Dec 13, 2004 06:56am | #12

       That helped quite abit thats the type of info. I was looking for. Thank you very much.

1. 
   bruceb | Dec 14, 2004 04:20am | #14

   Opie,

                 Told you I'd be back to bore you with more mindless drivel.

                 Remeber I said to decide what you wanted out of life and your business? Now, ask yourself what you are willing to give to get that. Next, It's time to do some math. You must look at what you REALLY need to live on. Be realistic, you're only setting yourself up for failure if you aren't. How much do you need to make it thru the month? Also, come up with an accurate picture of what you need to run your business for the month. Now add the two together and divide them into the amount you are willing to throw at the business. How many months can you survive without a penny coming in?

             Lots of people will tell you that if you can't survive a year you won't make it. I survived and I had just three months worth to draw on. I wouldn't reccomend it. You need at least six months worth. And thats only if you're willing to supplement that with something to produce a cash flow.

             One thing I was willing to do was to do some sub-contract installs. Not  H-D or lowes type. I installed stairs and rails for a few places and some trim for a lumber yard. It was ok money and it gave me some cashflow to cover expenses. since most of the stair jobs were one or two days, I was able to schedule time to try to find other work. That alone helped me make it thru.

           Just don't get caught up in working for a place that thinks they can run your business. A salesman once approched me about installing for his company. We had a meeting and I walked away with tons of contract stuff to go over( they wanted it signed then and there. They promised tons of work and tons of money). When I finally had a chance to read it, It was scary. If I agreed to install for them I would also have to agree to: Never install any stairs or rails for any other business, If I installed stairs or rails that I sold as my own job I would be bound to purchase all supplies from them, they would schedule my work and if I needed to do anything else they required a two week notification that I would not be installing for them that week, if my other jobs didn't fit into their schedule they had the right to refuse.  Monitary penalties were spelled out for violating any of the terms. My Point? Be careful what you sign. This place had tons of installers who were little more than employees  who had to share the expense of being in business with the company they installed for. Be carefull what you sign.

    Now for some do's. Do return phone calls even if it's just to say no thanks. Do send out professional looking bids. Do remeber names, even if you need to keep notes. It looks good for you when someone you talked to six months ago calls and you remeber their name and what kind of job you talked about back then. Do admit it when you don't know something. One mark of a Pro is that he might not know, but he'll find out. Do look clean cut, clean, dressed appropriatly and be polite.

   DO GET SOMEONE TO SET UP YOUR BOOKS AND THEN KEEP THEM ACCURATE. PAY UNCLE SAM. Not doing those two things will lead you down the road to ruin. The owner of a company I used to do some installs for once told me that at one time he was holding back tax money on almost hafl the people who did work for him. Thats a bad scene, avoid it at all costs.

    Last, do what is right. I'm not a religious man, never have been most likely never will be. But, I believe that whatever god you believe in will judge you on how you live your life. Not how you say you'l live it at church on Sunday, how you actually live it.  In my life I have recieved many gifts and I firmly believe they are bestowed upon me in return for doing the right thing to the best of my ability.

    Oh yeah, listen to Gerald too.

   Edited 12/13/2004 8:24 pm ET by robert

6. 
   JerraldHayes | Dec 13, 2004 07:32am | #13

   Opie I am sure if you hang out here long enough as ask enough questions you'll find plenty of support and answers but you'll need to do some of your own homework too. One thing thing for sure it (unfortunately) takes time to study and learn all the business aspects of contracting which I am pretty sure were never covered or at least they were just skimmed over in trade school. There aren't any shortcut and the idea behind the advice you'll get here in these forums is we can hopefully help you avoid all the mistakes and errors we've made and in many cases too still continue to make.

   Anyway I'll cut to the case and give you my version of a syllabus for Contractor 101 Going into Business as a Building and/or Remodeling Contractor.

   1. Read The E-Myth Contractor: Why Most Contractors' Businesses Don't Work and What to Do About It However it might be a good idea to read the The E-myth Revisited first so that you get a better more thorough grasp about the importance of what the book is getting at. What is the book getting at? That you have to approach designing and setting up your business operation so that it could run turnkey by itself without you in it. Seems nuts to even think about it that way when your setting out on your own for the first time but there is very good reasoning and logic behind that thinking.
   2. Cutting and pasting from something I just wrote about these books here the other day these next two sort of go together and work even better together as a package Where Did the Money Go $19.99 and How Much Should I Charge? also $19.99 by Ellen Rohr who is a well known writer and lecturer to readers of the roofing, electrical and HVAC trade magazines. You can order them through her Bare Bones Business web site and one of the great things about getting them than way is in addition to getting a paperback version of her books sent to you you wont have to wait for them to arrive in that right after purchasing the books she'll send you an email with a URL where you can download a PDF version of the books and start in on reading them right away.

      "Where Did the Money Go? will teach you the accounting basics you need to keep track of your business...and find out where the money goes!". In it you'll follow a character Bob Bird as he sets out on his own as a first time business-owner-contractor and it will give you a basic overview of the accounting principles you absolutely need to know and understand. In the section of the book entitled If My Accounting System Is Computerized, Do I Need To Know This Stuff? she writes " You don’t need to know everything about accounting. You do need to know everything in this book...as a bare minimum!" and I wholeheartedly agree.

      Her other book How Much Should I Charge? which I just noticed is temporarily out of stock with her distributor but available through Amazon (I just ordered through Amazon and got a copy for one of my contractor consulting clients in just three days) is about the actual mechanics of how to set your hourly rate and price.

   3. When you ready to get down to the actual work of setting you hourly rate there is an Excel spreadsheet I created that you can download from one of my company websites. I've been calling it the "The PILAO Worksheet" which is an acronym for PROOF/Indexed/Labor Allocated Overhead. It works right along with the principles that Ellen Rohr talks about in her books and Irv Chasen of PROOF Management Consultants talks about in his seminars. You'll probably want to read an article Mr. Chasen wrote about this type of markup method in last January's JLC called Allocating Overhead to Labor Makes Financial Sense.

      I think the stuff I've mentioned up to this point while perhaps the most important stuff for someone just starting out is not necessarily what really interests them but BELIEVE me when I say IT IS THE MOST IMPORTANT STUFF TO GET DOWN AND UNDER YOUR BELT.

   4. Then you can move on to David Gerstels The Builders Guide to Running a Successful Construction Company. One of the really good things you'll find in this book is in the first or second chapter he he presents a suggested step-by-step month-by-month plan for setting up a company with things to do and take care of before you really takeoff. I have a few changes and additions I would make to the order of things he presents but it pretty close to perfect for where you're at as far as a getting a startup plan of action.
   5. Look over and read The Contractor's Legal Kit: The Complete User-Friendly Legal Guide for Home Builders and Remodelers by Gary Ransone. There are some excellent sample agreements in this book with instructions on how he suggests you should use them and after looking at them and thinking about them you can go to you attorney and talk to him or her intelligently about any modifications he or she thinks you should make with them. Do not just go out and literally use them without having an attorney look them over first though because different regions of the county have different laws that you will need to comply with.
   6. And while we're on it another good book on the legal aspect of contracting is Smart Business for Contractors: A Guide to Money and the Law by Jim Kramon. This has some really great information on insurance that doesn't appear in any of the other books that I can think of in addition to it's general content.
   7. Managing the Small Construction Business A compilation of JLC articles with builders and remodelers describing the techniques that have worked for them. Just a general great resource.(you can get it from JLC-Online)
   8. Mastering the Business of Remodeling by Linda Case A good overview of the business of remodeling that will introduce you to marketing your services in addition to what it has to say about the general managing and operation of the business.

      These next two books I have at the bottom of my list only because they emphasize using a method of markup that I think can be problematic especially for a startup contractor who probably will be doing a good bit of labor only contracting. This is what Justin was referring to in his post where he mentioned "Their are two different approaches that come to mind. Find Gerrald Hayes and research his methods and then find Michal stone over at JLC and research his methods. Decide for yourself what method you are most comfortable with and then apply that pricing religiously..." The method I use and advocate certainly isn't my invention but I have written a little bit about why I think and feel it's a better more precise and safer method to use. See my white paper: Markup: Comparing the Traditional Volume Based Markup vs. the PROOF/Indexed/Labor Allocated method and then comne back and ask your questions here about it and there are plenty of other PROOF method practitioners that can help explain things to you.

      Regardless of the differing point of view on which markup method to use to price jobs I still think these last two books have a lot of good useful financial and sales information in them that makes them still very worthwhile.

   9. The Remodeler's Guide To Making & Managing Money: A Common Sense Approach To Optimizing Compensation & Profit- by Linda W. Case
   10. Markup & Profit: A Contractor's Guide by Michael C. Stone

   There are still more great books on the business especially regarding project management that I haven't mentioned just yet but I think that is a pretty good sized reading list for anybody so I'll leave it at that for now.

   ---

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   ParadigmProjects.com | Paradigm-360.com | Mac4Construction.com

7. 
   gdcarpenter | Dec 14, 2004 06:21am | #15

   I don't call myself an experienced guy compared to the vets out there, but I have been out on my own for a year and a half.  In a nutshell, thanks that my wife has a real job.  Not that  I've lost money, but haven't made enough to support us both if wifey hadn't been working.  Have reinvested quite a bit in tools, and taken some jobs for a lower hourly rate because I knew I would take longer than someone with tons of experience and adusted accordingly, but I got the job and improved my skills a lot. 

    

   Estimating is now getting a bit quicker, but was agonizingly slow to start with, it's that experience thing.  Knowing carpentry is probably not even half the deal when you are on your own.  Dealing with clients, estimating, planning, and like someone mentioned, bookeeping suck up the time.  Fortunately wife does that.

   Other than that it is rewarding.  If I have to work for a jerk it may as well be myself.   Learn as much what not to do as what to do where ever you work now.

   Let's not confuse the issue with facts!

1. 
   ponytl | Dec 14, 2004 08:25am | #16

   the question is... do you want to be a General Contractor... or do you want to be a Builder...   Most of my Rich Contractor friends couldn't build a good dog house... but they dang sure know how to get one built... they have management skills and they spend their time manage'n... something you can't do while swing'n a hammer...

   I'm not sure where i fit in... as i only work on my own projects... design, build, & manage... not sure anyone else would hire me and i'm not sure i'd stay if they did... but it lets me do only what i want to do and only what i can have a passion for, each of my projects is very personal which makes it hard when some outside force is telling me what i can & can't do on my job on my property and spending my money... but it also lets me teach guys how to do many things and why we do what we do in the natrual order of things...

    me... it's the only way i know

   pony