Starting my own business

Discussion in 'Off-Topic' started by strantor, Aug 16, 2012.

  1. strantor

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    Oct 3, 2010
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    I'm now planning to start my own business. I have been half-thinking about it for a long time, but now I'm serious. Tomorrow is my last day with my current employer, then a week off, then starting school. I am hoping to be able to work after/before school, and heavy during the summers. I don't know how much time school will demand of me, but I think I can manage.

    The business is an Industrial Machine Repair business. I would go troubleshoot/repair, modify, and upgrade machines. Maybe even perform preventative maintenance for companies who don't employ (or don't employ enough) their own maintenance crew.

    I have been talking to an older friend who owns a forklift repair business. He said the door is wide open for me, and getting wider. He says the baby boomer small business owners are retiring and nobody is taking their places. He says a guy my age getting into the game has a very good chance. His advice so far has been to go to the courthouse and get a DBA number, get general liability insurance, and get a business bank account.

    I have one pretty sure customer, my current employer, I have another company I've done freelance work for in the past, and one solid lead on a company that's plagued with maintenance issues and no competent technicians (I have not contacted them yet). So 3 prospective customers. Doesn't seem like much, but I think that I might already have more business than I can handle right there.

    I think I might need to get a respectable looking service truck or van, with a logo on the side. All I have right now is a post-wrecked unreliable 20 y/o pickup with a different colored front end. I'm afraid my prospective customers may look at me like an idiot if I pull up in that. I think I also need some business cards. I already have the tools that I'll need, except for the kilobuck PLC software. That's the only serious roadblock I see. But, I think I can get by on the majority of jobs without it. Another speed bump is the fact that I'm not a licensed electrician. I don't need an electrician license for the work that I do, but for some reason I have a suspicion that my customers may not know that. I anticipate doing installations in the future, at which point I will need an electrician to run wires and permits for me; I have a friend I can call for that.

    I'm looking for tips from small business owners, technicians or otherwise; things I need to watch out for, things I need to do, things I need NOT to do, etc. Any pearls of wisdom greatly appreciated.
     
  2. gerty

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    Have you thought about getting into the PM aspect of the business?
    Places that don't have maintenance men usually don't do PM either, that could build some recurring income.
    Another thing is insurance, it has become a necessary evil . One mistake on a customers machine could wipe a small business out.
     
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  3. strantor

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    Yes I've considered PM. It's not my favorite thing in the world, but I would happily do it.

    What kind of insurance would you suggest? The forklift guy told me he has "general liability" - I guess that's what I'm after as well. Insurance seems like a dark art to me. When I was picking my benefits with this company, it seems like they intentionally make things so convoluted that you never entirely know what you have or it's purpose. I don't want to go study law at Harvard to assist in picking insurance, but I also don't want to eeny-meeny-mynee-moe it.
     
  4. Georacer

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    Nov 25, 2009
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    I know nothing about this business, but I know you for quite some time now (if one can call online interaction "interaction").

    I 'll ask if you have thought this over at least twice, because I 've seen you get into things and then leave them a month later.
    If you 're working on this for more than this, then go ahead and good luck!
     
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  5. gerty

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    I don't know a thing about insurance, except you'd better have it when you need it. I'm sure there's different layers of liability insurance, and whatever coverage you choose it needs to be in writing, and in plain english.
     
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  6. strantor

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    Haha, Geo the voice of reason. Yes you are right about me. I am wishy-washy. Ideally I would want to wait and see how demanding my classes are, and if I will even have time for this, but I am afraid to wait. Reason being, I expect that my current employer will be my biggest customer. They are used to me being around, and I anticipate that when I leave, they will be in a desperate position - that's when I will be most likely to be getting calls. If I am not there for them, they will find someone else. Later, when I'm ready and go calling, they may have already found some other company to fill the void. Then half of my plan is spoiled.

    Chances are, that even under the best circumstances, I would not continue. I don't know what to expect. I may find that I prefer working part time at McDonalds in the evenings than owning my own business, and decide to do that. I don't really see that as the end of the world. I don't foresee this thing requiring too much unrecoverable investment. If I buy a truck, I can always sell it. I already have the tools. But, I know there will be unforeseen investments, which may put me in a tougher position to make this decision. But from my current perspective it seems I have much more to gain than I have to lose, and I can walk away at any point without much consequence.

    That is, unless someone knows of one of these unforeseen investments which may be required...
     
  7. justtrying

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    To add to the voice of reason... (since I also know nothing about business, wish I did, then I wouldn't be so hopelessly lost now) you have recently decided to go to school full time and now you want to start a small business which is more than a full time job. I do know that to get a small business going requires a 24/7 commitment (where I live they come and go every month). It sound like you have a good idea on how your business would look, but I wonder if you have assessed where does it fit in with the school now and in the long term?
     
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  8. gerty

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    It's not an investment per se, but you can get in a bind with your parts distributors if you're not careful. A close friend of mine, an electrical contractor, got in a real mess. He did a large climate controlled, self storage job.
    The owner, a realtor, went belly up just as the job was completed. He had to pay off the parts wholeseller out of his own pocket, to the tune of $85k.
    The realtor has offered the contractors $.35 on the dollar. It'll go to court next year.
     
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  9. WBahn

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    Mar 31, 2012
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    I think you've talked about this previously (or perhaps it was someone else).

    Here are some random thoughts in random order:

    Since you are going to be doing things that, if done wrong (or if they claim you did them wrong) could result in significant damages, you should probably set yourself up as an LLC and then make sure that you meet all of the initial and on-going requirements to maintain the liability protections, While staying consistent with that, you then want to keep as little money/assets in the LLC's name as you can.

    Another big recommendation I would have would be to flat out refuse to go into debt to support or grow the business. Shut it down first. I'm not talking about rolling debt, like a credit card, that is paid off every month. I'm talking about taking out a loan (or using a credit card) to buy something that will take you six months or more to pay off. You are simply going to be running to too thin a margin to risk having one customer go south and leave you with a big debt to service.

    On a similar note, be sure that you are adequately funded so that you can survive if it turns out that none of your customers pay you for three months. As a one-man shop, this mostly means being sure that you have a personal reserve of six-months to a year of expenses. That way, if your main customer goes flaky and it takes you a couple months to realize that maybe they aren't going to pay what they owe you, you can spent a couple months lining up some new customers, a couple months doing work for them, and a month or so waiting for them to pay the invoices.

    Keep your business and your personal finances separate and distinct. One-person shops are really bad about this (and I am no exception, I have to admit). Set up a separate checking and savings account. Get a separate credit or debit card, if you can, otherwise pick a personal card and write "BUS" on it with a big, black permanent marker and only use it for business purchases. If you go to the grocery store and buy your family's food and also some office supplies, put them on separate receipts. It is just easier and cleaner.

    Keep your books up to date, at least monthly but preferably weekly or, best, daily. You will probably only be looking at a few transactions a week, so try real hard (i.e., don't use me as an example) to process them as they happen. I have always had a bad habit of throwing receipts into a box and then, come about tax time, spending days going through the box and trying to remember what was what and usually knowing that I was missing receipts for things that I had bought and so then had to go through bank and credit card statements trying to see if I could firmly identify the transaction. It's a nightmare that you don't have to endure if you just get in the habit of having the last thing you do every Friday (or whenever) every week is get everything in the Inbox posted and filed.

    Learn the tax code as it applies to you. Claim all of the deductions and expenses that you legally can. Maximize the pre-tax benefits as much as possible. Some of these are hard to do as a self-employed person because, even if you are below the poverty line, as a more than x% owner of the business, you are considered a 'highly-compensated employee'. There are ways around some of it, but some of it you will just have to live with.

    Don't forget about the benefits that your previous employer may have provided. In particular, health insurance, life insurance, disability insurance, and retirement savings. It's real easy to forego the retirement savings when you beginning you business and then let the years go by without addressing it.
     
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  10. strantor

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    Yes this something I think I will just have to play by ear. As I said, I'm not sure how much of my time school will demand. The forklift guy also brought it up. He said he thinks I will get a couple of years into school and then drop out in favor of expanding my business. I don't know about that. The idea is to give school priority and, if there is time, do this work on the side. This means I will probably have to tell my customers "sorry, I'm not available" a lot. I realize this might be a dealbreaker for some, but I hope that I can keep custmers based on price. I am hoping they will call me first, and if I'm unavailable, they call someone else, but next time they call me first again because I charge 1/3 of what the other guys charge. "the other guys" in this business charge usually >1000$ just for a day (or a couple of hours) of work. They get away with this because they have a good reputation (they WILL fix it, no matter what) and they can have a technician onsite within the hour. I cannot. I am a one man operation, and I hope my customers understand that.
    I realize I am doing a lot of hoping in this post, but that's all I have.
     
  11. #12

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    Nov 30, 2010
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    Last time I checked, you were going to support yourself, a wife, and a child, while achieving a 4.0 grade average. Industrial Machine Repair will surely pay better than McDonalds, but I'm still not expecting you to have enough time to get straight A's.

    For insurance, ask what the trades people are getting. It's required by law to activate their licenses. Some sort of liability insurance. Use the wrong wire nut, burn down a house, replace an air conditioner on a roof and the roof collapses, even though the new unit weighs less than the old one...

    I can tell you a few things that don't work. Doing brilliant work and charging low fees. It seems the customers can't tell if the work was brilliant, and they suspect you're going to "get even" with them on the next call...so the next call never happens. "Twenty bucks for the house call? He must be screwing me on the labor." "Eighty dollars for exactly what the next door neighbor paid $240 for? One of these guys is a crook, maybe both of them. Better not to call either of them the next time." Five years ago, I quadrupled my prices. This year, I've had exactly the same number of jobs I did 6 years ago, but I'm getting a lot better pay!

    Time spent talking to the customer is important. They think anybody should be competent at the job they are doing, so you have to be something besides another random stranger that fixed one problem for them.

    "Preventive Maintenance" contracts are often used just to get your foot in the door, then you find things to replace and charge them the same as you charge anybody else, or maybe give them 10% off the regular retail price. Most of what I hear around here is scare tactics used to sell unnecessary repairs. "Look at this. The points on the motor contactor are pitted. Better replace it." News Flash: The points on the new contactor will be pitted in a week because that's what happens when a relay conducts a hundred amp start surge 60 times a day.

    It is also common practice for the General Contractors to survive by putting the sub-contractors into bankruptcy. You front the money for equipment or get a wholesaler to extend credit to you, and the General Contractor never pays you. Guess who just bought Joe's Welding a new CNC Thingamajigger and who got paid for it?

    I'll post again if I get some more ideas.
     
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  12. strantor

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    Didn't you say 4.0 GPA is bad because it indicates low social skills, and that you intentionally strived for a 3.5? I can settle for a 3.5 ;). If it comes down to me having to choose between school or work, I'm choosing school, unless I'm making 6 figures, which I doubt. (and it's 2 kids BTW :))
     
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  13. strantor

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    That's one thing I never thought about
     
  14. JohnInTX

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    Jun 26, 2012
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    I run a Texas 'S' corporation and can offer some advice.

    Before you start:
    You can do work as an individual but you are kind of hanging yourself out to dry if there is ever some business-related action against you. I prefer the company route.

    Do some research on the various legal business structures ('S', LLP, sole proprietorship, etc.) Here's a quick chart. (Hit EXPAND ALL to see details). Consider setting up one of the liability-limiting structures to protect yourself and your personal assets. Keep in mind that if you screw something up as an employee, the boss eats it. If you are a contractor, he can make you eat it and if you are working as an individual, your assets include not only your 20y/o truck but your house, future earnings etc. An LLP or sub S is easy to set up and provides some protection in the form of separating you personally from your company.

    Definitely get liability insurance. Ask your current broker. If he doesn't sell it, he'll know someone who will. I carry ins on my co's vehicle, home office and a liability umbrella as well. Peace of mind.

    The state and Feds will be interested in your income and expenses. Get a Federal and Texas tax number. You'll have to file tax returns for the company in addition to your personal return. Texas will give you a resale number (where you can buy parts etc. tax-free and then collect tax when you sell them to your clients).

    Dallas county has a Business Personal Property tax that's collected on inventory, fixtures, other stuff. Check with your county tax office.

    Its important to keep your business and personal monies separate, hence the good advice for a business checking acct. I also have a credit card dedicated to the business.

    Accounting is important err.. critical. If you take one piece of advice here its this: get your accounting system up and running to suit you before you dot another i Bob Cratchett! This can be anything from a simple ledger on a spreadsheet to a computerized system but you must have a simple system (or you won't use it) to track your bucks. At the minimum, you have to get the bills paid, invoices sent and the checks cashed (and hopefully throw in some payroll!). You need a system to keep receipts for monies spent so that you can support the deductions from your taxes etc. I currently use QuickBooks professional services edition. I used PeachTree for years and found it very restrictive and ponderous for my uses. Whatever you decide to do, set it up (even if its just a handful of file folders) and run some test scenarios through it to get the paper flow down pat. Resist the urge to pitch everything into sack thinking you'll figure it out later. You will, eventually, but you don't want it to be with a CPA at 11:30pm Apr. 15th.

    Write yourself a short policy statement/business guide. What kind of clients are you going to take on? What are your payment terms? How will you enforce them? What is your billing rate? Is it hourly (yup), by the job (bad idea there). Run through a few test scenarios there as well. Write it down and make it part of your quotation.

    Get your own phone number with voice mail. Even MajicJack is better than having your teenager pick up the phone. Your cell will work but eventually some knucklehead will want you to fax something... Get a cheap fax too.

    What are you going to charge? That's not enough. Remember you have overhead. All of those things that your employer was buying have now to be bought by you. Plus you are now solely responsible for customer-satisfaction. Put something in to cover those phone calls etc.

    You should have at least a simple business plan. What is your line of work? What kind of clients will you seek (and what kind will you avoid)? What kind of income vs expenses can you expect? Is it worth the extra effort?

    Meet a banker. Start by dropping by your local branch (one with real people) and ask to visit with the business manager. Tell him your plan and open that business checking account. Pre-apply for a business loan. You may never need or want it but the two of you will get to explore some real life business stuff and you'll get some good advice por nada.

    Get a CPA. A good one is hard to find but worth the effort. All CPAs do taxes and add up the books. What you want is one that can see your business from the books and be strategic. The wrong kind is when you ask a question and you get 25 questions back so that they can add up to the penny (another bad sign).. The right kind is one that takes your ledger or QuickBooks files and sends you to do list (I know I had the right one when one of the to-dos was buy a new truck before the end of the year to take a 179 deduction - Yeah that's right, its now a business expense when owned by and used on business).

    Get a lawyer. This is harder and I try to minimize dealing with them. The best legal advice I ever got was from my high end atty in Dallas was 'Stay out of the courthouse'. That said, you still need some legal work now and then. Research it as much as you can to minimize costs and if you ever have a conflict remember that there is a huge difference between a legal victory and a practical one.

    Didn't mean to go on so long.. Should you do it?? ABSOLUTELY. Overall, I've had a great time and have been able to work with some really great outfits (and some real clunkers but you get to recognize that and avoid them). Each one had something interesting and challenging to do with lots of variety. I really liked learning how various industries worked.
     
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  15. strantor

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    Wow, lots of info there John... I thought there was a post character limit ;). Just from what you've given me here, I realize now that there is a whole lot more to it than I considered. I knew there was more to it, but I didn't know what the "more" was, or how much more there was. I have a lot to catch myself up on.
    So, this being my first introduction to the types of businesses, from this chart I cannot see why anyone would choose a sole proprietorship. Wbahn, care to explain?
     
  16. JoeJester

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    IRS Publication 334, found http://www.irs.gov/app/picklist/list/publicationsNoticesPdf.html will help you out concerning business taxes. Another thing is visit SBA's website. They have information on building a business plan to just about all the other topics mentioned.

    SBA should have a listing of SCORE executives who volunteer their time to help the new small business owner.

    The easiest accounting program I've seen was quickbooks.
     
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  17. JohnInTX

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    ..had to re-login to post. Meanwhile, Wbahn beat me to it with much of the same info, just better presented. You can tell he is an educator... I think the main point both of us made is to get your business framework roughed out and working right away.

    Anyway, a Sole Proprietorship means that you just go down and hire yourself out. Any monies you receive you put into your personal checking account and go from there. The attraction is its simple. The downside is that its YOU doing the business and you are responsible for any damages you cause. You also have to account for the income, particularly if your clients claim your charges as their business expenses and deduct them. IRS is fine with that, it just means that someone will declare the income on their tax return... And they will know its you because the client will tell them via 1099 etc. Unless you are selling flowers on the street or something like that, I'd avoid it.

    Wbahn's notes about not going into debt etc. are pretty much what I did as well and was fortunate not to have to dip into credit, even though I had it lined up. That said, I did miss some personal paydays when client's checks bounced or the like. But I always got whole eventually (with the rare lawsuit to make my point) and rocked on. But, if you grow enough, you will need to take advantage of a business credit line, just to smooth out the cashflow. Have one lined up, anyway.

    One personal note. There is a business paradigm that says 'always pay yourself first'. I disagree. Always pay your suppliers and subs first, then pay your taxes, then yourself. Your suppliers and subs buy your line and support you. Its not (well, usually not) their fault that you didn't make money on the project so pay up. The IRS, Texas and local agencies will make your life miserable (since you haven't bought a lobbyist) so pay them too. (Never miss a 941 payment). If there is no money left to pay YOU, time to review your business plan. I told you to charge more...

    This is fun! You are going to have a good time with this..

    .. and now I see JoeJester beat me again.. Gotta learn to type faster..

    .. and #12 has been there as well:
    Me too. I'm supposed to be on sabbatical and jacked my rates to reflect that.. but they keep calling. Never underestimate the value to the client of making his problems go away. He knows the value, you should too. And.. its WAY easier to cut the client a break after the job is done (you'll be a hero) than ask for more money at the end to break even (you won't break even).

    Been there! So be the general who doesn't do that. If you are a sub, have the general buy the expensive stuff. This happens more than you'd like to know (or pay for).

    More thinking..
    Think about how to evaluate new clients.. I like fortune 500 or better but have had lots of great relationships with small businesses too. One thing to look out for is a brand new outfit with a 'great-idea' that just needs your talent to make it a million seller.. I ask for 35% up front. Cash. If they balk it means that 1) they don't have it (run from the room at top speed) or 2) they don't trust you (same). If they are legit, they'll ask for references, evaluate you and decide you are their guy etc. and then pay up. I may have lost a couple with this requirement but not many real ones.
     
    Last edited: Aug 16, 2012
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  18. JoeJester

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    Even sole proprietors have seperate checking accounts. Sole proprietors, their business and personal accounts are legally intertwined, but for ease, it is better to maintain seperate accounts.

    LLC is the safest option for small business owners as it seperates their business assets from their personal assets.

    Read up on each to make your decision.
     
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  19. MrChips

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    Oct 2, 2009
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    Others have already chimed in with the same advice.

    Incorporate, i.e. LLC. I don't know about Texas but it is not that expensive nor difficult to do yourself. Don't take out a business loan. Make the business pay for itself. Build it up one step at a time. You can do it starting out with one client. I did it very successfully for a number of years.

    Go for it. You wouldn't know how well you can succeed unless you try it.
     
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  20. strantor

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    Did you just provide that link for reference? It looks like beyond that page is some sort of wizard for setting up a business if you click "get started." Would you recommend going through a website like this?

    This all seems a little daunting and I would like some assistance in getting started but I don't feel comfortable doing it over a web page like that. Is there some sort of agency which helps people get started, that would hook me up with a CPA, lawyer, et. al. and make sure I'm doing everything right so I don't screw myself? I always get a little antsy dealing with the government - I feel like there's always something lurking in the shadows, waiting to bite me in the apples. Something I don't know about, and wouldn't even know to ask about.

    EDIT: something like this, I guess is what I'm talking about. Is it worth the fees?
     
    Last edited: Aug 16, 2012
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