Re: STARTING MY OWN BUSINESS, ANY SUGGESTIONS

Posted by Billy NY on April 04, 2007 at 09:53:04 from (64.12.116.14):

In Reply to: STARTING MY OWN BUSINESS, ANY SUGGESTIONS posted by ironsales on April 04, 2007 at 06:49:35:

There are some important things to consider and do, but if you put the work into it, stay organized and use good common sense, it can be rewarding after you have built a business.

In the beginning, depending on start up resources, you may have to wear many hats, you need to research things like insurance, narrow a scope of work that you can commit to and complete, based on your ability as a contractor, do not over extend yourself into too many jobs or jobs that are beyond your scope, it's nothing but trouble and I've seen some large subcontractors get in serious trouble, because they are in over their head by taking too much work or jobs that are too large for them to handle. There are certain markets or areas of work to target, never bite off more than you can chew.

I'm not sure what your background is and what level of experience you have, don't be afraid to learn things wherever you can, some community colleges or other educational places can provide you knowledge on things that can and will benefit you, not every successful business person is a college grad, but courses on accounting, estimating, business practice, contract law, dispute resolution and many other related subjects are very beneficial to becoming a savvy business person, especially in the construction industry. In todays construction industry, you need to excel, there is nothing worse than a lousy sub on a job, I had a sub on a state job that I was a const. mgr. on, he did excavation and paving, but unbeknownst to me, did not know how to read drawings, or use an optical level for setting grades, he also thought he could outsmart me, by using substandard materials etc. etc. I brought an instrument in and set grades myself, which really p$ssed me off, his work was terrible, and unaccepable, when it was all said and done, I fried his @ss on the job, rejected hundreds of tons of asphalt, and work in place after performing tests and checking the specs, also executed emergency change orders with another sub, backcharged his contract, he could not even follow a grade with the paving and led the water right into a valve vault, causing damage to new work just put in place. The kids were not bad and I tried to explain to them and help, which I did by setting grades and taking liability for it, told them to learn how to read drawings, and use an instrument, he brings one in one day and says you mean one of these ? Yes I said, but no friggin tripod, just the darned instrument, absolutely useless, I should have defaulted them on failure to perform, but that is another mess, in short, NEVER be this guy on a job no matter what !!! This sub should have never made it past the pre-qualification process, but was in place prior to us taking the emergency contract on this job that had stalled due to incompetence, and once they have a contract on a public job, there are procedures for default, I regret not terminating them immediately, my reputation was at stake here, all due to a lousy sub.

Earthwork is a tough trade to make a good profit, you need to know what you are doing, how to plan a job so it is profitable, before you submit a bid or a proposal to an owner or customer. I would establish a relationship with a rental house and set up through them for equipment needed for a job, big payments on expensive equipment is a tough burden to place on yourself in the beginning, same is true with older used equipment which is still costly to buy, maintain and repair, you take a job with a tough schedule, add some bad weather and downtime for repairs, you are in over your head. Using rental equipment and having it priced into a job, or just have an owner pay direct for the period of rental you need is a smart move. Fortunatel I can do this with a rental house I am friendly with, and they don't require insurance on the equipment prvided from me, it's covered another way from them, I still have to use care, and if I see it's necessary will get additional insurance, depends on the job. Insurance is important and costly, but theres is no other way. Other rental houses will need you to have at least a $1 million dollar policy in place, maybe more depends on the rental house, but you have to have them additionally insured. Concrete work, especially finished slabs is a specialty, if you are not capable in house, use a quality subcontractor, your work is your reputation and finishes reflect that vividly to an owner, whom you want to give you good references on every job. So if you are not capable of a trade, use a good sub until you are capable in house, this applies to all trades, it's your rep ultimately. Metal buildings, I can't really comment on those, my experience is in heavy construction, constuction management, general contracting and specialty subcontracting, those are another arena for me, but common sense still applies, use a good manufacturer, and erector, pay attention to details and resolve problems immediately, they only grow bigger if you don't.

There are so many things that come to mind about this business, but it's a simple premise, you go after the work, get the work, practice accurate accounting-estimating and take work that is profitable, then complete the work and close the job out completely, all details and punchlist work inclusive, get paid and move on to the next one.

You will need to learn about contracts, how to interpret or define a scope of work, even in the private sector for residential or light commercial work such as site work and metal buildings. You are on the job to provide specified work under certain conditions. Ex. You take a site job and hit rock, your contract price reflects non rock soil condtions only, you just loss your @ss ! It's important to cover unforseen conditions, include a unit price for rock excavation or indemnify yourself (hold harmless) from rock excavation if you are not capable or equipped to do it and it turns up. On big jobs they do test borings and provide information up front, looks great on paper, but even then, with up front documents/information, contractors can and will get into disputes/claims over excessive amounts of unforseen conditions above their base contract. Water is another one, rock excavation and dewatering is very costly, this and these are just 2 examples. Don't be discouraged, just make sure you cover your proverbial behind when doing site work, leave nothing for granted, either provide an alternate number for extra or more difficult work than anticipated or omit it from your contract, leaving it undefined is a big mistake that can cost you heavily.

Important things to remember:

1.) Scope of work: go after work that makes sense, that you are qualified to do after careful consideration of the job. You obviously cannot do work that has bidders requirements like a performance bond if you can't get bonded, as an example. This applies to larger companies and jobs, smaller work that pays well is much better than large slow paying jobs anyways. Qualify yourself for a potential job before you agree to it is the point here. Make sure the payment and contract terms are acceptable and the the owner pays, because getting paid in this business can be a nightmare and can ruin a business quickly. There are many scenarios to consider, figure what works best for you. I do a lot of work for owners and have them pay direct for many things like rental equipment or materials, my profits are in the labor. I can do it hourly (time and material) or lump sum. Lump sum makes an owner more comfortable knowing he has a guaranteed max. price, vs. keeping track of a job set up by the hour. Additional work above the base bid in a lump sum is defined as a change order, if an owner requests addtional work, make sure your contract has unit prices for additional work, these can be very profitable additions to the base bid. If you cannot put a price on the work, due to it being odd or too difficult to identify costs, hourly is best for a contractor, but you still need to answer to the owner who is paying so keep it honest and give the owner a fair shake by being productive as possible. Agree to the hours DAILY, have them sign a work ticket for billing later. For lump sum you need to know up front how long a job will take you + a cushion + all overhead + general conditions, direct/indirect costs + %10 to %20 profit, you can't be successfull and lose money on jobs. Know what works for you and the owner and agree to it via a subcontract agreement, perform the work dilegently, get paid and move on. Someone I know I'll do this for, (they pay direct on material/rentals) to save a few $$ on mark up there, it's gotten me a lot of work and kept me from forking out $$ only to wait for an owner to pay on job, and if he's late paying so are you, and that tarnishes your rep with supply houses, without them you are nothing, so accounting and playing it smart here is very important. I still make a profit, it's in the labor, which includes things like insurance, additional labor (employees if needed) my benefits etc. The big guys can front $$ and wait to get paid but a small guy can get buried quick, remember that. I have them pay direct instead of asking for $$ up front, that way they know its honest, some guys take $$ and don't show up and become a problem to an owner, don't be that guy ! Your reputation is the single most important thing in this business, do what you say you will do, show up on time, and solve problems quickly, you will shine above many others who do not take their work seriously. Deadlines must be met, there will be problems on every job, you do your best to navigate the curves, and if a deadline is affected, let them know up front if you can project that there is going to be a change, don't wait until it passes.

2.) Estimating and accounting, know these well and become an expert at both. Details are important here. You start getting several jobs going you need to know how each is doing with cash flow, based on your estimate, so you can monitor and correct things immediately. If you lose on one job but another is a home run, identify this and try and improve the bad one and make damn sure the good one finishes that way. Overall they might balance each other out or break even which is better than a loss. I hate to say it but it is very possible to happen, it's not an easy business if you do not pay attention to each job individually, you have no idea what is going on as a whole, which means you do not know how your business is doing overall, so many subcintractors wing it to find out after its too late they are in the hole. You have to be diligent and attentive to each job, tracking costs, problems etc. Recognize each one seperately or you will have no clue as to what is going on.

3.) On a lump sum job, if things go wrong, stop the clock, you only lose if you expend your labor foolishly, I've had to do it more than once to save a job, if I allowed things to continue, it would have been a loss, you only have so many hours in the job, they have to be used productively, at first sign of trouble, do the best you can to correct the problem, if it means firing a crew or a sub or whatever works do it no questions asked, once you have figured a solution, take action. Problems on jobs grow by leaps and bounds

4.) Logic: every contractor has to use logic on how they will perform the work, and uses sound logic in the preparation of the bid, or proposal. Know or define production rates, maintain historical data on things that go well or do not go so well on a job, you are building this one, to do better on the next one. In site work, choice of equipment, soil condtions, time of the year, weather and many other things can dictate costs, make sure you plan the job effectively and identify all costs before placing a bid or submitting a proposal. Also include cushion or margin for error, check your math,so many times a mathmatical error costs a sub a large amount of money,it happens, they call it a gross mathmatical error on public bids and many bids are withdrawn when an error is found.

5.) Organization: you must stay highly organized in all aspects of this business, from the office, accounting, document control to tools equipment, houskeeping on a job site, keep everything you do organized, because when things get chaotic, at least you still are organized and have much more effective control than not.

6.)Record keeping: on big jobs we write a daily report of manpower, weather conditions, equuipment on site, description of work, delays/problems, area of work by location etc. Ex. I will keep track of how many loads of material leave the site on a daily basis, how many arrive, quantified. If you ever have a claim or dispute,or other legal problem on a job, it's important. A regularly used uniform business document can hold water in court, ( in this business you never want to go to court, but it happens ) also provides historical data that can benefit your business, I highly recommend the practice.

7.) Business/Work ethics: You are in business, you depend on it to put food on the table, so make sure you follow good honest practices. Gouging or defrauding people is criminal, price your jobs so you are covered, if a market is too competitive, your time might be better spent in another area, be versatile to maintain a market that keeps you busy, with a decent profit. As a business owner you have to meet your commitments, unlike an employee that goes home when the workday is done, in the beginning it may take a lot of hours, more than working for someone. When it comes time to hire employees, be prepared to pay the right person, make sure the jobs provide the cash flow for payroll. Five dollar an hour freddy will wreck your equipment, tarnish your rep, no show, show up late, get paid one day and not show up the next etc. etc. You need good qualified dedicated help, you have to pay, if you take a job that can't pay enough for good help it's not worth it, I'd rather work alone at slower pace than deal with idiots.

8.) Safety - you must practice safe performance of your work, at all times. Educate yourself, practice it, assess risky situations and do not proceed in haste, accidents are injurious, deadly and costly, it is a no win situation. Establish a safety protocol for your company, always improve on it and NEVER deviate from it.

9.) Seasonal work: be prepared for the off season financially and mentally, use the time to do off season work or prepare for it. Use the time to market new work, repair tools equipment for the next season. This applies if the annual inclement weather affects the work you do. Also a good reason not to have expensive equipment with big payments sitting in the yard. Also a good time to re-build anything you own and have it ready for the next season.

I'm rained out today so I had a little time, it's a bit lengthy so I hope I have not annoyed anyone, I do like to help.

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