How do you pay yourself?

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B W E

Member
I've only been in business (legally, with local business tax license, c-10 license, FEID, etc) since Dec. '10, and Im having a hard time getting into a comfortable groove with handling money after the job is done. I have one guy working for me now, so suffice it to say, I'm small scale, for now.

My wife and I have no business experience and to be honest are pretty bad with (personal) money management. I'm doing much better with my business (sole prop.), using quickbooks, keeping track of all expenses, etc. However, right now I am making less than when I worked for a larger company. Thats ok though, for now, because even in this crap economy in the most business unfriendly state in the country, i am still making a profit.

So, here's how I do it. I take the total income from a job, subtract materials and labor, and then owner draw 60% of the remaining amount. So, on a $1,000 job, with $250 in labor and material, I pay us $450 of the remaining $750.

How do you guys do it? Am I way off?
 

Dennis Alwon

Moderator
Staff member
Location
Chapel Hill, NC
Occupation
Retired Electrical Contractor
It doesn't matter a whole lot since you are a sole proprietor. Any money the business makes will be taxable to you at the end of the year anyway.

Now since you are not good with money it , IMO is best to leave as much in the business as you can afford to do so that you have some backup money. I don't know percentage but what you propose sounds fair. In the beginning it is best to get established and build up equity. This is why I say leave it in the business until you get enough to be comfortable.

I have a small company also but I still like leaving about $20,000 in at all times. Usually I have a lot more and just take it out at the end of the year but still leaving the $20,000 alone. As you get bigger you would obviously need to expand your cash to pay payroll, bills etc.

One of the worst things is to start getting in debt and not be able to pay your suppliers and employees.
 

B W E

Member
It doesn't matter a whole lot since you are a sole proprietor. Any money the business makes will be taxable to you at the end of the year anyway.

Now since you are not good with money it , IMO is best to leave as much in the business as you can afford to do so that you have some backup money. I don't know percentage but what you propose sounds fair. In the beginning it is best to get established and build up equity. This is why I say leave it in the business until you get enough to be comfortable.

I have a small company also but I still like leaving about $20,000 in at all times. Usually I have a lot more and just take it out at the end of the year but still leaving the $20,000 alone. As you get bigger you would obviously need to expand your cash to pay payroll, bills etc.

One of the worst things is to start getting in debt and not be able to pay your suppliers and employees.

What I would give to have $20k in my business!! I am in a rut right now because I have unfortunately unintentionally financed a couple of jobs and am scrambling now to stay afloat. One is for some work I did for a house that was in escrow. I was told I'd be paid out of escrow which was supposed to close in a week. That turned into end of the month, which was 3 weeks away. The other was for job I did for a friend who is an HVAC contractor. I finished my contract for him, but he was not done with his prime contract. He asked if he could wait to pay me until he got paid, and because he is a dear friend, I said "ok." I dipped into our savings to take care of payroll (I'll NEVER allow my guy to go unpaid).

I'm starting to believe the common proverb "The best way to end up with a small fortune as a contractor..........."
 

ceb58

Senior Member
Location
Raeford, NC
What I would give to have $20k in my business!! I am in a rut right now because I have unfortunately unintentionally financed a couple of jobs and am scrambling now to stay afloat. One is for some work I did for a house that was in escrow. I was told I'd be paid out of escrow which was supposed to close in a week. That turned into end of the month, which was 3 weeks away. The other was for job I did for a friend who is an HVAC contractor. I finished my contract for him, but he was not done with his prime contract. He asked if he could wait to pay me until he got paid, and because he is a dear friend, I said "ok." I dipped into our savings to take care of payroll (I'll NEVER allow my guy to go unpaid).

I'm starting to believe the common proverb "The best way to end up with a small fortune as a contractor..........."

The escrow job is where a good solid contract comes in handy. If the contract stated payment due at completion then the payment is due. As far as working for a friend then you ether go into it knowing you may or may not get payed. Bottom line is he is holding on to your money for him self and his business. He is using money owed to you to carry or start jobs for himself to keep from doing what you were forced into doing. Dipping into an account that should not have been dipped into. Is he going to pay the money owed with the intrest you have lost?
 

B W E

Member
The escrow job is where a good solid contract comes in handy. If the contract stated payment due at completion then the payment is due. As far as working for a friend then you ether go into it knowing you may or may not get payed. Bottom line is he is holding on to your money for him self and his business. He is using money owed to you to carry or start jobs for himself to keep from doing what you were forced into doing. Dipping into an account that should not have been dipped into. Is he going to pay the money owed with the intrest you have lost?

I get what you are saying, and I agree with you if this were with anyone else. I know him personally, and I know that it's not a matter of him wanting to use my money for his benefit for as long as possible, it's a matter of him struggling like everyone else these days and not having the money to pay me until he got paid. I'm at peace with that, with HIM, however, what I was saying is that I think thats a bad business practice in general, and I'm trying to figure out how to avoid those kinds of things down the road. I fear that a firm "I'm done, pay me now" approach may turn people off and hurt my business. I need to just realize that I am still in the testing and proving phase, and I need to see what works for me.
 

B W E

Member
I pay myself a weekly salary. No more no less. Business keeps the rest. My wife is a highly paid school teacher so that helps.

What do you do when the week's workload doesn't support that salary? I guess thats what you can do when you have $20k in your business. Give yourself a steady paycheck even when the work peters out for a week or two.
 

Sparky555

Senior Member
I've only been in business (legally, with local business tax license, c-10 license, FEID, etc) since Dec. '10, and Im having a hard time getting into a comfortable groove with handling money after the job is done. I have one guy working for me now, so suffice it to say, I'm small scale, for now.

My wife and I have no business experience and to be honest are pretty bad with (personal) money management. I'm doing much better with my business (sole prop.), using quickbooks, keeping track of all expenses, etc. However, right now I am making less than when I worked for a larger company. Thats ok though, for now, because even in this crap economy in the most business unfriendly state in the country, i am still making a profit.

So, here's how I do it. I take the total income from a job, subtract materials and labor, and then owner draw 60% of the remaining amount. So, on a $1,000 job, with $250 in labor and material, I pay us $450 of the remaining $750.

How do you guys do it? Am I way off?

Let me guess. You are working twice the hours and making half the pay. Your wife isn't being paid at all. This is the way it usually goes anyway, maybe not for you. I hope you're getting some benefit to offset the reduction in pay.

You need to get tougher on collections. "Sorry friend, I really need that money now. That's what we agreed to, right?" I hope your helper is making you money since he's the one getting the regular paycheck. One of the most important things to track is the profitability of every job. You have a very short time to learn correct bidding and collections.
 
Location
NE (9.06 miles @5.9 Degrees from Winged Horses)
Occupation
EC - retired
Getting that money in the bank takes awile, but if you are careful it takes awhile to spend it as well. You need to feel like you are successful and you can't do that if you never have any $$ in your pocket.

That said, talk to me again in 3 months because this has been the worst winter for me in 6-7 years.
 

B W E

Member
Let me guess. You are working twice the hours and making half the pay. Your wife isn't being paid at all. This is the way it usually goes anyway, maybe not for you. I hope you're getting some benefit to offset the reduction in pay.

You need to get tougher on collections. "Sorry friend, I really need that money now. That's what we agreed to, right?" I hope your helper is making you money since he's the one getting the regular paycheck. One of the most important things to track is the profitability of every job. You have a very short time to learn correct bidding and collections.

Pretty much hit it on the head. Before I got laid off, I was making $1,000 a week, plus a gas card, plus full medical. Initially, I had my wife "doing the books," but she has since taken a full time job, so I do it myself.

Here's the bottom line. This is the worst economy possible for me to have started a business in. However, I have done "side work" for the last 8-10 years and have developed quite an expansive clientele, which I still have. I treat everyone as professionally as I can, do the very best work that I can, and I am now very well connected to a very large Keller Williams branch, as well as a nationally awarded GC, a very good HVAC Contractor, and another small time GC. I think all of the potential for success is there, it's just the economy now that is holding things back.

As far as my employee, he is young, and has very little experience, outside of what I have taught him in the two months I've had him. The reality is, he is not making me any money. I know that I am sacrificing profitability on jobs I could do myself, but I feel like it's best to have him there to train, so that he can in time become an asset.
 

satcom

Senior Member
Pretty much hit it on the head. Before I got laid off, I was making $1,000 a week, plus a gas card, plus full medical. Initially, I had my wife "doing the books," but she has since taken a full time job, so I do it myself.

Here's the bottom line. This is the worst economy possible for me to have started a business in. However, I have done "side work" for the last 8-10 years and have developed quite an expansive clientele, which I still have. I treat everyone as professionally as I can, do the very best work that I can, and I am now very well connected to a very large Keller Williams branch, as well as a nationally awarded GC, a very good HVAC Contractor, and another small time GC. I think all of the potential for success is there, it's just the economy now that is holding things back.

As far as my employee, he is young, and has very little experience, outside of what I have taught him in the two months I've had him. The reality is, he is not making me any money. I know that I am sacrificing profitability on jobs I could do myself, but I feel like it's best to have him there to train, so that he can in time become an asset.

Side work customers will shrink as soon as you adjust your prices to cover your full time overhead and operating expenses, and the same with the GC,s when they find out you intend to make money, they will get some guy working for beer money, doing side work.
 

Sparky555

Senior Member
Side work customers will shrink as soon as you adjust your prices to cover your full time overhead and operating expenses, and the same with the GC,s when they find out you intend to make money, they will get some guy working for beer money, doing side work.

Very true. GCs prey on the ignorant.
 

brian john

Senior Member
Location
Leesburg, VA
Very true. GCs prey on the ignorant.

Just for the record, 25% of my customers are EC's I find many EC's are no better that the issues I hear hear about GC's.

So in lieu of blaming a trade realize it it the quality of the persons we sometimes deal with. I have many VERY FINE EC's I do work for and many of the GC's I do work for are excellent as well.
 

bradleyelectric

Senior Member
Location
forest hill, md
Just for the record, 25% of my customers are EC's I find many EC's are no better that the issues I hear hear about GC's.

So in lieu of blaming a trade realize it it the quality of the persons we sometimes deal with. I have many VERY FINE EC's I do work for and many of the GC's I do work for are excellent as well.

I told someone once they need to find a better class of customers and they replied back with whos name was on their clients clothing as if that made a difference.
 

220/221

Senior Member
Location
AZ
My wife and I have no business experience and to be honest are pretty bad with (personal) money management

You had better get a handle on things right now or you won't have a chance in hell.


To answer your question, no matter how much you "make" on a job, pay yourself as little as you can, and leave whatever you can in the business for operating capital. You are going to need it.
 

Fulthrotl

~Autocorrect is My Worst Enema.~
I've only been in business (legally, with local business tax license, c-10 license, FEID, etc) since Dec. '10, and Im having a hard time getting into a comfortable groove with handling money after the job is done. I have one guy working for me now, so suffice it to say, I'm small scale, for now.

My wife and I have no business experience and to be honest are pretty bad with (personal) money management. I'm doing much better with my business (sole prop.), using quickbooks, keeping track of all expenses, etc. However, right now I am making less than when I worked for a larger company. Thats ok though, for now, because even in this crap economy in the most business unfriendly state in the country, i am still making a profit.

So, here's how I do it. I take the total income from a job, subtract materials and labor, and then owner draw 60% of the remaining amount. So, on a $1,000 job, with $250 in labor and material, I pay us $450 of the remaining $750.

How do you guys do it? Am I way off?

ok.... reading between the lines.....
c-10 says "california"
one employee says "workers comp"

make sure you have some. is the employee a state indentured apprentice,
or does he have a journeyman's license valid in calif?

if he doesn't have his papers, and you don't have workers comp papers,
and something happens to him occupationally, it's gonna turn out ugly.
as a sole proprietorship, you are personally on the hook for all of it.

just an fyi....

as for bookkeeping, i went with advice i got here, about a neatworks
scanner, for paperless office. it's about $400, with software, and is
worth every penny. every document gets scanned in there, and sorted
accordingly.

i report everything, including work paid for with $100 bills. incoming
checks, the whole thing.

my experience has been that a prudent reserve is three months
operating expenses.... how much a month does it cost you to be
in business, including a draw for you to pay yourself? you have a
few months receipts now, total them up, and find out what the
monthly nut *really* is.

multiply it by three. keep that much in your checking account.
good luck....


randy
 

readydave8

re member
Location
Clarkesville, Georgia
Occupation
electrician
What do you do when the week's workload doesn't support that salary? I guess thats what you can do when you have $20k in your business. Give yourself a steady paycheck even when the work peters out for a week or two.
I think your yearly profit is the number to worry about rather than week-to-week, I would think a line of credit would help smooth out the humps and valleys but I never did that, just muddled through somehow.
 

nhfire77

Senior Member
Location
NH
just an fyi....

as for bookkeeping, i went with advice i got here, about a neatworks
scanner, for paperless office. it's about $400, with software, and is
worth every penny. every document gets scanned in there, and sorted
accordingly.

i report everything, including work paid for with $100 bills. incoming
checks, the whole thing.



randy

Along those lines check out http://www.shoeboxed.com. They will scan 250 documents/month for $199 a year. You mail them your paper. The envelopes are prepaid,

They categorize all the receipts, or any piece of paper. You can search for dates amounts and vendors on line. They keep your scanned documents in a secure IRS approved manner, and will shred the paper for free, or send it back to you, neatly stacked, for free. I get mine back, just in case.

I love it. Paperless it better.
 
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