Advice

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G

GG

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Ft.Worth, T.X.
I have been an electrical contractor for 3 years now. I'm a 2 man shop and thats all I care to ever amount to. I pay the bills and save as much as I can. Things are going smooth. Now enter into the picture an old friend of mine thats an electrician that is really pressuring me hard to partner with him. He wants to hire a 4 man crew, buy service vans, get a bigger office, and hire a receptionist. I said sounds great but where are you going to get all the work to pay for all these things you think we will need. He just keeps saying he will get us the work. I told him the best I could do is 50/50 on any work he brings in and he is actually on the job with his tools on, and 10% for any jobs he brings in that he doesn't actually work on the job site. I just have a feeling that with this old friend I would be out of business in a year. Have any of you had a friend like this and if so what did you do? Plus now that I think back when we did a job together 4 years ago he would show up late and leave early. Do you think it is worth the risk to see if he can bring in the work?
 
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ABSOLUTELY NOT!!!!

This "friend" needs to build his own business, or like you said, bring work to your business.

Maybe you could offer to let him work on a commission on the work he brings in if it is sales that he is after. Based on what you have said, it doesn't seem like he wants to work. You are the Chief, and what you need are good Indians.
 
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A very good friend of mine once said that the only one he would partner with is the one he sleeps with!
I am in full agreement.
My only partner is my wife of 28 yrs.
He has me beat by 10 yrs.

Your "friend" sounds like the guy with so many ideas...but limited resources.

Go to coffee and explain to him that you don't want a partner right now. You want to give YOUR best shot and that means no partner at this time.

[ June 14, 2005, 11:09 AM: Message edited by: tshea ]
 
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Friends don't pressure you to do anything. Suggesting it might be OK. If your both drunk and will probably forget it by morning. Time to get a new friend. People that pressure want to take over your business. I have never seen a partnership work and I've seen it tried several times. Your happy, stay that way.
 
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I approached a friend about this once - and only once. His reply was pretty much what yours was. Since I already had my EC license (not business permit - perhaps State specific), I did not pressure him to make a "joint venture" again - instead, I paid my fees for the business permit, insurance, advertising, etc.

I am VERY happy to say we are still friends and bounce ideas/questions off each other. If I need a "hand" he is there, if he needs a "hand" I am there. There is no fear of competition as we work in completely different geographical locations (20 miles apart).

So far, I have "grilled" him on estimating and methods for residential (something I haven't done with any consistency in years) - he "grills" me on commercial...our "common ground" is in the backyard by the actual "grill" :) , a few beers and the kids all making a joyous racket.

Personally, I think my friend made a wise choice. He did not "need" me...I wanted him(or at least his credentials), but I had the credentials on my own( sans business permit). I guess he pushed me into doing it "on my own" - and rightfully so. He remains one of my oldest, dearest friends - and I wouldn't want it any other way.
 
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Be VERY careful here.

GET RELIABLE LEGAL ADVICE!!! (From an experienced construction attorney if possible) Also consult a good construction CPA for his advice as well. It will be money well spent!

Be sure you FULLY understand your state laws before you even consider becoming anyone's "PARTNER".

In Texas, it is very easy to become someone's partner -- you can almost do it by accident. It's as easy as 2 guys operating together as a business, without any other formal business structure of another type, and then you are "partners" by default.

If he is your formal employee (i.e. directly on your payroll), then that's OK, but otherwise, he will likely be judged as your partner -- especially if you split costs and profits.

In Texas, if you are someone's "partner" you become fully liable for any and all of your "partner's" acts, debts, contracts, purchases, etc. just as if you had made them yourself. Again -- you would be jointly and severally liable (i.e. fully personally liable) for all debts and liabilities that your partner incurs -- even if it is done without your knowledge or consent. It's like being married to them -- maybe worse!

They can bankrupt you personally in no time. They can run up debts that will take you years to pay. Remember that the bankruptcy laws will soon change for the worse!

Also, for most general liability insurance policies, a partnership must be a "listed insured" (i.e. clearly & specifically "declared" in writing) on the policy. If it is not listed, any work that is done under the partnership is not covered by the insurance policy. Guess who is then fully liable? YOU!

A partnership is one of the very worst possible forms of business entities. It has all of the possible disadvantages and no benefits.

If you even remotely consider going into business with someone, be sure you get GOOD legal advice on the best form of business entity to use. In Texas, you would want to form a Corporation or one of the newer similar vehicles that shield you personally from any liabilities of the business operation and give you good tax advantages. In a Corporation, you would want to keep the controlling stock percentage (at least 51%).

I just completed a 2-year consulting project for a guy that (in a moment of insanity) formed a partnership with an old friend of his to do some specialty work. (sounds alot like your deal?) The other guy (the partner) went broke, ran up enormous debts, declared bankruptcy, and left my guy holding the bag. I spent 2 years cleaning up this mess for him. He lost well over a million dollars (right out of his pocket) -- it could have been worse, since I cut his loses to about 1/3 what they could have been. He could not escape from the liability and debts. The other guy is now working on the east coast for another contractor. They aren't friends any longer. If they had just set this up as a separate corporation, my guy could have escaped most of the liability and debt.

Unless the laws in your state are significantly different, then NEVER become someone's "PARTNER".

Any time I hear someone call another person their "partner" I want to smack them!
 
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Originally posted by GG:
Plus now that I think back when we did a job together 4 years ago he would show up late and leave early.
Click to expand...
That is all I would need to know. I would say no thanks.
 
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Your friend needs a partner - you don't! You're successful in your business at this point in time, you pay your bills, you meet payroll and you have enough work to keep you going. Unless you have some vision of grandeur or are about to land a million dollar contract I would stay the where you are.
I just have a feeling that with this old friend I would be out of business in a year.
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Advice ? Never team up with friends or family. Somewhere along the line there will be a dispute or disagreement and ill will follows. Your work ethic may be different than his, the time you spend at you job will be different than his, etc. As far as I'm concerned, there's nothing worse than a bad marriage !!!
 
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The poster who warned about partnerships is absolutely correct. It's not just in Texas. Normal partnerships are just bad news.

If you decide to get involved in such an arrangement, get competant legal, insurance and accounting advice FIRST.

There are ways to structure such an arrangement to reduce your risk, but do not go into these type of arrangements without good advice. Expect to pay a fair amount of money up front for the advice, but it is well worth it.

By the way, NEVER casually refer to someone as a partner, either verbally or in writing, unless you actually have a written partnership arrangement. I once heard a story about a GC in this area who who used that word to describe what were actually his subs. One of the subs went south and a lumber yard was able to convince a judge the GC was liable for the purchases of his "partner" that the sub had not paid for. As I heard it, this included projects the GC was not even involved in.

<added> One other thing. There are a lot of people who have good ideas and good intentions. Very few of them can make anything of the ideas and intentions. Sad to say it, but the likely reason he wants to get hooked up with you is because he is not doing well on his own. If he was doing well on his own, he would not need you.

[ June 14, 2005, 08:01 AM: Message edited by: petersonra ]
 
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WOW, alot of great advice. I will in no terms become a partner with this guy. He sealed his fate today when he called me in a panic asking if I had 8 grand he could borrow. I told him I wasn't a bank and its obvious he just wants to try and take advantage of me. I loaned money to a friend 1 time in my life (1600.00) and was never paid back. That was 14 years ago and it took me about a year of working my *** off to save that money. I learned then that if someone wants a "loan" you might as well consider it a gift because you will never see that money again. I told my friend that he should start his own business and that I didn't think he should call me anymore. :) Thanks again all!!!
 
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I hired a couple friends. Known them better than 20 years each probably. 1 who has worked for me for over a month and was telling me over the phone last Wednesday evening that he was going to be my main point man. He has missed a couple days without bothing to call. He was taking home 1 of my vans at night. That was the last day he worked a full 8 hours. Didn't show or call Thurs. had to leave a half hour early Friday, but told me a few day ahead, no problem. No show or call Monday. I went and got my van Monday night and didn't hear anything from him till an email when I sat down here with an infrated time card. Monday another friend that works for me was supposed to be on the same job. He was a no show and called at 9:45 for god knows why. 1 of the 2 green helpers probably called him to see what they should do. Two of the 4 people that were supposed to be on the job showed. 1 was a green helper that has a total of 4 days experience. The other, it was his first day. Just graduated high school, first day on the job. I don't know the helpers except for interviewing and hiring them. My friends couldn't bother to be on the job or to call me to tell me they wouldn't.

[ June 14, 2005, 08:22 PM: Message edited by: bradleyelectric ]
 
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I would be careful with this one as well. See what he can bring to the table and later make him an offical partner if he produces results like he promises.
 
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gg admitted it stinks not having good experienced hands that you can rely on. however look at it this way if you have the time you can take these two kids personally under your wing and teach them both how you want it done. do you have any guys who left you under good terms that can help you catch up on the weekend? I know Ive got one company that calls me every week or so to help him trim out a house or rough one in. Why because he cant get reliable help and he understands that I left him to better myself as he is resi and Im now doing commercial just remember to pay these kids more as you add the responsibility onto them
 
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Originally posted by GG:
I said sounds great but where are you going to get all the work to pay for all these things you think we will need. He just keeps saying he will get us the work. ... Do you think it is worth the risk to see if he can bring in the work?
Click to expand...
I can get more work for you than you can do. You'll have to hire 8 men to keep up with me. All I have to do is always be the low bid on all of the projects that I bid for you. Of course, that doesn't mean you can do the work for "our" bid price (Partner).

When you do your own work, if you bid a small project too low, you just work for less per hour. You hardly ever actually take money out of your own pocket to complete the work (and if you do, it's usually a small amount).

When you grow to the point that you are having other men do the work for you, you can actually take money out of your pocket to complete a project if it is bid too low. Sometimes, you have to take a LOT of money out of your own pocket to complete a project.

If you have someone else "bringing in the work for you", unless it is hourly rate billable service calls, then it will be by bids. That's a great way to go broke very quickly. How many jobs can you afford to do when you have to spend your own money to complete them?

In the mean time, until the music stops, I can run up some really enormous debts for you "Partner". I can even prolong the music by doing some creative accounting, charging costs for older jobs to new projects to make the older jobs look profitable. If I just keep doing this and keep adding new projects fast enough, I can play this game (cost shifting) a long time. I can live the high-life on your credit and buy and hide a lot of nifty stuff where you will never find it -- or sell it and keep the cash where it can't be found.

Another ploy -- Your partner does some small projects on the side (that you don't know about), gets paid for them, and keeps the money. But he charges all of the materials and other costs to your account, charging it to jobs that you do know about.

I've seen these very things happen several times to contractors that I know and have done work for. I could add a number of other ploys and schemes that I have seen, too, but you get the idea and I don't want to give anyone more or better ideas (not that I think any of you guys would do things like this).

When the music stops, you are the one still left standing in the middle of the dance floor, stuck with paying all of the bills.

Stay small and control your costs until you really understand the contracting business and until you have built up a good chunk of capital. Don't grow faster than your education or your capital. Be sure you understand the risks and how to control them before you grow larger and have to depend on employees completing projects within budget. Failing to do this is the second most common reason that most small contractors go broke (the first reason is doing the work, and then not getting paid, on a project that's too large for you to absorb within your capital -- you're almost instantly broke, maybe even deeply in debt!)


Petersonra said:

"By the way, NEVER casually refer to someone as a partner, either verbally or in writing, unless you actually have a written partnership arrangement. I once heard a story about a GC in this area who who?used that word to describe what were actually his subs. One of the subs went south and a lumber yard was able to convince a judge the GC was liable for the purchases of his "partner" that the sub had not paid for. As I heard it, this included projects the GC was not even involved in."


I agree!!! That's why I said it is very easy to unintentionally become someone's "Partner". You can then get stuck with his debts, even if you didn't have anything to do with them. Even if you eventually win in court, your legal costs and time lost fighting it can be staggering. NEVER call anyone your "Partner".

This is no joke -- I've seen this happen several different times.
 
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Never go into business with someone else for something you can do yourself. Point blank.... no partners!!!! Let him go open his own company.
His willingness for you to partner with him shows either he lacks the finance or ability to do it on his own. Sounds like you are doing ok on your own, keep it that way.
 
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I'm a one-man shop who is struggling to keep up with all the work that keeps coming my way, but I have no interest in partnering up with anyone because I don't know anyone I would trust nearly that well. The only scenario I'd even consider (other than "partnering" with a wife) is if I knew and trusted another EC who was also doing just fine on his own, but if we joined forces, we'd be doing better together than we would individually (e.g., being able to take on bigger projects). But even then, I'd be pretty wary before making such a move. It would have to be someone I work well with, respect, and trust. Even then, I'd still probably lean against it, seeing as how I'm the kind of person who is always looking for and avoiding pitfalls.

All in all, partnership sounds like it has all the disadvantages with none of the advantages.
 
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