Getting started operating capitol

[e57]

Been out on my own before, at the WRONG time right before the Dot-com crash - had to go back to my old job. Before then, all you needed to do is have a license (or not) and you had steady work here. If you had the time to answer the phone you were set.... Now it is a bit more competitive...

Now, I need to do one of two things for medical purposes (Body not what it used to be and getting worse fast)

• Get out of the field and into being a PM
• Go back out on my own and push my way out of the field real quick

So what do you think a start-up operating cost would be for quick growth?

 

[77401]

My grand father always said "if you have to ask you can't afford it"

Not kidding he did say that!

But I find it hard to believe anyone doing this right should ever have to shut down because of economic reasons. There is always work for the good people who return calls & show up when they say.

If your health is failing, sorry to here this, you might want to try getting a job for GE (Good Enough) or some other large corporation. Once in the door the only place to move, is up.

 

[ramsy]

If your state of operation is California, the 2006 CA Law Book shows all of California's State Liscensing Board
(CSLB) requirements.

Contractor licensing requires equivelant 4-yrs JW experience, proof by a vouching contractor, and surety-bond deposits to CSLB for $12,500 + $$7,500 for each managing employee (ie) forman, etc... Some members of "Joint ventures" are exempt from the Lic. requirements.

CA prohibits the LLC entity for any contractor, waives gen.liab.insurance if bonded, but enforces Workers comp. Ins, if the single-person exemption is not filed. The example contracts (above link) shows consumers must be given "Intent to Lien" notice before work begins, or liens are not enforceable.

Further CA-consumer protections prohibit contractors from receiving any money or down payment before work is complete, or from collecting on change orders without owner's signed authorizations.

The extensive details and notices CSLB requires on the written contracts is too extensive to cover here, you have to see it to beleive it. (above link). CSLB website constantly reminds, beggs, and plasters links everywhere, for consumers to report anyone operating without a license.

Hidden deeply under all this, there is a minor exception for "Home Improvement" handymen (different set of requirements) if they can operate under $500.00 per project, including total labor & materials (see "Home Improvement" section of above link).

A local insurance agent said institutional clients can require contractors to plug their exposure and demand more coverage, including comm. vehicle policies. His average rate for the un-licensed "Home Improvement" (Handyman) policy runs about $1500.00 per year, for $300K in coverage, but this is void if claims fail CSLB requirements for the "Home Improvement" catagory, (must be < $500, with proper notice, permits, etc..)

When I asked what a $2 milion policy would cost, in my area, for a new contractor that wouldn't gross more than $5,000 the first year, the agents promissed they would talk with their underwritters, but never returned my calls.

No doubt, $2 million Gen.liability-policy premiums are over $5000 per year in my area, or those agents would have called back. May also explain why CSLB preferes to enforce bonding deposits for licensed contractors, if small operators historically are less likely to maintain such premiums.

 

[hardworkingstiff]

So what do you think a start-up operating cost would be for quick growth?

$50,000
plus a line of credit in case you need to carry large AR numbers.

 

[e57]

There is always work for the good people who return calls & show up when they say.

Like I said.... "If you had the time to answer the phone you were set.... Now it is a bit more competitive..."

At that time, you literally had to go into hiding to even get work done. And when you got the work done you could just pick the next few jobs. (if you wanted to) it was that easy! And where I am (SF,CA) was hit hard for that crash, the entire commercial market dried up in a few days, and didn't really moderately recover for about a year and half. And residential was slow and hungry even for the big guys. Thousands of u-hauls left town over the next few weeks - it was a ghost town.....

Now, it is much more realistic. But much more competitive.

I got this in PM, and hardworkingstiff's reply are closer to what I was looking for....

Back when i went in, i had $30K credit line, to start, i thought that was a huge amount, well in just 6 months that was gone, and i needed more capitol to continue, most guys try to go in on the cheap, i don't know of any that lasted more then, 5 or 6 years doing that, debt usually catches up with them, in the 5th or 6 th year, and they have to close shop and go back to work to earn a living and pay back the debt.

An initial cost basis balancing act is really hard to achieve, I have watched other people try to juggle it, and it doesn't take much for a few balls to hit the floor... The CSLB's required numbers are totally unrealistic, and easily covered by owning your own truck and tools. But in those same sets of laws they actually limit what you can get in up-front reimbursment of costs - if you have to float $20k in cans and the labor to install them for a while you're toast.

So my intial thinking was $80k in debt financing, and a line of credit on top of that. What I want to do is get past that point of working myself to finding work for one or more employees fast, and not take several years to do it. As cash flow is incremental, there is some high risk.... However, the more I think about it, I think that number is too low, and more than that is too high...... How do you figure out this number, is there a formula for it?

 

[ramsy]

"..if you have to float $20k in cans and the labor to install them for a while you're toast. So my intial thinking was $80k in debt financing, and a line of credit on top of that. ..How do you figure out this number, is there a formula for it?

Other trends during the last decade may narrow that float to more labor and less material costs.

In my area, Kaiser is among several owners who select contractors, for new devolpments, based on safety record. Apparantly, owners enrich themselves somehow by prefering contractors with impeccable safety records. Perhaps by keeping their insurance premiums low?

Morrow-Meadown was the favored EC by Kaiser last year (Sand Canyon - Irvine, CA). Mid project Kaiser tossed a few BBQ's and hired the BudWeiser girls to come out and sign calendars, as incentive to keep up the safety record. (extraordinarily rare for jobsites these days)

The bid process for projects of this scale, needing $20k+ in cans, would not be a level playing field for any start up that lacked a traceable safety record. As more owners, institutions, and public works projects are screening by safety record, start ups may find themselves cutting their teeth in other markets.

I believe the scale & capital that start ups can expect to deal with depends on which market sectors they target. Not sure about short-term jobs, but unless start-up overhead is way lowball, I doubt larger-scale, new-construction owners can justify risking the unknown safetly record.

 

[emahler]

e,

what market are you going to target? commercial installation? residential installation? or service?

If you want out of the field fast (>1 yr) your are probably looking at min $150,000 in startup capital.

If you are doing commercial installations -this is bid work. You will have to have ready employees to go after this right away. The only way to have ready employees is to have them on payroll. You're still in the field, you know who is available. You know what it's going to cost to get you guys that will make you money.

Residential installations - same thing. still dealing with GC's. A little easier to start on your own, and handle the 1st couple of projects while bringing a guy or 2 on.

But with both of theses instances, you are also becoming a finance company. You'll be floating material, payroll, truck payments/insurance, medical insurance, phones, etc.

If you go after service, you'll need that money to advertise. Look in your local YP and see what the ads are like. I am not familiar with the SF YP, but my guess is that there are quite a few EC advertising. You need to get people to call you instead of them. And you need alot of people to call you instead of them. You will need an average of 3 service calls/man/day. You will need an average of 6-8 phone calls/man/day to get those 3 service calls.

Just like any business, you should probably look to have at least 4-5 months working capital. In order for you to not be in the field, you will need to generate around $400-$450k, year. Figure operating expenses for that (including your salary) at around $375-400K, 4 months is about $160K.

That's if you want to grow fast and get out of the field.

I would honestly look into PM'ing. Might be better in the short term and equal in the long run. I've seen pictures of your work, it's great. But if you want to grow fast, forget about the quality that you like. Unless, you have money behind you to hire top notch guys. It's vicious.

Good luck

 

[e57]

A split of residential/commercial, but mostly resi at the beggining, some commercial can be a little heavy on money to float around. And you're right you do end up fiancing large portions of work.

And I like your thinking on how much money you would need to generate vs. capitol.

 

[emahler]

good luck. if you had time to grow, you could do with a lot less startup. Like I've said, I've seen pictures of your conduits and a few other jobs. Very impressive.

 

[emahler]

I've thought about this for a little bit. Throw all of this out the window if you can find a financially stable GC who is willing to be your Godfather.

By that I mean, shovel you work at negotiated rates, pay you on time and give deposits as needed. And essentially take you under his wing.

Now, if you can't find that. Then I'd go with the $150,000