Question for You Entrepreneurs
Thread Starter
Thats MR Hoss to you buddy!
Joined: Jul 2001
Posts: 2,759
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From: Central Texas
Question for You Entrepreneurs
I'm giving some serious thought to starting one, two or maybe even three small businesses. These would have to be side jobs until they were well enough established that I could rely on them to make a decent living.
My background is commercial construction and prior to that residential construction. What I would REALLY like to do is build high quality custom homes. Another business idea that I have is somewhat related, but falls more into real estate than construction. The companies could work really well together though, and I think there is a good market for them at my present location.
Company #1 would be building custom homes. I figure I could get started by building a spec home and then selling it for a decent profit. The profit could then go into the company and building more homes. The first several houses would require construction loans I'm sure, but I'd like to get to the point that my company would have enough cash to build homes without taking out loans.
Company #2 would be somewhat related. I'd like to buy some smaller, inexpensive houses at a good price (HUD, VHA, etc), then clean them up and sell them for a decent profit. Again, the first few houses would require bank loans but I think after I sold a few of them I'd have enough cash on hand to just pay cash for them out of pocket.
My question is, what kind of things do I need to be thinking about before starting my own business? Is it best to just set them up as sole proprietorships? Given that my wife and I both have good credit, how hard would it be to get loans from banks to get the businesses started? What other things should I consider?? What tax issues should I be looking at?
I'm starting to research this pretty hard because I'd really like to have the freedom and the rewards of being my own boss, but I figured that since the good folks at DTR seem to know everything then there would probably be a few people here who have their own businesses.
Thanks for the input.
My background is commercial construction and prior to that residential construction. What I would REALLY like to do is build high quality custom homes. Another business idea that I have is somewhat related, but falls more into real estate than construction. The companies could work really well together though, and I think there is a good market for them at my present location.
Company #1 would be building custom homes. I figure I could get started by building a spec home and then selling it for a decent profit. The profit could then go into the company and building more homes. The first several houses would require construction loans I'm sure, but I'd like to get to the point that my company would have enough cash to build homes without taking out loans.
Company #2 would be somewhat related. I'd like to buy some smaller, inexpensive houses at a good price (HUD, VHA, etc), then clean them up and sell them for a decent profit. Again, the first few houses would require bank loans but I think after I sold a few of them I'd have enough cash on hand to just pay cash for them out of pocket.
My question is, what kind of things do I need to be thinking about before starting my own business? Is it best to just set them up as sole proprietorships? Given that my wife and I both have good credit, how hard would it be to get loans from banks to get the businesses started? What other things should I consider?? What tax issues should I be looking at?
I'm starting to research this pretty hard because I'd really like to have the freedom and the rewards of being my own boss, but I figured that since the good folks at DTR seem to know everything then there would probably be a few people here who have their own businesses.
Thanks for the input.
Banned
Joined: Nov 2002
Posts: 909
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From: Illinois
The biggest issue to look at IMHO is if you are looking at starting small, don't have employees. Just one person working for you opens up a flood of logistical nightmares. Not so big an issue if you have to do it for several but for just one it's a job in itself.
Next is if you do a sole proprietorship it is a lot easier to setup and for the begginer businessman to organize. The drawback is that if you are ever found at fault in any legal situations your personal property is at risk. You could lose everything. If you are Incorporated and something goes wrong with a house you built, get in an accident with the company truck or even kids go in and vandalize a house your building and get hurt anything you only stand to lose what is owned by the business. Personal Assets are safe.
Your own business is a gamble and in the scale of investment your talking about a sink or swim deal for most average people, but you will never know till you try and if you don't try it you will always wonder.
Next is if you do a sole proprietorship it is a lot easier to setup and for the begginer businessman to organize. The drawback is that if you are ever found at fault in any legal situations your personal property is at risk. You could lose everything. If you are Incorporated and something goes wrong with a house you built, get in an accident with the company truck or even kids go in and vandalize a house your building and get hurt anything you only stand to lose what is owned by the business. Personal Assets are safe.
Your own business is a gamble and in the scale of investment your talking about a sink or swim deal for most average people, but you will never know till you try and if you don't try it you will always wonder.
Banned
Joined: Mar 2005
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My man Hoss!!!
The only thing you will regret from starting anything on your own is not doing it sooner!.
I think all of your ideas are very feasible, but you'll need to establish a solid business plan and pace yourself. Your ambitions are high and that is a great starting point. Check out the SBA's website and search for local "free" consultants to assist you in creating a business plan. http://www.sba.gov They will need a lot of information from you and it will likely take quite a few meetings over a few months to really get squared away.
While your credit may be spotless it is not wise to establish a sole proprietorship under any circumstances. It is more difficult from a tax standpoint and puts you personally at risk. The best thing to do is to consult with both an attorney and a tax professional to determine the best type of organization. These two will cost you, but not too much. The attorney should be bewtween $300-$700 to file articles of incorporation/organization with the state, obtain a vendors license for you, and provide you with a corporate charter (operating parameters). The accountant can run as high as $250 for a consultation depending on how elaborate your business plan is. For the past few years the craze has been limited liability companies here in Ohio and quite possibly everywhere else in the country, I just haven't paid much attention when traveling. I initially organized as one and many of my customers and vendors have recently reorganized as such. The bylaws that govern limited liability companies are slightly different than "S" corporations and protect you from taxes and personal liability a little differently. I can only speak for the taxes end of that statement as we have never had any suits brought against the organization. I can tell you though that we are involved in some litigation against a customer and will be entering the fun part of "piercing the corporate veil" shortly. It is extremely difficult, very costly, and time consuming.
The other concerns that will need to be addressed immediately are insurance and workers' compensation. Insurance requirements will vary greatly from state to state, county to county, between municipalities, and even amongst certain customers/clients. On a number of ocassions we have have to bump our umbrella coverage near $10 million and at about $1500 per million it isn't pretty. Depending on your state you can purchase workers' compensation coverage directly from your insurance agent. In Ohio it is required to purchase directly from the state or other MCO's (managed care organizations). Workers' compensation premiums will vary on your gross payroll and number of employees. Also be aware of the wonderful state unemployment tax. It is based on your payroll and also an experience rate. No former employees collecting unemployment and your rate is low. If you lay your guys off during a slow period and they claim unemployment your rate will go up. Simple really, just keep everyone busy!
As for obtaining loans from the banks for venture capital I cannot say. I do know that they are not risk takers and will not even talk to you on an individual basis for loans of substantial size, $500K+. The SBA is one of the best places to look for help. It can be a tedious process with seemingly no end in sight, but those that have gotten through it are much better off. For the past two years I have had a $50K line of credit available at the bank, but I have never had a need to touch it. I started with almost nothing, worked hard for four years and have just finished paying for everything this year. Of course, we'll need more equipment next year so the cycle will resume.
One last note on the freedoms of being your own boss. There aren't any if you are truly looking to create a business. If you just want a paycheck that is a little better than the one you have now you can fine tune your operation, but don't expect to make millions doing work when you feel like it. It took me 16-18 hour days M-F and 10 hour days on Sat & Sun to get to where I am now and I haven't reached all of my goals yet. Keep in mind I am 26, single, and have no strings. When you have a family it is an entirely different story.
If you need any more help or have more specific questions I would be glad to assist.
Take it easy Hoss, don't think too hard. It hurts, trust me I know.
The only thing you will regret from starting anything on your own is not doing it sooner!.
I think all of your ideas are very feasible, but you'll need to establish a solid business plan and pace yourself. Your ambitions are high and that is a great starting point. Check out the SBA's website and search for local "free" consultants to assist you in creating a business plan. http://www.sba.gov They will need a lot of information from you and it will likely take quite a few meetings over a few months to really get squared away.
While your credit may be spotless it is not wise to establish a sole proprietorship under any circumstances. It is more difficult from a tax standpoint and puts you personally at risk. The best thing to do is to consult with both an attorney and a tax professional to determine the best type of organization. These two will cost you, but not too much. The attorney should be bewtween $300-$700 to file articles of incorporation/organization with the state, obtain a vendors license for you, and provide you with a corporate charter (operating parameters). The accountant can run as high as $250 for a consultation depending on how elaborate your business plan is. For the past few years the craze has been limited liability companies here in Ohio and quite possibly everywhere else in the country, I just haven't paid much attention when traveling. I initially organized as one and many of my customers and vendors have recently reorganized as such. The bylaws that govern limited liability companies are slightly different than "S" corporations and protect you from taxes and personal liability a little differently. I can only speak for the taxes end of that statement as we have never had any suits brought against the organization. I can tell you though that we are involved in some litigation against a customer and will be entering the fun part of "piercing the corporate veil" shortly. It is extremely difficult, very costly, and time consuming.
The other concerns that will need to be addressed immediately are insurance and workers' compensation. Insurance requirements will vary greatly from state to state, county to county, between municipalities, and even amongst certain customers/clients. On a number of ocassions we have have to bump our umbrella coverage near $10 million and at about $1500 per million it isn't pretty. Depending on your state you can purchase workers' compensation coverage directly from your insurance agent. In Ohio it is required to purchase directly from the state or other MCO's (managed care organizations). Workers' compensation premiums will vary on your gross payroll and number of employees. Also be aware of the wonderful state unemployment tax. It is based on your payroll and also an experience rate. No former employees collecting unemployment and your rate is low. If you lay your guys off during a slow period and they claim unemployment your rate will go up. Simple really, just keep everyone busy!
As for obtaining loans from the banks for venture capital I cannot say. I do know that they are not risk takers and will not even talk to you on an individual basis for loans of substantial size, $500K+. The SBA is one of the best places to look for help. It can be a tedious process with seemingly no end in sight, but those that have gotten through it are much better off. For the past two years I have had a $50K line of credit available at the bank, but I have never had a need to touch it. I started with almost nothing, worked hard for four years and have just finished paying for everything this year. Of course, we'll need more equipment next year so the cycle will resume.
One last note on the freedoms of being your own boss. There aren't any if you are truly looking to create a business. If you just want a paycheck that is a little better than the one you have now you can fine tune your operation, but don't expect to make millions doing work when you feel like it. It took me 16-18 hour days M-F and 10 hour days on Sat & Sun to get to where I am now and I haven't reached all of my goals yet. Keep in mind I am 26, single, and have no strings. When you have a family it is an entirely different story.
If you need any more help or have more specific questions I would be glad to assist.
Take it easy Hoss, don't think too hard. It hurts, trust me I know.
Banned
Joined: Jan 2005
Posts: 0
Likes: 2
From: Port Deposit, MD
May sound dumb, but persure a Real Estae License. You may be the best home builder in all of Texas, but the knowledge you'll gain from a qucik and relatively cheap stint at school will be preiceless.
I can tell you that starting a small business is one good way to not see much of your family, as posted before, YOU will be the man for at least the first 1 1/2 to 2 years (more or less depending on LUCK).
Without a few good men working to help you achive some of your short term goals, you can and likley will flounder. In all truthfulness, you will be looking out 100% for you.(follow me here?) There is alway's jealously and backstabbing in the world of sole proprietorship.
The Lawyer we use charges $350 for the INC. (Closed, "S" Type) I hear it can be done cheaper via the internet, but I choose to leave it up to the professionals.
Baby steps, one business at a time unless you are a glutton for punishment.
Good Luck
I can tell you that starting a small business is one good way to not see much of your family, as posted before, YOU will be the man for at least the first 1 1/2 to 2 years (more or less depending on LUCK).
Without a few good men working to help you achive some of your short term goals, you can and likley will flounder. In all truthfulness, you will be looking out 100% for you.(follow me here?) There is alway's jealously and backstabbing in the world of sole proprietorship.
The Lawyer we use charges $350 for the INC. (Closed, "S" Type) I hear it can be done cheaper via the internet, but I choose to leave it up to the professionals.
Baby steps, one business at a time unless you are a glutton for punishment.
Good Luck
Thread Starter
Thats MR Hoss to you buddy!
Joined: Jul 2001
Posts: 2,759
Likes: 3
From: Central Texas
Thanks for the input so far. Keep it coming.
I do want to clarify a few things regarding employees. At least for quite a while there would be none. In fact, there may not EVER be any other than me. All of the work would be subcontracted out. My wife would play a major role in helping me get some of the day to day tasks accomplished since she stays at home. Realistically though, I'm probably only talking about building 3-4 homes a year once it gets going good...maybe 5-6. With my experience in managing construction projects I just don't see why I would need a lot of employees. I don't plan to become the next David Weekly homes. This would be a small time operation.
As far as taking baby steps, that is probably good advice. I hadn't really planned on starting 2 or 3 companies at the same time, but I do think it could be done when you look at the kind of businesses I'm talking about. One thing at a time though.
The real estate license is a good idea. I'll look into that some more. In fact, that would be something that my wife could pursue and then we would not have to go through a realtor when it comes time to buy/sell a home.
I do want to clarify a few things regarding employees. At least for quite a while there would be none. In fact, there may not EVER be any other than me. All of the work would be subcontracted out. My wife would play a major role in helping me get some of the day to day tasks accomplished since she stays at home. Realistically though, I'm probably only talking about building 3-4 homes a year once it gets going good...maybe 5-6. With my experience in managing construction projects I just don't see why I would need a lot of employees. I don't plan to become the next David Weekly homes. This would be a small time operation.
As far as taking baby steps, that is probably good advice. I hadn't really planned on starting 2 or 3 companies at the same time, but I do think it could be done when you look at the kind of businesses I'm talking about. One thing at a time though.
The real estate license is a good idea. I'll look into that some more. In fact, that would be something that my wife could pursue and then we would not have to go through a realtor when it comes time to buy/sell a home.
Banned
Joined: Jan 2005
Posts: 0
Likes: 2
From: Port Deposit, MD
Not sure how the market is in your area, but the new construction (development to "semi" custom) homes are built in the $68.00 to 80.00 a sq. foot range and easily sold in NO lower than $100.00 a foot.
The one I am working on now (supposed to working, DTR is fouling that up) was built for $69.22 a foot (including site improvmements) Lot value is aprox. $100,000 (2.01 acres) Sales price will be about $325,000.
Builders around here make a sweet living.
Okay, I'll do the math.
Cost to builder for lot, well, septic,and dwelling = $252,284
Sales Price $325,000
Commission -$ 16,250
Transfer taxes, Misc (.75% +/-) -$ 2,437.50
$54,028.50 profit for a 2-3 month project start to finish.
Now, this is based on a 2200 sq. foot Colonial. Obviously, prices and costs could be very different depending on your market.
The one I am working on now (supposed to working, DTR is fouling that up) was built for $69.22 a foot (including site improvmements) Lot value is aprox. $100,000 (2.01 acres) Sales price will be about $325,000.
Builders around here make a sweet living.
Okay, I'll do the math.
Cost to builder for lot, well, septic,and dwelling = $252,284
Sales Price $325,000
Commission -$ 16,250
Transfer taxes, Misc (.75% +/-) -$ 2,437.50
$54,028.50 profit for a 2-3 month project start to finish.
Now, this is based on a 2200 sq. foot Colonial. Obviously, prices and costs could be very different depending on your market.
Banned
Joined: Nov 2002
Posts: 909
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From: Illinois
I would strongly agree with the use of the SBA, they helped me every step of the way starting from scratch. I sat down with them and they walked me through doing the business plan, loan paperwork and all the needed permits and licensing. The biggest asset I have found in making a business succesfull is your accountant/financial consultant. There knowledge can make or break you. They seem expensive up front but the money they save you will pay there fee many times over. You may also check with your local community college. Many of them have Small Business Assistance Centers that will help in these matters also.
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Registered User
Joined: Feb 2003
Posts: 542
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From: Salem, Ohio
Look into an LLC, a Limited Liability Corporation. Can be set up in a few weeks, does not cost a fortune, and limits the liabilities to the business only. There will be insurance issues, business vs. personal property, etc. I have done some research in the area, PM if you need more details. Get well acquanted with an attorney, they can be your best friend.
Banned
Joined: Jan 2005
Posts: 0
Likes: 2
From: Port Deposit, MD
Originally Posted by Tiny
Look into an LLC, a Limited Liability Corporation. Can be set up in a few weeks, does not cost a fortune, and limits the liabilities to the business only. There will be insurance issues, business vs. personal property, etc. I have done some research in the area, PM if you need more details. Get well acquanted with an attorney, they can be your best friend.
Serioulsy though, I MAXXED out my SS last years, ended up coughing up 10K that I may or may not get any bene's from 40 years from now. Hopefully, this tax year will be different as I am more than just an independant contract getting the old 1099.
The regular old INC. cost us the same last time round, we could have got the LLC, but the attorney said, "same price for each, the full incorporation CYA's better and has more tax advantages".
Just what I heard, any accountants, feel free to corect me.
Registered User
Joined: Nov 2001
Posts: 3,733
Likes: 264
From: Austria Europe
Hoss, my opinions from my side of the pond- I can't tell you a penny's worth on the legal side of business in the USA.
But, if you want to open up a business try to keep your family members out of any liability by doing so. You said that your wife's credit limit is good... don't even think of touching it. Do it on your own, so if you fail your wife will still have something. If you break up.. (always hoping it won't happen, but still good to consider the possibility) the business won't need to be split, and she (and her potential new "friend") don't have anything to say in the business.
I'm an entrepreneur myself. (computer business)- I'm working about 80-100 hours a week to make ends meet. Mistakes keep coming back (only MDs do bury their errors)
Before any step of growth do sleep over it- especially if it involves employees or partners. (Not heeding that rule cost me really big time- still struggling to get back out of debt. I am very glad that the business is mine and mine alone, my wife has never even signed for a parcel in my business- otherwise it would have hurt even more since her property can't be touched in any way to pay for my mistakes)
Think about what these working hours would do to your marriage and your family.
This may sound very pessimistic at the moment, but I thought I'd condense the main points of failure as I see them. If you see yourself fit to cope with these circumstances and if you do not want to endure them but you feel that they are the good parts of your life then go for it.
Either way you decide- I do wish you success!
AlpineRAM
But, if you want to open up a business try to keep your family members out of any liability by doing so. You said that your wife's credit limit is good... don't even think of touching it. Do it on your own, so if you fail your wife will still have something. If you break up.. (always hoping it won't happen, but still good to consider the possibility) the business won't need to be split, and she (and her potential new "friend") don't have anything to say in the business.
I'm an entrepreneur myself. (computer business)- I'm working about 80-100 hours a week to make ends meet. Mistakes keep coming back (only MDs do bury their errors)
Before any step of growth do sleep over it- especially if it involves employees or partners. (Not heeding that rule cost me really big time- still struggling to get back out of debt. I am very glad that the business is mine and mine alone, my wife has never even signed for a parcel in my business- otherwise it would have hurt even more since her property can't be touched in any way to pay for my mistakes)
Think about what these working hours would do to your marriage and your family.
This may sound very pessimistic at the moment, but I thought I'd condense the main points of failure as I see them. If you see yourself fit to cope with these circumstances and if you do not want to endure them but you feel that they are the good parts of your life then go for it.
Either way you decide- I do wish you success!
AlpineRAM
Thread Starter
Thats MR Hoss to you buddy!
Joined: Jul 2001
Posts: 2,759
Likes: 3
From: Central Texas
The biggest asset I have found in making a business succesfull is your accountant/financial consultant. There knowledge can make or break you. They seem expensive up front but the money they save you will pay there fee many times over.
Get well acquanted with an attorney, they can be your best friend.
Do it on your own, so if you fail your wife will still have something. If you break up.. (always hoping it won't happen, but still good to consider the possibility) the business won't need to be split, and she (and her potential new "friend") don't have anything to say in the business.
Think about what these working hours would do to your marriage and your family.
Banned
Joined: Oct 2004
Posts: 301
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If you value marrige & health dont do it. 
If you do start a Co. Keep it small, Keep it all. Try to stay away from employees. If you can do it on your own, your much better off. I would definetly incorp or go with an LLC. I've done those and a General Partnership. S- Corp has worked out best for me over the years......Good Luck
If you do start a Co. Keep it small, Keep it all. Try to stay away from employees. If you can do it on your own, your much better off. I would definetly incorp or go with an LLC. I've done those and a General Partnership. S- Corp has worked out best for me over the years......Good Luck
Registered User
Joined: Aug 2005
Posts: 184
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From: Tn
Hoss, Been self employed for a few years now, ( painting business, mostly high end residential ) Have a full partner and three employees. Worked factory work for years..I tell you all that to say this, I love it and can't believe how much life there really is outside of that factory!
Sounds like you have thought about this and it's not a whim. We did like your thinking, alittle at a time until we had enough buisness to pay the bills and then quit our jobs. As stated in another post, the first couple of years could be alittle rough but I've found it well worth the wait.
Two things that might help you 1. Believe in your abilities and price acordingly. If you price yourself too cheap it's hard to break the mold on what people expect price wise. If you start out in the top percentage of the price range and do good work, word will spread that your good and price wont matter to those who want good.
2. The only advice my dad gave me when I told him I was starting my buisness. (he had his own buisness for years) "Lots of people have a sad story, fall for their sad story and you'll be the one with a sad story!" He said there are a few people that have had bad luck befall them but most people are in a hard spot because of bad choices not luck. Can't feel sorry for everyone, your in buisness to make money for you and your family. Yes I believe in helping people but you have to chose wisely. Hope this helps you in some way...LCH
Sounds like you have thought about this and it's not a whim. We did like your thinking, alittle at a time until we had enough buisness to pay the bills and then quit our jobs. As stated in another post, the first couple of years could be alittle rough but I've found it well worth the wait.
Two things that might help you 1. Believe in your abilities and price acordingly. If you price yourself too cheap it's hard to break the mold on what people expect price wise. If you start out in the top percentage of the price range and do good work, word will spread that your good and price wont matter to those who want good.
2. The only advice my dad gave me when I told him I was starting my buisness. (he had his own buisness for years) "Lots of people have a sad story, fall for their sad story and you'll be the one with a sad story!" He said there are a few people that have had bad luck befall them but most people are in a hard spot because of bad choices not luck. Can't feel sorry for everyone, your in buisness to make money for you and your family. Yes I believe in helping people but you have to chose wisely. Hope this helps you in some way...LCH
Administrator
Joined: Jan 2004
Posts: 2,331
Likes: 2
From: Kalamazoo, Michigan
Hey Hoss,
I'm no expert in setting up businesses, altho I DO run a couple of my own.
It's ironic that you posted this today, because just yesterday I was asking a friend of mine who is a superior court judge, what the differences were between LLC's and 'S' Corps. The major difference, as she explained it to me, is that an LLC will limit the amount that a person can sue you for, to the amount that you declared for start up costs. For example, if you put $20 grand into starting a business, that's all that anyone will ever be able to sue that business for. I'm sure there's a lot more to it than just that, but that was the focus of her explanation to me.
As far as 'time for family' goes, well... lets just say that your own business will take up more of your time than you could ever imagine. Especially if you're the type who likes to pay attention to detail, which it seems you are. This isn't always a bad thing in my opinion, as long as you know when to draw the line between business and family. There HAS to be a happy medium, and both sides will lose from time to time. There will be times when a deadline isn't met because of that school play you HAVE to attend, and there will also be times when you're late for a family outing or such because you HAVE to meet a deadline. Just try and figure out that balance so neither side suffers all the time.
Above anything else, make sure whatever you do is something you truely like to do, (concrete bedliners come to mind!), do it well and have fun with it. If it's a constant struggle and a PITA, you might as well just be working for someone!
chaikwa.
I'm no expert in setting up businesses, altho I DO run a couple of my own.
It's ironic that you posted this today, because just yesterday I was asking a friend of mine who is a superior court judge, what the differences were between LLC's and 'S' Corps. The major difference, as she explained it to me, is that an LLC will limit the amount that a person can sue you for, to the amount that you declared for start up costs. For example, if you put $20 grand into starting a business, that's all that anyone will ever be able to sue that business for. I'm sure there's a lot more to it than just that, but that was the focus of her explanation to me.
As far as 'time for family' goes, well... lets just say that your own business will take up more of your time than you could ever imagine. Especially if you're the type who likes to pay attention to detail, which it seems you are. This isn't always a bad thing in my opinion, as long as you know when to draw the line between business and family. There HAS to be a happy medium, and both sides will lose from time to time. There will be times when a deadline isn't met because of that school play you HAVE to attend, and there will also be times when you're late for a family outing or such because you HAVE to meet a deadline. Just try and figure out that balance so neither side suffers all the time.
Above anything else, make sure whatever you do is something you truely like to do, (concrete bedliners come to mind!), do it well and have fun with it. If it's a constant struggle and a PITA, you might as well just be working for someone!
chaikwa.