Here is an interesting article about owning a business or owning a job.
Title: Do You Own A Business? Or Do You Own A Job?
By Jim Olsztynski http://pmmag.com/CDA/ArticleInformation/features/BNP__Features__Item/0,2379,5124,00.ht ml

[This message has been edited by A-Line (edited 01-09-2005).]

How did the country song go? "Work your fingers to the bone and what do you get? Boney Fingers!" I have read alot of what Michael Gerber has written. I highly recommend his book "The E-Myth Contractor". It is a small book but sure puts a different light(no pun intended) on just what we are looking at here. We need to build value fellas. Let's get to it! We are smart enough! By sharing our resources here on this site, we will all benefit! None of us are as smart as all of us. Education is the short-cut to experience. I am approaching the age that all of my "experiences" need to be profitable. I come here for the education and it has already paid big dividends, and I thank you. I purchased and read "Mark-up and Profit" which is also a terrific book. I found its recommendation here! If I look back 20 years from now and just shake my head in remorse of my "Should haves, could haves and didn'ts", I deserve nothing more than one of my old wore out Red Wing boots applied to my backside! Not to mention what my family missed out on because I could not get my act together! We all are self-starters and self motivators. We have to be. That is our nature. We are a different breed, but I would not have it any other way. I am proud of our field and what we do. Whether it is "teckkie stuff" with all the new VDV or other low voltage systems or just getting someones power back on. And I want to do what I can to raise our standard as electricians not only as our trade demands, but also wise businessmen and women who have corporately got their act together. I long for the day when Plumbers will be checking our sites!

Thanx A-Line and Les.

Very well said Steve.
Ron

well if you read that article you will see how bad business practices will effect your company. For you new guys starting one man shops remember you own a business not just working for your self so don't be afraid to charge what you need to break even and profit.
WHO WANTS TO WORK 70-80 HOURS A WEEK AND DIE BROKE AND IN DEBIT?

[This message has been edited by slumlordworker (edited 01-10-2005).]

Here's another good read. http://pmmag.com/CDA/ArticleInformation/features/BNP__Features__Item/0,2379,21594,00.html

I second the recommendation of "The E-Myth Revisited" book. I haven't read the one for contractors, but have been told the main book gives the same info and more.

I just ordered a copy of the book yesterday.
Thanks for the info.

That was an interesting article, as are others from PM mag. I really wish I had more business sense on this. My feeling at the moment is..if I bring his annual wage from $35,000/year to $80,000/year, do I really care if it's a job or a business?

Dave

If his personal income is $80,000 per year but the net profit of the business is -3% then I would be concerned. If his personal income is $80,000 and the net profit of the business is 15% then I would be much happier.
In a business your salary is seperate from the net profit of the business.
Someone buying your business is going to look at the net profit of the business.
Also your business should structured so that it will still operate with you being absent.
This would be hard to do though if you are a one man shop.

"A contractor will try to sell the business, maybe even retain a broker for that purpose, but then gets slapped in the face by harsh reality. He finds out that nobody is willing to pay much, if anything, for a company that is run not as a business, but as a job.

Ok, maybe I'm missing something here but what's the difference between a business and a job? Obviously a company that has assets such as a building and vehicles, inventory, employees and a customer base as well as a known presence will be worth more than a guy working out of his house with an old truck.

Is this what he is talking about?

-Hal

I spoke with a friend about this, Hal (a friend with an MBA). She said the one item in a sale is inventory, etc., the other is "repeatable business", which is what a buyer is really looking for that could fetch a nice price.

Having a salable business would be a nice addition to the retirement fund, but I'm not very confident in my business sense to pull it off.

Dave

I think that someone who doesn't include a salary for themselves in their overhead but figures that what ever the profit the company makes is their salary is not running their company like a business.
They should determine a reasonable salary for themselves and pay themselves that salary as part of overhead. If the company's profit isn't very good than they might be paying themselves more than they are worth and might need to reduce their salary.
If the company's profit is high than they may be worth more than they are paying themselves and could increase their salary or maybe give themselves a bonus.

How often do you see companies that post a profit loss for the year? The CEO still gets paid doesn't he? He may get less of a bonus or no bonus at all but I bet he still gets paid his salary for the year. If the company's profits don't improve he would probably be fired or else his salary would be reduced.

My personal goal is to have an annual salary of at least $100,000 and a net profit of 10% or more for my company. I feel this would make being in business for myself worth it.
If I reach this goal I will set another goal to reach.

I'm in it for the money not the enjoyment.

[This message has been edited by A-Line (edited 01-12-2005).]

[This message has been edited by A-Line (edited 01-12-2005).]

Dave55,
Becoming an Electrician requires alot of knowledge and learning. If you apply the same enthusiasm to learning the business end I'm sure you will do well.

Well, that was my feeling too. This thing about business vs job is overly simplistic.

We are in service businesses and you can't compare that to something like a retail store or a professional practice. These all generate repeat business that is predictable. We don't normally have much inventory and our business comes mostly from new customers. Not every small contractor is going to be able to have an exclusive relationship with GC's, property owners etc. so that there is predictable source of work.

Still, I think all things being equal that a contracting business that generates say $1 million a year is worth the same as any other type of business generating that amount.

In the eye of a buyer however that may not be the case and that's where the discrepancy lies. It's not whether you run it as a business or a job but how attractive you make it to potential buyers.

Take two used cars, both same make, model and year. One has 150K on the odometer, other 30K. The one with high mileage needs tires, is dirty and could use some mechanical work. The low mileage one is clean and runs well. Which one is going to fetch the higher price?

So, I think the topic here should be "what makes a business attractive to a buyer".

-Hal

A business can generate $1,000,000 in sales but still not be profitable.
A business that generates 1 million in sales with a net profit of 20% should be more valuable than a business that generates 1 million in sales with a net profit of 5%.

Hbiss
I didn't catch the part about all things being equal so I guess you meant that the profit was equal in both cases. So I agree with what you are saying.

[This message has been edited by A-Line (edited 01-12-2005).]

[This message has been edited by A-Line (edited 01-12-2005).]

I think the point of the articals is how a business should be structured. A corp. is it's own entity and idealy should make a proffit for the shareholders (owners) for investing in the company not for working. The people that run the corp (CEO(s)). should recieve a salery. Then the jobsite worker should be paid for work done. If your a small owner operator you might be neglecting to pay the shareholders and CEO(s). In that case you might just be recieving a wadge for job site work.

I $50K for the running of a suscesfull EC is a goal. Another $50K for being a superviser electrician is fair here. With 5% company profit at the end. I'm not there yet. I can understand some say it does not matter as long as I take home $$$$. I guess it all works out if the numbers are the same.

But if you take the lower numbers $35,000 and devide it into 3 parts like I said what are you making? I don't think I can get an experianced electrician around here for at least $41K ($20/hr).

The differance is an outsider might invest somewhere around what the company grosses if he can get a return more than garrented intrest at a bank. Pluss the $$$ a CEO is paid may make it worth his trouble or he may hire a person for the job.

Maybe another way to look at it:
Can you hire a manger, estomater, and electrician to work your hours and get your pay and benifits?

If asked a person to invest in your company what would they get at the end of the year?

No offence ment I just like to see us all do well.

Tom

The unpredictablility of our business is why I believe it is important to track overhead and profit margins often and not just do it at the end of the year. Adjustments should be made as you go along. Don't wait until the end of the year to find out if you made a profit or not.

I am a second year apprentice..i have read the E Myth Contractor..It makes perfect sense. You must be able to put your business on "auto-pilot"...so you can go do something else..like start a real estate business to invest profits made with your electrical contracting business. that's what this guy does in my town...he has been a union electrical contractor for a long time now, and has one of his sons doing contracting under a new company they formed(non-union). then he keeps buying real eastate in town...I hope to follow in his footsteps...should take about 40 years.

[This message has been edited by Clydesdale (edited 01-12-2005).]