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So You Want to Start a Contracting Company?

Beware the temptation to 'strike out on your own.' Here are eight things every technician should consider before starting a contracting company.

This is the time of the year when many techs get the itch to start their own companies. After all, it is the beginning of the busy season. Business is good. Why sweat the summer to make the boss more money when you can be making your own bank?  Here are eight things every technician should consider before starting a contracting company.

1. It is Less Lucrative Than You Think
The difference between the price the company charges and what it pays you is not profit. Most of it goes to overhead. The overhead covers the trucks, inventory, rent, office staff, phones, marketing, insurance, and more, and more. While my organization teaches contractors how to earn double digit net profits, most contractors earn less, and too often a lot less.  A 5% net means you earn one nickel for every dollar of sales.  Out of that nickel you need to pay interest, depreciation, taxes, amortization, invest in future growth, and reward yourself for the risks you are taking.  If you gross $300,000 in year one, a 5% net results in $15,000 to cover this list.  That is not a lot.  Double it and it is still not a lot.

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2. You Will Own a Job, Not a Business
You and a truck does not a business make.  When you hang out your shingle, you are a long way away from owning a real business. At first, all you own is a job. And it’s a job you cannot escape. You can take off any afternoon you want, but never a full week. When you stop working, so does your revenue flow. Thus, self-employment is a job with a tyrant for a boss (i.e., the guy in the mirror) who denies you time off for your family because you are always on call, always chasing opportunity.

The difference between the price the company charges and what it pays you is not profit. Most of it goes to overhead. 

 

Most contractors who are struck with entrepreneurial fever never get past job ownership. To build a business, they must hire people, develop processes, and build a management team strong enough that they do not need to show up every day and make every decision. Even when you start running multiple trucks, you are still only running a multi-truck company. It doesn’t become a business until it can operate without your constant presence.

3. Owners are Salespeople
Many technicians hate the thought of selling. They resist it when they work for someone else. They think commissions are inherently corrupting. If so, starting a company means starting to race down the path of vice because nothing happens in any company until someone makes a sale. When you are a company of one, that someone is you.

As a company owner, your primary job ceases to be repairs and replacements and becomes sales, sales, sales. Every minute you have a set of gauges in your hands is a minute removed from your primary role of sales. If you hate the idea of selling as a technician, you better figure out how to love it as a company owner because sales is job one.

4. You Start Without a Track Record
You may have a brand of equipment you prefer. Do not be surprised if the distributor for this product is unwilling to set you up as a dealer. You might find yourself limited to offering products you have treated with disdain because they sell them to anyone. Now, “anyone” is you.

Supply houses may give you an account, but the are unlikely to offer credit until you build up a history. Thus, you will operate as cash and carry. You better be prepared to collect a sizable down payment up front.

When you start a company, the world does not welcome you with open arms as a new entrepreneur. It treats you with skepticism until you establish yourself.  Given all of the other struggles a fledgling company owner encounters, this may seem like piling on, but it is something everyone faces and must work through.

5. The Paperwork Sucks
As a serial entrepreneur, let me express first hand that the paperwork sucks. The more ADHD you are, the worse it is. It is critical to find a good attorney and CPA to guide you through the myriad forms and filings required by local, state, and federal governments. Even with the help of expensive professionals it is tough to keep up with everything when you are a one-man band. Moreover, this doesn’t include the day-to-day paperwork involved with running a service company, which includes invoices, inventory tracking, job costing, reconciliation, and so on.

 Even with the help of expensive professionals it is tough to keep up with everything when you are a one-man band. 

 

6. Taxes Suck More Than Paperwork
If you think payroll taxes are bad today, imagine them doubled. You will get to pay both your personal half and the company’s half.  What fun! 

And do not doubt that the government will have its greedy hand extended the day the company finally earns a profit. Despite recent cuts in the Federal corporate tax rate, business taxes are still astronomical.  Plus, you must pay the state’s plethora of business taxes.

7. September is Coming
Before winter comes, the fall comes and weather driven air conditioning change outs go by the way side. Will you have enough saved up to weather the off-season? Do you have a plan to drive sales?

8. It is a Family Decision, Not a Personal One
Entrepreneurship does not affect you alone.  It affects your family. You might expect your spouse to help with books and calls. Is she willing? Is she willing to work for you without pay? Is she willing to tighten the family budget during the lean years?  Is she okay with you being on call 24/7/365?  With the lack of family vacations? 

Starting a company can put a strain on families and marriages. Everyone pays a price for your dream of company ownership. Make sure they are on board as willing passengers and do not feel hijacked.

Business Ownership is Not For Everyone
There is no denying that HVAC has a shortage of technicians. In part, this is because it has a surplus of owners. Too many technicians get bit by the entrepreneurial bug, launch their ventures, and make just enough money to survive, but never enough to thrive. In truth, they would be better off working for someone else. They would make more money, have better benefits, less paperwork, and fewer hassles. 

While few things are more satisfying than building a business, it is not for everyone. Certainly, it is not a decision to be made lightly. It should not be made impulsively because you are angry with the boss.  Before launching a venture, make sure you have considered the downside, are prepared to be salesperson-in-chief, have a plan for the lean times, and have family buy-in.

For companies seeking growth, the best resource in the industry is the Service Roundtable.  Learn more at www.ServiceRoundtable.com or call 877.262.3341.

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