Business plan

[valleydweller1]

Hi all,

I'm not sure if this is the right place to post or not, but here it goes!

I'm planning on starting a side business next month utilizing my assorted machinery.

Specifically, I'll be offering tractor work with my Kubota B7510. Things like brush hogging, gravel/dirt moving and leveling, road building and grading, rototilling, post hole digging, etc. I'll be offering small-time excavation with my Caddigger 728 as well. The selling point for both is that I can fit into backyards and through gates and things where many contractors cannot.

I will also be offering lawn and landscape mainenance. I have a Dixon ZTR, a push mower and a gas weedeater for those projects.

My thought is to charge $40/hr for tractor and excavation work with a 2 hour minimum. Mowing and landscape maintenance will be on a bid basis with roughly the same pricing.

Estimated startup is as follows:

Contractor's license/training: $500
Bonding/Insurance: $1500
Legal/Incorporation fees: $500
Advertising: $500
Total startup: $3000+

Ongoing expenses will be roughly $2200 per year.

I will be available for work 4 days a week, although I hope to work no more than 2 (I'm flexible though!). This in addition to my "day job" as a firefighter. I figure fuel for machinery and travel will cost me about $10/hr, so that leaves $30 per hour. In other words, 100 billable hours per year minimum to break even on startup and around 70 hours per year to break even annually.

Questions:
1. Is this a good idea?
2. Is it feasible? Can I get that many hours of work?
3. Any holes that anyone wants to shoot in my plan?

Thanks in advance for the input,

Greg

 

[LoneCowboy]

There are 250 working days in a year, figure you get maybe 2/3 of that to actually do stuff (150 days)

Fuel costs $4/gallon, most small tractors use about 1 gallon per hour, that's $4 per operating hour
The IRS figures you can write off at 50.5cents/mile (even though that's crazy low), most jobs are probably 10 miles away, that's 20 miles, that's $10

You need liability insurance. for bush hogging it's cheap, for excavation it's outrageous. Let's figure an middle of the road $1500 or so. That's $10/ day available to work (or 1.25/hour)

You are now a commercial vehicle, your truck isn't covered under your normal policy, also trailers which are typically covered aren't under a commercial policy, they are seperate (although still reasonably cheap). Commercial insurance is MUCH more expensive than personal insurance.
Truck + trailer out here (probalby similiar to Oregon) is about $1600/year
There's another $10/ working day (1.25/hour, every single hour)

most small tractors need a full service every 300 hours, it's about $500. So that's 1.65/working hour

Stuff wears out. Most small tractors are pretty well worn out by 4000 hours. So, figure $25000 cost divided by 4000 hours, that's $6.25 in depreciation every single operating hour.

Your health insurance won't cover you if you get hurt on the job, you need workman's comp insurance. (some states require it, some don't, but you aren't covered if you don't carry it). out here, it's about $2000/person/year. That's $13/working day.

your truck and trailer are wearing out, requiring maint, etc.

Taxes are everywhere for the little working guy. Some places require permits to work, some places require commercial plates on your truck, some places the tractor has to be plated, etc, etc, etc.

Stuff breaks. Figure another few dollars per operating hours just to pay for unscheduled maintenance, repair of stuff and stuff just wears out. Probably $3/hour. (priced bush hog blades lately?)


So far, we're at $20/operating hour, operating 150 days a year, 8 hours per day. It never works like that. Some weeks you just sit at home and the phone doesn't ring. So really the costs are much more, because the costs never stop.

Oh yeah, you need a cell phone. There's $100/month, $1200/year, $8/day available to work. (or another dollar per hour)

There's more, but you should be beginning to see my point. Advertising (even classified ads are outrageous), tires (an unbelievably huge expense), assorted crap that you always need (pins, lynch pins, wire, whatever), property insurance (can you replace that tractor if it's stolen. It's another couple hundred per year.

YOU AREN'T EVEN CLOSE in your pricing model.

You're going to work all day a couple tims a year at $40/hour and pay money to do it. You could sit at home and watch the tube and lose less money.

 

[valleydweller1]

Maybe I'm missing some things but...

There are 250 working days in a year, figure you get maybe 2/3 of that to actually do stuff (150 days)

Fuel costs $4/gallon, most small tractors use about 1 gallon per hour, that's $4 per operating hour
The IRS figures you can write off at 50.5cents/mile (even though that's crazy low), most jobs are probably 10 miles away, that's 20 miles, that's $10

That's assuming that I only do one hour of work. My minimum will be two, so let's halve that to $5/hr.

You need liability insurance. for bush hogging it's cheap, for excavation it's outrageous. Let's figure an middle of the road $1500 or so. That's $10/ day available to work (or 1.25/hour)

The quote I got for excavating is $1200/yr

You are now a commercial vehicle, your truck isn't covered under your normal policy, also trailers which are typically covered aren't under a commercial policy, they are seperate (although still reasonably cheap). Commercial insurance is MUCH more expensive than personal insurance.
Truck + trailer out here (probalby similiar to Oregon) is about $1600/year
There's another $10/ working day (1.25/hour, every single hour)

Ok, so my current insurance on the truck is $1,000/yr. If commercial comes out to $1,600, then doesn't it really cost me an extra $600 in insurance to be in business with my vehicle? And the whole thing becomes a deduction, so after taxes I'm paying $1,200, or $200/yr more than I would be paying without the business.

most small tractors need a full service every 300 hours, it's about $500. So that's 1.65/working hour

That seem reasonable

Stuff wears out. Most small tractors are pretty well worn out by 4000 hours. So, figure $25000 cost divided by 4000 hours, that's $6.25 in depreciation every single operating hour.

My tractor costs a little over half that much, so lets say $14,000?

Your health insurance won't cover you if you get hurt on the job, you need workman's comp insurance. (some states require it, some don't, but you aren't covered if you don't carry it). out here, it's about $2000/person/year. That's $13/working day.

Good point, I didn't think of that. Oregon suffers from a state-owned worker's comp agency. However, that keeps rates fairly low. My quote for a year per employee (and it's only me) is $1,200.

your truck and trailer are wearing out, requiring maint, etc.

Very true, but isn't a portion of that already covered above in the $0.505/mile rate?

Taxes are everywhere for the little working guy. Some places require permits to work, some places require commercial plates on your truck, some places the tractor has to be plated, etc, etc, etc.

No permits in my neck of the woods. The only thing I'll need is my CCB license from the state, it's $270 every 2 years. I don't even have to have a business license because I live in the county's jurisdiction! My local big city is Salem, where I will be doing most of my work. No license required there either.

Stuff breaks. Figure another few dollars per operating hours just to pay for unscheduled maintenance, repair of stuff and stuff just wears out. Probably $3/hour. (priced bush hog blades lately?)

Again, that's true.

So far, we're at $20/operating hour, operating 150 days a year, 8 hours per day. It never works like that. Some weeks you just sit at home and the phone doesn't ring. So really the costs are much more, because the costs never stop.

I'm guessing we've pared it down a little by now...

Oh yeah, you need a cell phone. There's $100/month, $1200/year, $8/day available to work. (or another dollar per hour)

Again, I'm already paying for a cell phone. With a business it becomes a business expense and deductible.

There's more, but you should be beginning to see my point. Advertising (even classified ads are outrageous), tires (an unbelievably huge expense), assorted crap that you always need (pins, lynch pins, wire, whatever), property insurance (can you replace that tractor if it's stolen. It's another couple hundred per year.

Yes, I am beginning to see your point. There are certainly expense I haven't thought of. But maybe you're seeing my point too, that there are certain expenses for which I'm already paying that now become deductible. I'm going to be paying for my cell phone and my auto insurance anyway, right?

YOU AREN'T EVEN CLOSE in your pricing model.

Probably true, but I'm closer than you've let on.

You're going to work all day a couple tims a year at $40/hour and pay money to do it. You could sit at home and watch the tube and lose less money.

Perhaps. I'll definately have to readjust some figures.

Anyone else?

 

[Rara Avis]

Your business recovery rate on your tractor will have to be pro-rated, because it is NOT solely dedicated to the business...make sure you will show a profit real soon now...or the IRS will roll back all of your deductions if and when they declare your side business a hobby...

 

[valleydweller1]

Your business recovery rate on your tractor will have to be pro-rated, because it is NOT solely dedicated to the business...make sure you will show a profit real soon now...or the IRS will roll back all of your deductions if and when they declare your side business a hobby...

Good point, I forgot about that. IIRC, I have 2 or 3 years out of 5 to show a profit, right?

Greg

 

[LoneCowboy]

Probably true, but I'm closer than you've let on.

?

I do this for a living
FarmwithJunk does this for a living.

We live in completely different parts of the country and different markets.
Yet when people ask for an "average" price, we're very close in our prices, because the costs are similar.

You're not even close.
You'll do it for a little while, cover your costs (or ignore them, like hours on the tractor), with your real job moneyand after a few years stop doing it because "it's expensive", meanwhile having cost people trying to do this full time at a reasonable cost recovery price point work and set customer's expectations to a completely wrong price point.

I see it every year in both this kind of work and snow plowing. "oh, it's easy, I can do this for less money". But while you might be able to do it for 5% less or 10% less or have something new and different that makes you different, for 99% of it, you're just lying to yourself.

 

[valleydweller1]

I do this for a living
FarmwithJunk does this for a living.

We live in completely different parts of the country and different markets.
Yet when people ask for an "average" price, we're very close in our prices, because the costs are similar.

You're not even close.
You'll do it for a little while, cover your costs (or ignore them, like hours on the tractor), with your real job moneyand after a few years stop doing it because "it's expensive", meanwhile having cost people trying to do this full time at a reasonable cost recovery price point work and set customer's expectations to a completely wrong price point.

I see it every year in both this kind of work and snow plowing. "oh, it's easy, I can do this for less money". But while you might be able to do it for 5% less or 10% less or have something new and different that makes you different, for 99% of it, you're just lying to yourself.

I understand completely. I'm sure I would be saying the same thing if I was you.

Greg

 

[swampvol]

Running a business, no matter what it consists of, takes a lot of work, patience, RISKS and sacrifice..but its worth it. You'll never know unless you give it a shot.

Jeez..LC.. It's almost like you're afraid of competition... not something you want to be when you're a owner of a small business. Give the man a break as you and FWJ were where he's at now when you first started.

 

[LoneCowboy]

Jeez..LC.. It's almost like you're afraid of competition... not something you want to be when you're a owner of a small business. Give the man a break as you and FWJ were where he's at now when you first started.

compete away
let's see who's around in 3 years, the guy at a reasonable price or the guy at $40/hour.
no additional money to be put in and all costs attributable to the busines bourne by the business.
But let's be honest with the costs and price it in the range of what you really should be and not pretending to be a lowballer because you know something we all don't. It gets old and I've seen it all winter with plow guys.

Certainly you can make money by doing it faster, or better or with something new and inventive. But doing it for free isn't competing.

I saw some ad locally for some guy who will bushhog (5' bushhog) for $30/hour I'm thinking of hiring him as a sub until he goes under, it shouldn't take long. save me the wear and tear on my equipment. The costs to operate anything are higher than that.

If i'm so wrong, go call a couple rental yards. Rental yards make less than 10% overall profit on average and they get great pricing from the manufactuer since they buy a lot of stuff. Around here a 30hp tractor with a 5' bushhog rents for $400 to $500 an 8 hour day. with you running it and fueling it hauling it and taking all the risk.

They work real hard to recover their costs and their costs (40 to 50 an hour) are pretty similar to what I outlined above. Without insurance, etc.

Why is that?

I gave, for free, 5 years of hard won numbers and advice and I'm getting argument instead of "hey, that's good stuff, let me go look at my numbers". Go ahead, try it, call me in 3 years, tell me the piles of money you are sitting on at $40/hour.

 

[digger2]

Valleydweller,I also thought about doing the same thing.So much so i traded my 04 B7610 w/fel & woods BH on a new B26 TLB thinking it would take the punishment better (it should for the $$$ difference).After i learned about all the expenses and all the crap
involved (insurance,permits,tax stuff,etc.etc.)i decided to just do for family and freinds and some of the neighbors.If i get one job a week i'm happy as it helps make the tractor payment,and i enjoy it.
I have no sign out front of my house advertising as this is just asking for trouble from a legal stand point.I charge $30 an hour (cash only) regardless of what i do.
I'll never get rich doing this,but i have a full time job anyway.The little jobs on the side actually releive some of my stress.
Another thing i found out is there are some really weird people out there who seem to think you should pay them to do work FOR THEM !!!Some of them actually expect you to abuse your equipment
just to make the job go faster......FORGET THAT !!!!!!
No i'll never get rich,but i dont care.I'll just stay happy doing stuff for family and freinds.Also as i said,i have a full time job anyway,and regardless of how much i like running my machine,i'm not going to work myself to death.
Granted there are people who do make it big starting out this way,
but there are prob. 100 times those who fail.I'm not trying to put a damper on your idea,but you have to weigh all the pro's and con's.I think there would be alot of juggling time working a full time job PLUS doing something like this.
Whatever you decide to do good luck and...........Oh,did i tell you about the weird people out there..... ...........digger2