starting a small business

[randy41]

A lawyer should charge you about $400 to set up an LLC. So if you're in a big city it'll be a little more.
You'll need to find out if you have to collect sales tax for what you do. That's a specific to your state issue.
If you are going to have employees you're opening up another whole rule book.
I dont know much about insurance.
I reckon a few phone calls would get your questions answered.

 

[2nstonge]

Ok Dougster, I'll jump.

I'm in southern VT but do some biz in western MA, but my LLC and all insurance expenses, etc are in VT which I know is a very different picture than MA.

I'm a solo operator (no, read NO, employees). My LLC has 3 distinct but intertwined businesses; home improvement/handyman which encompasses everything from repairing a storm door to remodeling kitchens; small scale tractor (with BH) & landscaping work (trenching, gravel drive repairs, tilling, tree & brush removal, etc), and 10,000 sq ft of a big azz ugly barn that serves as a shop and garage for my truck & trailers with enough room left over that I also store vehicles during the winter for other people. Everything I do has a tight, lawyer reviewed, signed contract. Don't matter much if you get sued - if you do you may as well cry 'uncle' early and get it over with.

Setting up the LLC was cheap - under $500 including all the state & lawyer fees. Annual maintenance of it is a bit pricier, CPA fees for LLC tax returns and mandatory state reporting runs around $2k. A minimum of $2mil in liability insurance is a must plus the usual insurance for truck, trailers, tractor, attachments, tools plus the insurance for storing vehicles and their attendant clumsy owners on my property...I get a good deal in VT but having lived in MA myself I'd expect you to pay thru the teeth for even a portion of that. Only your insurance agent can give you valid info for this.

You gotta talk to your town (or towns) where you want to work & find out what they need for permits, licenses, insurance...definitely a PITA but only that leg work will give you the info & numbers you need to determine if it's a viable venture. Even thinking about employees and all bets for $$ amounts are out the window. Want sticker shock? Get a price for workmans comp insurance.

Anyway, strictly speaking professional fees and insurance - under $3k got me into business and about $4-5k each year keeps me in business. Your mileage will definitely vary.

Good luck, -Norm

PS: first thing you'll want to do - put "Dig Safe" on your speed dial. 1-888-dig safe, Dig Safe System, Inc..

 

[Dougster]

Ok Dougster, I'll jump. I'm in southern VT but do some biz in western MA, but my LLC and all insurance expenses, etc are in VT which I know is a very different picture than MA.

Excellent information Norm... thanks for taking the time to lay it all out. The insurance numbers are my biggest concern of course, but I *DO* understand that Vermont and Taxachusetts are very different worlds.

One big question: Why do you need so much insurance coverage on a one-man operation... i.e., $2 Million... when you have already incorporated in order to limit personal liability? If you can afford $2 Million of coverage, why not just remain a sole proprietor and keep things simple? Or can I assume from this that the business itself is worth that much? Or maybe the incremental cost of higher coverage is not that great? Or maybe Vermont law requires this much liability coverage for what you do?

And BTW... do you remove residential underground heating oil storage tanks? Does your insurance cover that activity?

In my case, the entire business... all equipment and related investments... will only be worth about $100K or less (excluding land development aspirations which will be under a completely different, completely separate, multi-partner LLC). Why should I insure myself for a lot more than my incorporated exposure (except as otherwise may be required by law)? Wouldn't I be tempting a frivolous mega-lawsuit? Perhaps the old rule that you only need enough liability coverage to equal your personal wealth does not translate well to the business world. As you can probably tell, I am not a big fan of over-insuring one's self. Never have been.

I am also intrigued at the relatively high annual maintenance cost for a one-person business. Perhaps I shouldn't be, but I am. And I'm sure it will be much higher for me here in Taxachusetts. I suppose there is a huge heap of paperwork... even if business is slow or worse. Maybe I should forget about plowing and tractor work and become a CPA myself? Can I get there somehow starting with an engineering degree and 18 years of large project finance-related experience? Sadly, I never went back and got my M.B.A.

Lastly, I hear you loud and clear on the employee thing. But at some point, even with only modest success, it will be unavoidable. My future son-in-law is already expressing serious interest... and he has far more heavy equipment operating and snowplowing experience than moi! And after all... I will need backup!

Dougster

 

[2nstonge]

Why do you need so much insurance coverage on a one-man operation... i.e., $2 Million... when you have already incorporated in order to limit personal liability?

An LLC isn't a missile defense shield - it's merely a speed bump if you've done something really bad & someone wants to come after you personally. I started with $1M in liability but started taking subcontract work from bigger general contractors and they asked for $2M in liability. The cost difference was minimal so why not? If Uncle Fester breaks his neck after he trips & falls into a hole I dug because I didn't have the work site properly marked off I'd rather my insurance company wrote him check than me handing over my house keys to the guy.

And BTW... do you remove residential underground heating oil storage tanks? Does your insurance cover that activity?

Absolutely 'NO' to both questions. I've had that done and the contractor needed a special license with state & fed EPA dudes looking over his shoulder the whole time. I can't imagine what his insurance costs are...how much does it cost to clean up the local aquifer if he springs a leak in the tank during removal?

I am also intrigued at the relatively high annual maintenance cost for a one-person business.

There's certain state filings and state/fed tax returns whether I'm one person or ten and whether the business is booming or not. My CPA has a fixed/flat rate for preparing those docs regardless of what numbers he's plugging into the blanks. That fee and my insurance premium is 90% of the cost.

Lastly, I hear you loud and clear on the employee thing. But at some point, even with only modest success, it will be unavoidable.

I'm putting this off as long as possible. I don't have a full time need yet so I hire other guys as subcontractors; they invoice me, set their own hours, etc, Made them sign a 'Hold Harmless' agreement as I'm not sure these guys carry insurance, pay taxes, etc.

-Norm

 

[450EXC]

What would help me most right now would be if one or two of you business-owning folks could give me some wild, crazed idea of what I can expect to spend in assorted government and professional fees to set up this 1 or 2 person tractor/ loader/ backhoe and winter snowplowing-based business... probably as an LLC since it does appear that the MA two person rule no longer applies.

You can start off cheap. Sole Propierter = $ 0, Hire small bookkeeper = $ 300 startup and go.
I researched all tax info I could find. Took night class for basic bookkeeping, etc.
Make some money then ramp up. It's important to not spend every $ and bank some for future cost, emergencies, etc.

Insurance is different. $ 2k for liability ? $ 1k ?

Equipment ? Loans for new. Or my buddy started an excavating biz with old stuff her found cheap and paid cash.

A cash flow projection would help to envision where your money will go.

Edit: That said I agree an LLC/Corp, CPA, Biz consultant is better... but cheap is an option.

 

[AlanB]

I will jump in here again,

You are set on the LLC deal, and it is probably right for you, we are sole propieter (sp) anyway, we are liable.

Someone else here said it, don't think that LLC makes you bullet proof. Again, talk to that lawyer about liablilities and I think you will find that you are on the line pretty much any way you slice it up.

When you speak with your insurance guy, tread very carefully as to what you do, don't do, how stuff is described etc. Insurance can get very expensive depending on how it is done and described, you also run the risk, if you ever try to hide something, of finding that your insurance does not cover that aspect when you need it. (Ie,, you have a one ton truck that you just insure as a pickup, when in fact it has a dump truck bed and you are hauling gravel)

1 million too much,,,, we mow, lets say we launch a rock and hit a child in the head, goes into a coma and does long term damage. How fast will the 1 mil be gone? Even the 2 mil will just get that kid started. Many commercial places are going to 2 mil as a base.

I had a different answer then what the other guys gave from your question. The instant thought that came to my mind was you need to back 35 to 40% of your Gross out too taxes. I think they answered your actual question, but,,, that is a number that you need to think about when doing this stuff (and mostly pricing stuff)

One of my pet peeves is the people that go,,,, well, my "dump truck" is paid for so I do not need to charge for it's use, just my time......

This is the buy high sell low quick road to bancrupty that many folks in this business take and find themselves out of business and in debt or bankruptcy while devaluing the work that others that are trying to cover everything do.

One other thought of note.

We have been through the employee's no employee's dance a number of times, and heck, we are still on the floor as we speak.
This can be a real, real sticky deal that should be a topic on it's own.

We currently have one employee, and one person we 1099 when we need help. Again, talk a lot with your CPA as to what makes a person an Employee. There are some different definitions out there that your situation (and really their situation) can make a difference. Also you may want to check the workmans comp insurance stuff as well, it gets real complicated.
I cannot verify this so it may be urban legend, but the two brothers doing concrete work for me in Fl told me they had to carry workmans comp because there were two folks, but neither of them could draw against it because they were listed as owners..... Things that make you go hum.....

 

[450EXC]

I'd watch that AllanB guy - He rides his bike REAL slow. Just kidding, I love you guys. I let the local expert practice on my water falls. It's a jaw dropper, very cool.

 

[RonR]

I'm not in your area, but I'll share my story.

I started a side biz of doing light dirt moving and rototilling, etc. Now that I'm retired, I'm trying to kick it up a notch.

Cost to start was almost zero. CPA walked me through the steps and he does my taxes for minimum upcharge (sole proprietorship, so it's just more forms on my existing taxes).

I've had 30+ years of being around machinery and operating forklifts and backhoes and dozers. But when I tried to find liability insurance for my BX2200, it was TOUGH. No one wanted to write it since I had no commercial experience and it had a loader, which increases the liability of excavation. Only after I explained thoroughly that I couldn't dig basements or trenches, etc, did I find a policy coverage of 1 mil.

I won't bid on some jobs, like one realestate place wanted me to backfill around a house (easy), but they wanted me to raise/level the A/C unit. That would be easy to do, but I didn't want to chance breaking a line and being asked to pay for all the refrigerant leaked out. Too risky for me. Made them a little mad, but I don't need to look for trouble.

Part of my insurance agreement was NO EMPLOYEES. Sometimes, I contract my son to help me, but I don't want the added exposure of employees and dealing with the paperwork, etc.

I've spent a lot of time working on my bidding skills, since many of my first jobs were me working for FREE (didn't bid enough). I'm hoping to wear this Bota out by working it, so I've got a long ways to go...............

Ron

 

[AlanB]

450EXC (as in KTM I bet) Had me really scratching my head then went and looked at my public profile..

Yep, I ride real slow, but crash with the best of em!

You should try it sometime.

Kind of echoing along what RonR said, that is why you need a good relationship with those folks mentioned earlier, they can steer you in the right directions.

Oh, and don't think that you will not loose money on some jobs. We have had several where we were just happy not to lose our rear.

Experience is often the best teacher, but,,,,, it can sometimes be a costly course.

As you are going in to this, let me share a couple of thoughts I would suggest you take to heart and think about as you launch into this,,,, you will think them funny now, but sometime later, you will go crap, he is right.

The secret to small business is to only work 1/2 days, the good news is that it does not matter which 12 hours you pick.

You will reach a point, where you cut your prices to get work..... DO NOT DO THIS..... As the man said to me, I can go to bed at night, Broke and Hungry, or TIRED and broke and hungry....... Don't need to work just to be TIRED.

This is one of the hardest ones to get across to new business owners until it has bit them a couple times.

When you have that bad feeling about a job or customer,,, stop then,,,, it will not get better. Like RonR said about the AC,,,, some people would fall into the customer chiding them into doing it,,, then it would go to crud... Or what happens more with us, you just get this feeling about some people that they will be a pain,,,, and trust me, they always are. Better to just walk if that is what your gut tells you to do.

Oh,,, and I will let you in on a big SECRET that really makes a difference in business. ANSWER YOUR PHONE and RETURN PHONE CALLS, but turn off your phone when meeting with clients. It will pay more dividends then you would believe.

Oh, and after looking at my public profile. You are probably scratching your head about my occupation.

Business is the wifes. I am the maintenance guy.

*** Hanna Bechard *** A Woman's Touch *** Clarksville ***

 

[2nstonge]

I cannot verify this so it may be urban legend, but the two brothers doing concrete work for me in Fl told me they had to carry workmans comp because there were two folks, but neither of them could draw against it because they were listed as owners..... Things that make you go hum.....

Yep, called an "owners exclusion" on my Certicate of Liability Insurance the Workers Comp box is checked and coverage amounts are shown - but as the owner of the company I filed an 'owners exemption form' which absolves the insurance company of any responsibility for me but it makes my business legal in the eyes of the law that my company complies with workers comp rules. The exclusion is only available the owner(s) and not employee.

-Norm

 

[2nstonge]

You should complete this form as part of your business plan...it will give you a line item for almost every conceivable possible cost and overhead you will need. The only way to make it in business - and make a decent living at it - is by understanding all of your costs and factoring them into your rates.

360 Difference Software for Builders&Remodelers

Personally, I never quote a customer a per hour rate. Tried that early on 'cause that's what everybody else did. Well, once the happy homeowner has you on the clock - in my experience - they become a taskmaster and clockwatcher to the extent they would never tolerate from their boss at work.

Everything now is looked at and bid out - fixed price preferred or a range depending on certain variables and possible hidden conditions. I became good at it pretty quickly; what's it worth to the homeowner to get this job done? how many trips for materials? is there easy access to site? do I need specialty tools to rent equipment? debris disposal and costs? Gotta look at it all.

-Norm

 

[Dougster]

An LLC isn't a missile defense shield - it's merely a speed bump if you've done something really bad & someone wants to come after you personally. I started with $1M in liability but started taking subcontract work from bigger general contractors and they asked for $2M in liability. The cost difference was minimal so why not? If Uncle Fester breaks his neck after he trips & falls into a hole I dug because I didn't have the work site properly marked off I'd rather my insurance company wrote him check than me handing over my house keys to the guy.

Absolutely 'NO' to both questions. I've had that done and the contractor needed a special license with state & fed EPA dudes looking over his shoulder the whole time. I can't imagine what his insurance costs are...how much does it cost to clean up the local aquifer if he springs a leak in the tank during removal? -Norm

I am starting to get the message: LLC notwithstanding, there is no substitute for a *LOT* of insurance. I will keep that in mind. It just seems like a lot of coverage compared to what I see in typical construction contracts and what my old employer carried. Perhaps I am comparing apples and oranges. I would still think you would try to strictly limit your liability by contract... correct? You wouldn't want to make it too easy for folks to go after that cool two mil...

The LUST thing is obviously complicated and costly... but it must be insanely profitable as well for those who can stand it. If I told you what I paid to get mine removed a few years back, you'd think I was crazy! I should have waited for the Mahindra!!! It would have been out, cleaned, cut up and gone before anyone had a clue.

Of course... maybe I'd also be in jail right now!!!

BTW, my old employer made a lot of money by taking certain jobs that involved too many laws & rules & paperwork & client risk for any sane company to handle. Hence my interest in possibly doing the same. I am an experienced mechanical/construction engineer after all... with many environmental engineering friends and contacts. Perhaps this will become my niche???

Dougster

 

[Dougster]

I researched all tax info I could find. Took night class for basic bookkeeping, etc. Make some money then ramp up. It's important to not spend every $ and bank some for future cost, emergencies, etc.

Insurance is different. $2k for liability ? $1k?

I am already looking into classes & courses that will help me do as much as I can myself. It's got to help.

I'm thinking more like a minimum of $5K on insurance just to get me started. I'm almost to the point on insurance where I feel I should go to a broker and say "Here is what I can pay you... now, what am I allowed to do???" It's entirely possible that I may have to start out that way.

I am not the kind of person that can or will pay out huge quantities of money in advance for nothing tangible in return and with no solid evidence that I can ever make it back. I'd rather run for a while with no liability insurance at all... assuming anyone would actually hire me that way... insanely risky as that might be.

Dougster

 

[Dougster]

When you speak with your insurance guy, tread very carefully as to what you do, don't do, how stuff is described etc. Insurance can get very expensive depending on how it is done and described, you also run the risk, if you ever try to hide something, of finding that your insurance does not cover that aspect when you need it.

1 million too much,,,, we mow, lets say we launch a rock and hit a child in the head, goes into a coma and does long term damage. How fast will the 1 mil be gone? Even the 2 mil will just get that kid started. Many commercial places are going to 2 mil as a base.

Good advice on being honest but exacting and careful with your insurance guy. I have worked with lawyers and been deposed enough times to know how that works. Every word has meaning. You need to be ultra-precise in the words and descriptions you use and the message they deliver.

The "rock hitting kid/coma/long-term damage" scenario is certainly awful and scary to think about, but should we all be thinking that way? If that were the case, I would never drive or even let a kid walk by my house. No amount of home or car or business insurance would ever be enough. It may not be easy to rationalize an amount of coverage, but it can never be unlimited. I don't have the answer... but there must be some better way to answer the question besides simply paying the most one can possibly afford.

Dougster

 

[Dougster]

I've had 30+ years of being around machinery and operating forklifts and backhoes and dozers. But when I tried to find liability insurance for my BX2200, it was TOUGH. No one wanted to write it since I had no commercial experience and it had a loader, which increases the liability of excavation. Only after I explained thoroughly that I couldn't dig basements or trenches, etc, did I find a policy coverage of 1 mil.
Ron

The loader alone triggered excavation-level premiums??? Mama Mia!!!

With the 509, I guess I'm a dead man!!!

The experience thing raises an interesting question: How does one get commercial operating experience if you can't buy the insurance to enable you to do any commercial operating work? Sounds like Catch-22 to me.

Dougster

 

[Dougster]

The secret to small business is to only work 1/2 days, the good news is that it does not matter which 12 hours you pick.

You will reach a point, where you cut your prices to get work..... DO NOT DO THIS..... As the man said to me, I can go to bed at night, Broke and Hungry, or TIRED and broke and hungry....... Don't need to work just to be TIRED.

I love these quotes. You made me laugh out loud. I think I will have them BOTH made into big signs and post them right above the tractor!!!

Dougster

 

[Dougster]

Personally, I never quote a customer a per hour rate. Tried that early on 'cause that's what everybody else did. Well, once the happy homeowner has you on the clock - in my experience - they become a taskmaster and clockwatcher to the extent they would never tolerate from their boss at work. Everything now is looked at and bid out - fixed price preferred or a range depending on certain variables and possible hidden conditions. I became good at it pretty quickly; what's it worth to the homeowner to get this job done? how many trips for materials? is there easy access to site? do I need specialty tools to rent equipment? debris disposal and costs? Gotta look at it all.
-Norm

Excellent advice Norm. This whole hourly rate thing has had me losing sleep at night. Obviously, I would prefer that everything be a sole-source, pre-negotiated fixed price, but folks who call are still going to want to get some idea of your rates even before they invite you out so that they can compare them to other folks in the area. And I know that I am not alone in my area.

Let me ask the loaded question: What is a fair hourly rate (or rate range) for a 40HP compact TLB and operator? Is it different depending on what you are actually doing... i.e., what implement(s) you are using? Do you hide or build the delivery fee into your rates? Or charge it separately? Or does that only apply to full-size backhoes requiring third-party/tractor-trailer delivery?

Other than insurance cost, I think this hourly rate thing is the next most critical number to obtaining & executing new "non-word of mouth" business.

Dougster

 

[randy41]

look into doing your bookkeeping on your computer using quick books.

 

[2nstonge]

Let me ask the loaded question: What is a fair hourly rate (or rate range) for a 40HP compact TLB and operator? Is it different depending on what you are actually doing... i.e., what implement(s) you are using? Do you hide or build the delivery fee into your rates? Or charge it separately? Or does that only apply to full-size backhoes requiring third-party/tractor-trailer delivery?

You're going to find that really depends on your location, competition, what it is you're actually doing, etc.

For instance, I'm only using a JD 4110, my little tractor biz is called "Backyard Tractor Works". In my area there are tons of guys with TLB's, excavators & 10 wheel dump trucks tripping over each other to dig the next foundation or cut a new driveway. My target is homeowners that have small projects; trenching, drainage, gravel drive repairs, lawn prep, brush removal...all the small stuff no one else wants. Yet, I know I'm charging more for a day of my services than the big guys are getting to do excavation work. I literally have no competition in the immediate area.

I charge a flat half day or full day rate which includes my trailering expenses - again, no hourly work. My half day/full day rate fluctuates based on how far away they are, access to the site, the type of work, the terrain, am I going to beat the snot out of my tractor or is it a reasonable job...it all comes into play.

All it takes is something to break and if you've priced your work just to make an hourly wage you won't last. When I first started out I was doing a sweet tree thinning/brush removal/landscape project for a customer along the Battenkill River - just a gorgeous setting, good money (I thought), nice 2 day job - until I ran over the old rebar survey stake from days gone by. That flat tire cost me over $400 and an extra day and half of time. Charge what your time, equipment, maintenance, and overhead costs are truly worth.

-Norm

 

[Hakim]

I haven't read this whole thread, but encountered the "massive liability" issue years ago when we started manufacturing and selling products -- fragrances and body care lotions -- that were put on women's skins & faces.

Our insurance agent at the time gave me what I consider to be some very, very, very good advice, which I rarely see offered to any business: "Umbrella coverage."

You should buy, say, a base of $1 million liability coverage, then add "umbrella" coverage of around $5 million or more. If the "first" million of coverage costs, say, $3,500 in your industry, the "umbrella" would cost maybe $400. Hard to believe, but true. The way it works is, the "umbrella" coverage ONLY kicks in AFTER the entire first base $1 million is used in judgments.

Around 98% or more of MOST lawsuits are settled before a trial. Still, the average cost to even get rid of a nuisance meaningless suit can be $25,000 even more.

In the construction industry, I assume the issues are more complex and potentially much more costly. Still, ask your agent about "umbrella coverage" --- if not for the business, then for yourself personally --- that way, if you are held liable personally even though a corp or LLC, you will NEVER "lose it all."

Sad we have to calculate this way, but what a world we live in...