Who is here? Name Business Experience What would you like to get out of our 5 evenings together?
My experience BS in Computer Science, MBA, CAGS in Education 15 years teaching at Monty Tech 4 years as church treasurer 2 years as union treasurer
My objectives Provide information and resources on business decisions relating to plumbing businesses Provide hands-on practice with computers to solve business problems Each student will produce a business plan for their own plumbing business
The Plan For Our 5 EveningsDate Topics ProductTuesday, 11/6 Legal Forms of Business First section of Methods of Going Into Business business planWednesday, 11/7 Types of Plumbing Businesses Second section of Analyzing the Competition business plan Marketing, Part 1Tuesday, 11/13 Estimating Income Spreadsheets Startup & Operating Budgets Depreciation & TaxesWednesday, 11/14 Sources of Funds Spreadsheets, Tax Loans Form Cash BudgetTuesday, 11/20 Marketing, Part 2 Final Business Accounting Statements Plan
Tonight’s Objectives Understand the advantages and disadvantages of these forms of entering a business: – Buy an existing business – Start from scratch – Buy a franchise Understand the advantages and disadvantages of these legal forms of business: – Sole Proprietorship – Partnership – Corporation – S Corporation – Limited Liability Corporation
Methods of Going Into Business Buy an existing business Start from scratch Buy a franchise
Buy an Existing Business -Disadvantages Poor record? Ill will? Wrong location? Poor physical condition?
Steps to Purchase a Business Visit during business hours. Ask for complete financial accounting for the past 3 years. Ask for important information in writing – Complete list of assets to be transferred – Statement about any past or pending legal action against the business – A copy of the business lease or mortgage – List of all suppliers
Purchase Steps Determine how you would finance the business. Get expert help to determine a price to offer for the business.
Disadvantages of a Franchise Limited control Franchise fees – Initial franchise fee – Royalty fees (weekly or monthly) Potential image problem The franchisor can terminate the franchise agreement
Evaluation of a franchise What can a franchise do for me that I can‟t do for myself? How is the contract? Are there enough potential customers? Is this a good fit for me, financially and the type of business?
Some Plumbing Franchises Franchise Startup Costs Ace DuraFlo Systems LLC $36,000 - $410,000 Benjamin Franklin Plumbing $29,000 - $528,000 CityWide Sewer & Drain $83,000 - $118,000 Mr. Rooter $61,000 - $156,000 Rooter-Man $46,000 - $137,000 Source: Entrepreneur.com
Legal Forms of Business Sole Proprietorship (DBA) Partnership Corporation S Corporation Limited Liability Corporation
Advantages of a SoleProprietorship Easy to start All profits to owner Complete control & flexibility Secrecy Single taxation Easy dissolution Only one allowed before you become a Master Plumber
Disadvantages of a SoleProprietorship Unlimited liability Limited life of business Difficulty in obtaining capital Little incentive for employees
Liability & Plumbing “Absent contractual limitations, liability for economic losses resulting from the sole negligence of a professional in the construction trade is limited only by the extent of the assets and/or insurance of that professional. Once a contract enters the picture, liability for such losses can be limited or distributed among the parties in a number of ways through limitation-of-liability provision.” Kristi Morley, “Limitation-of-liability provisions – Can a Plumbing Subcontractor Cap Liability for Sole Negligence”, Reeves Journal 88.12 (Dec. 2008): p. 8.
Side note on contracts: Advice from Micah Bolduc: Include payment information in contract – when is payment due, when will there be a late fee?
Can you be found liable even ifyou did nothing wrong?
Horror Stories – Faires PlumbingCo., Edinburg TX “We have been in the plumbing business for over 75 years . . . The only problem the prosecution could find was Americans with Disabilities Act violations. Four urinal handles were installed on the wrong side of the stall, and a drinking fountain was installed as specified by the architect, but was in the way of the door swing, so we were cited for that violation as well.” “Cost: $228,641 -- $74,750 of that was attributed to plumbing; the balance went to legal fees.” “Never once were we contacted by the owner to remedy the violations. If we had been afforded that opportunity, the cost would have been a mere fraction of the settlement.” “PHCC Tackling Frivolous Lawsuits in Construction Industry: Tort Reform is a Top Association Goal”, Contractor, 51.8 (Aug. 2004): p. 65.
Black Mold “Dowdy said that insurance companies need to look at the causes of black mold growth and make sure the responsible parties are educated as to its origins. „Homeowners are keeping their rooms cold and dark‟ he said. „They need to bring in fresh air. It is not the fault of air conditioning contractors if homeowners act irresponsibly.‟” John Hall, “Texas Contractor Tackles Mold Liability Head-on”, Air Conditioning, Heating & Refrigeration News, 215.15 (Apr. 8, 2002): p1.
Legionella “As awareness increases about the role plumbing systems play in transmission of Legionella bacteria, plumbing engineers could be named in more and more Legionella-related lawsuits, even in suits involving properly designed systems, since those systems can become contaminated with Legionella if they are not operated and maintained to minimize Legionella growth.” Matthew Freije, “Legionella and the Plumbing Engineer – Responsibility Liability and Opportunities”, PM Engineer, 8.2 (Feb. 2002): p 34.
Advice from Micah Bolduc Liability falls on the person who pulled the permit. If you pull a permit for your boss and others do the work, defectively, you are liable – be sure you have insurance for this! If you do defective work on someone else‟s permit, you can be disciplined by the plumbing board, but you are not liable.
More Advice from Micah Bolduc The plumber who pulled the permit is supposed to be at the inspection. Time management is important – you can‟t be at one job site for the inspection and doing work at another job site.
Advantages of a Partnership Easy startup – Articles of Partnership – Partnership Agreement (see p. 38) Added capital Combined management skills Single taxation Employee incentives
Disadvantages of a Partnership Unlimited liability Limited life of business Divided authority Frozen investment
Corporation An enterprise that has the legal rights, duties, and powers of a person Charter – written document outlining the conditions under which the corporation will operate Stockholders – owners of a corporation Stock – shares of ownership in a corporation
Corporation Board of Directors – meet several times a year to elect senior officers, determine their salaries, set corporation‟s rules for conducting business Dividends – distributions of profit to shareholders by corporations
Advantages of a Corporation Limited Liability Continuous life Easy transfer of ownership Ability to attract funds Specialized management
Disadvantages of a Corporation Government regulation Little secrecy Charter restrictions Complicated and expensive formation Double taxation
Double TaxationJoe the Plumber Joe the Plumber, Inc. Income: $100,000 Income: $100,000 Fed Inc. Tax: 16,297 Fed Inc. Tax: 16,297 State Inc. Tax: 4,834 State Inc. Tax: 4,834 FICA/Med: 7,650 ------------- ------------ Joe‟s Dividend: $73,083 Joe can spend $71,219 Fed Inc. Tax: 10,661 State Inc. Tax: 3,407 FICA/Med: 11,182 ------------- Joe can spend $47,833
S Corporation A corporation that chooses Subchapter S status for tax purposes Must meet the following requirements: – No more than 35 shareholders – Only one class of stock – All shareholders are U.S. residents – All shareholders are individuals – Corporation operates on a calendar year financial basis
Advantages of an S Corporation Limited liability Single taxation – income passes through to individual shareholders and are reported on their tax returns
Disadvantages of an SCorporation Owners may be required to pay taxes on earnings even if they have not taken any money out of the business
Limited Liability Corporation/Limited Liability Partnership Same advantages & disadvantages as an S Corporation, but easier to set up When you‟re ready to start a business for real, SEE A LAWYER and TAX ACCOUNTANT and understand the current situation!!!
Business Licensure(MGL 248 CMR 3.00) All corporations, LLC‟s, partnerships, or other such entities that have plumbing or gas-fitting employees are required to maintain a business license. Individuals practicing under their own name or a DBA do not require a business license. A business license shall be a certificate for purposes of M.G.L. c. 142, 3B
Business Licensure - Exceptions A non-plumbing business does not need to have a business license if it employs 1 or more licensed plumbers or gas- fitters and the only work performed by licensees is for the premises owned/leased and operated by the business. Undiluted liquefied gas installations
Business Licensure The applicant for a plumbing corporation must be a master plumber who is a listed officer of the corporation. The applicant for a plumbing LLC must be a master plumber who is a listed manager of the LLC. All partners in a general partnership, limited partnership, or LLP shall possess current Master Plumber or Master Gas Fitter licenses.
Business Plan: Write a paragraph on eachquestion: Do you plan to buy an existing business, start a business from scratch, or buy a franchise? What are the advantages and disadvantages of this choice? What legal organization will you choose for your company? What are the advantages and disadvantages of this choice?