Starting your own skilled trades (Contracting) business? | FIVE Essentials you must have.

Starting your own skilled trades (Contracting) business? | FIVE Essentials you must have.

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This week I am addressing questions from working technicians considering starting their own business.  

Interestingly, even though my background is in HVACR contractor and equipment manufacturing, I am getting folks from other trades such as electricians, plumbers, and even one auto mechanic exploring starting their own business. 

 Before I get started, I am again humbled by your questions. I will do my very best to give you some actionable things in this episode to help you in your business ownership discovery efforts. 

Episode That Support This Topic.

Episode Transcript

For this week’s episode, I’m going to take a little left turn, if you will, in covering technical issues over the last a whole bunch of episodes, I’ve been doing technical issues. And I’m going to respond to some questions that I’ve getting out there by journeymen level mostly technicians that are exploring or have a dream of starting their own skilled trades business. The reason why I went to Why say skilled trades, is I’m super humbled by people that are reaching out to me on LinkedIn in different social applications about what they need to do to start a skilled trades business. So that could be electricians, plumbers, general contractors, a whole bunch of people have asked me about this. So as you guys know, I’ve been in the HVAC refrigeration industry long time I was a contractor and then I manufactured process chillers. been around a while. And I’ve been really blessed to learn a lot of stuff. So in this episode, we’re going to step away from technical stuff. And I’m going to put it out there on the five things that I would consider your starting steps in order to go into your own skilled trades, business, whatever that is. And I want to just right up front, I want to tell you that there’s a lot more than just five things. But this initial five things should be considered in all applications of owning your own business. And what you’re going to find is as you walk down the path of gearing up to actually make the big step, you’re going to learn new things, and you’re going to probably learn more things that you have to get into and immerse yourself in in order to make a wise decision. Most of the people that decide to start their own business, they go into it with just enthusiasm and excitement. And just the idea of being your own boss not having to answer anybody, you know, that kind of stuff. They see these commercials, you know, work less hours and make more money. Well, that’s not really true. But anyway, I’m going to try to outline the five things you need to consider to start up your business. And I’m super excited to be able to share this information with you. So let’s get started. Let’s dig into this and take a look at what you need to know. Hey, guys, I have an exciting announcement, we just recently made some updates to our three most popular online courses at process Tiller academy.com If you’re a technician that’s looking to improve your skills a little bit, maybe get some specialized training to be of more value to your customers and your employer. Or if you are an employer and contractor that is looking to augment your existing in house training with online training that can be accessible from any device. This is a really great opportunity. Just go to process chiller Academy comm just scroll down on the homepage, and you will see the course area. If you go into the course page, you will see that we have currently for limited time, we have a promo code of chiller Pro, that will save you 25% on any one of these courses, I hope you check it out. And I’m looking forward to seeing you in class.

Before we get rolling on starting your own skilled trade business, I want to just put a few frameworks out there for you. First of all, the information I’m presenting this episode is in no particular order. However, I have ordered everything in such a way to where it makes sense. But you don’t necessarily have to do each thing that I’m describing in this specific order and presenting them. The other thing I want to mention is my goal is really twofold from this episode. First of all, I want to give you the best jumpstart possible and I want to help you avoid the challenges that I went through. I want you to live by some mistakes that I’ve made and not go through those challenges that I did. That’s really what networking and seeking information is all about. So that’s my first goal is getting you off on the right path by these five steps. The second thing is and I think is most important, and I cover this in my best series that I’m doing an email course series on is this is a foundational concept that I’m giving you today. And the most important thing is you want to find a way to maintain your work life balance, work life balance is, is everything. If you don’t maintain that what ends up happening is no matter how technically capable you are, how much organization you’ve done, how much preparation you’ve done, and you’ve done all the things in the five steps I’m gonna describe. If you don’t maintain work life balance, it just kind of all falls to shit it gets it can get pretty bad. So that is the things I’m trying to do and I’m gonna sprinkle in as I go through this episode and share with you some personal experiences and impacted my personal life through mainly my life getting out of balance, and a relationship with people that I love my kids, friends and family and things like that it all got impacted by making me making some poor decisions as I went through my journey as a business owner so

Let’s get into this and see what hopefully I can share with you. And I really sincerely hope this helps you out.

So step number one is Personal Capital. Now, I’m not talking about money that has anything to do with the business, I’m talking about your day to day expenses. I know I know, that involves the bad word of budget. Now, one of the things that super important is when you’re ramping up to make the major decision of starting your own business, you’re going to need to have a plan in place to save money, you need to build up as much capital as you can, I recommend a minimum of at least one year of capital in your checking account, money market account, whatever that is that. So if you have no income coming in, you have all of your personal expenses dealt with. And it’s super important. If you happen to have a significant other and kids. Murphy’s Law will always move into your spare bedroom, especially when you have no income coming in. So this comes in the form of a car car breakdown, major appliance appliance crapping out problems, they just come up, and you have to find a way to make sure resources, you have to have enough resources on the personal side to take care of those expenses, because they will come up. And one thing about that if you don’t have enough runway, and we’re going to cover what runway means more in later on this episode. If you don’t have enough runway for personal savings, it’s probably one of the most common things that derails your work life balance that I talked about a minute ago. So step number one is making sure that you have at least one year of your personal expenses saved up and to divert to determine what your personal expenses are, that’s going to require that you have some type of a budgeting system, so you actually know how much you need to live on each month. Step number two of your startup plan is to determine all of your infrastructure and startup expenses. Now, these will break down into two different categories, you’re going to have your just one time cash outlays, so like a service truck would be one, something like that. And then you would have your monthly expenses and that you name it can be a lot of stuff, right? What I would suggest you do in this area, since this isn’t you know, a very general episode covering skilled trades, every skilled trade has a different startup expense will be similarities, some are different. You want to get on Google or whatever search browser you use, and you want to look up costs of starting up X business. And there’s a lot of lists out there that you can get out, you know, download in, it’ll give you a great startup cost thing just to understand what the items are. Alright, so once you get that that list, what you want to do is start an Excel spreadsheet. If you’re a computer person, if not, just get a notebook and start writing things down, just create the item, the one time costs stuff, again, service track or tools or things like that, that just have to buy. And then you want to have another ledger that has all your monthly costs that are what are called recurrent costs. So once you have all that stuff organized, you’re going to have an idea on the initial cash chunk you have to put down to get started. And you’re going to have an idea on what your expenses are. And I have a pro tip when it comes to your month to month expenses. So if you use cloud services, and what I mean by that is software services that are hosted on the internet, an example of that would be like QuickBooks, some of these companies, what they like to do these days is they’ve gone from a monthly billing model to an annual billing model. And what they’ll do automatically is they’ll try and sell you an annual subscription, which means you got to pay for the entire subscription upfront. And it’s really difficult. If you pay an annual subscription, they do not make it easy to cancel it and then get a prorated refund, it’s just a pain in the butt. So what I would suggest doing at least in your first year, especially when you’re checking out different things, is to not pay the annual subscription, even though you may get a little bit of a discount, and you want to go monthly. So that gives you the flexibility. If you find something that’s better, you can opt out of what you’re doing and it’s done and over with. And also to it gives you some flexibility as far as knowing what your monthly costs are. It’s it’s it’s a lot easier initially to track your monthly costs if you’re getting billed once a month for subscription type services. So that’s just a pro tip for you. Also, in this category, I want to talk to you just real briefly about hiring employees. I highly recommend that at least for your first year or more that you do not have any employees. The difference between starting and running a business and the only person that you have control over is yourself is much easier to manage than having employees. So I would recommend that you hold off hiring employees as long as you can because along with hiring employees, you have payroll you have HR issues, you have insurance like workers comp, it gets very very complicated.

So I recommend avoiding hiring any employees until you absolutely have to until you’re 150% sure that you have regular work, maybe you’re selling a lot of maintenance contracts, if you’re in that type of business, to be able to keep your employees busy all the time. And you may also need some administrative staff to help you with the HR type stuff. So you want to really think twice before you decide you’re going to expand the not to have employees.

Step number three is actually very similar to step number two, it just sort of takes a different dimension. So what I’m going to talk about now is sales, the all important subject of sales. So what you have to do now is you want to determine where your sales are going to come from. And I’m going to give you some ideas later, but you want to be realistic about how much you think you can sell. And I would recommend that you get some ideas before you open your doors and how you’re going to do it. But plan for three months minimum of zero income coming in. That’s just a really good place to be. And you may be blessed in that you have ready made customers that are ready to start having you do work for them. If you do rock on that is totally awesome. But I would plan on about three months or more depending on your financial situation, that you have zero income coming in. Alright, so that’s the first step. The next thing is a pro tip, we want to talk about the all important gross profit. And gross profit is basically what you sell your products and services for minus your cost to perform those services. Now it gets a little tricky here, right? Because some people don’t quite understand the difference between cost of sales and expenses. So for example, on the equipment side, let’s say you purchase a piece of equipment for $10,000. And you sell it for $20,000. So your gross profit, if you will, on that particular machine was $10,000. Right. So that’s pretty simple. It gets kind of complicated, though, when you’re self employed, and you have no have no employees, so you’re gonna have to come up with a reasonable cost of sales for your labor. Now, there’s a lot of information out there on the internet to do that. And there’s a lot of information out there on how to properly calculate what gross sales is, what your cost of sales is. But what ultimately you want to get to is going to be your gross profit. Now, in most cases, depending on the accounting system, you’re looking at your gross profit does not include direct operating expenses, you know, like your monthly costs, your internet fees, your cell phone costs and things like that, that’s not included in that. It’s just basically your direct costs, the what you sell it for, versus what it cost to produce it or what the machinery cost you. That is your gross profit, right. So that’s something that’s really, really important, you need to come up with a reasonable gross profit number that you’re going to get on all of your jobs. Now, once that’s out of the way, I’m going to share with you a pro tip is something called breakeven on every job that you do. And every month that you’re in business, you need to get an idea on what your breakeven is. Now, what that is, is you have to figure out, you already know what your your desired gross profit is, your accounting system will tell you once you get rolling, what your gross profit is, or at least it should. And you also will have an idea in what your expenses are, what the monthly reoccurring costs are now, breakeven will tell you at one point in your sales at a specific gross profit, are you going to actually be turning a profit, you’re actually covering all your expenses. And you’re starting to develop the all important before tax net profit. Now, there’s a real simple formula that you need to know and love. That is going to be your break even calculation. And the way that works is you want to take whatever your monthly expenses are. And I’m just going to use a rough example just because it’s easy, the numbers are easy. Let’s say it cost you $5,000 a month and reoccurring monthly expenses to be in business regardless if you have any business whatsoever. Alright, and let’s just say that you’re really good and you’re able to generate 50% gross profit on all of your work. Now, realistically, you’re going to have some jobs that are going to go that high, you’re going to have some jobs and may go higher, but let’s just say for argument’s sake, you’ve been able to be successful enough to generate a 50% average gross profit. So the outcome of the breakeven calculation is your expenses divided by your gross profit percentage will tell you the dollar amount that you have to sell at that gross profit in order to have money going down to your net before tax net profit. So hopefully that makes sense. Check it out, get on the internet in just research breakeven calculation and it’ll give you all about it. But that is a super, super important thing to know as you proceed through the journey of owning your own business.

Step number four is what I call knowing your runway. And I touched on this earlier and what runway basically

Is is the length of time that you have enough working capital in your business to maintain business operations, regardless any business coming in or not. Now, I want to make sure I emphasize that this is not the same stash of money that we talked about in your personal savings. This is runway in your business, this is operating capital you have hanging around in your business, if you do no business, you can run that business without without a hiccup for a period of one year. Now, in the last step, when I talked about the breakeven calculation, we used an example of about $5,000 a month, and I just pretty much pick that out of the year, that $5,000 a month could be different for every business. So but just for example, 5k a month. So if you have a 5k a month operating requirement, cash requirement, and you want to be maintain operations for a period of one year, which is what I recommend, that means you’ll have to have operating capital in the amount of around $60,000, available in your business. Now, here’s where it gets a little complicated. There’s arguments either way, if you want to leverage lending for that $60,000. In this example, some people think that that’s the way to go, I personally do not, I would suggest that you maintain your current job, and you work on your personal budget, personal expenses, and get those as low as you possibly can without being basically a hermit, and you want to build up as much capital and you really want to try if you possibly can to fund your business venture with your own money. Because what ends up happening when you get into borrowing from banks, the banks are just a challenge there, they are an essential part of business, don’t get me wrong, I’m not down on banks. But my personal opinion is that banks are always around willing to lend you money when you don’t need it. But when you do need it, they’re very reluctant. It’s just been my personal experience. So I have used banks to provide me with credit lines and things like that. However, typically, when you’re first starting a business, first, it’s hard to get, because most banks don’t want to lend to you unless you’ve been in business and profitable for a period of about four to five years. There’s exceptions, of course. But I recommend avoiding that now down the road if you’re taking on bigger projects, and you need financing or line of credit to finance projects that you’re doing waiting for receivables to come back, that I believe is perfectly acceptable. But you do not want to really borrow from a bank if you can possibly avoid it. To maintain your regular business operations, I highly recommend against that.

Step number five is one of the things that one way or the other, I get a lot of questions about. So you want to start a new business. And one of the biggest things, nothing happens until something gets sold, right. So I have some suggestions for you on things to consider when you start your new business or you’re working on planning your new business on some things that have worked out for me in the past. And you’re just going to have to kind of do your own homework and try to find out how you can develop relationships because that’s ultimately what it’s all about, in order to generate some business for your new business. So let’s get started on the shortlist. In no particular order here. One you want to check out is going to be home warranty companies, home warranty companies, if you do residential work, they sell warranties, usually through the sale of a home process. And immediately what ends up happening is there’s a home warranty company that generally will help smooth over the conflicts, if you will, let’s say somebody just purchased a house and an existing home and the refrigerator craps out, right, it just dies. So the home warranty will come in and they have a policy that they sold at the time of closure of escrow. And they will hire a contractor to come out and do the work. Now I do not recommend making home warranty companies part of your mainstay of. That’s why you’re in business servicing home warranty companies, they typically can be very needy, and they can be a real problem. But if you’re hungry for new business, you want to make new relationships. Home Warranty companies can do that. When I was in business, I had a few instances actually quite a few that I went in on a home warranty job. And it turns out that because I was a chatty kind of person, I found out that the customer the policyholder, if you will, or excuse me would have been the homeowner, they they I guess they would on the policy anyway. I would ask them so what do you do for a living? And sometimes what ended up happening was they owned a business. And I would always ask, Hey, is anybody servicing your HVAC, in my case, at your business, and in some cases, you know what we’re really looking for somebody and boom, you have an opportunity for a commercial customer and you’re not really conflicting with a home warranty company. So it’s something to keep in mind. The next suggestion is networking. Networking is so important.

In what I recommend, I’m just giving you an HVAC perspective. There’s a lot of times where electricians, plumbers, they get themselves into a lot of different situations and go in and talk to these people and find out who owns the business developer relationship. They have customers, and sometimes you can leverage their customers, they may have a client that just complain, like, their HVAC contractor just did a terrible job, and they’re really unhappy. And who knows, they may say, Well, you know what, I know this guy that I met. And he’s a great guy, and you should check them out. Right? So networking, especially other skilled trades, that are in your niche that you know, could cross paths with your ideal customers are a great place to start in, it’s a great place to get some long term and some good customers coming your way. Next on the list is networking, again, see the theme here, with both commercial and residential real estate companies. On the commercial side, there’s always tenants moving, coming, going, whatever. And a lot of times, these real estate companies will have lists of preferred vendors. So whether you’re a plumber, electrician, whatever, and it’s a good idea to get in front of these people. Now, they may be a little reluctant at first, because they don’t know who you are, that’s totally fair. If you get yourself a good website, that’s one of the infrastructure things that you’re going to need to get set up, the first thing you should do is get some testimonials in there, and recommend that they check them out and understand what you’re all about. Now, there’s a lot of ways to do that. Now, nowadays that I won’t really get into. But that’s super, super important. on the residential side, same thing, if you have a realtor, that is in the process of helping somebody buy or sell a house, it could come up in a home inspection that the furnace needs to be replaced, or the plumbing needs to be replaced or something like that. And you again, they’re not most likely, they’re not going to give you a lot of work upfront. But it usually starts off with a small job, you know, hey, the heaters out, or you know, the the sink has a drip or something like that, and you get an opportunity to go out there and shine. So developing networking with residential and commercial real estate, leasing companies and sales organizations is really a good place to get some good leads. The next one is trade associations. Now, trade associations typically won’t get you a lot of work. But what they can do is give you a huge source of relationships, and again, networking. So I recommend hierarchy, which is a California and maybe pronouncing that wrong. They’re a California based company. And they have a monthly magazine where you can keep up to date on the latest information, the latest technology, what’s going on in the industry. Another one I recommend is ACCA air conditioning Contractors of America. Again, if you’re an HVAC guy, all the trades will have some types of trade associations. So I highly recommend that you spend some time networking and getting in touch with those associations there. It’s very, very helpful, won’t get you any direct business. But it’ll definitely give you an edge over your competition about new products and new ideas. Right. The last thing I’m going to talk about in the business development side is something that I learned actually pretty late in my career as a contractor. This is a mix, EMI X group. And what that stands for is is management informational exchange mix. And it was originally brought in, I think, to the community, the HVAC community by air conditioning Contractors of America. And what they did was they get together usually five to 10 contractors that will meet usually in person a couple times a year, they’re separated by geographic region, so they don’t compete with each other. And I got to tell you guys, it was amazing. And in my case, there was no cost to be a member of a mixed group. Typically, you had to pay for time away from work, which if you’re the only person that’s really difficult sometimes, but it’s super helpful, because you are not alone. There’s people in the exact same shoes you’re in right now. And you would be amazed at the ideas that you never even thought of and having a network of people when you can pick the phone up and talk to an owner of a business that’s maybe more established than you. Or also on the flip side, being able to help people just anytime you can collaborate and get information is really, really helpful. And in some cases, like what happened with me, there was people that were in my next group that were taking on national contracts and those national maintenance contracts would come into my market. So we would network together to take care of one big customer so that’s a really good place to start. There’s two other groups you want to check out but you have to be of a certain size. Once you grow and you get bigger. There’s a there’s two groups you want to check out. One is called the Center

group.

And it’s run by a really cool guy, his name is Jim Berthelot, I have a podcast interview with him. His right hand person is a gal named Julie Bishop. And once you get up to a certain size, there is a cost to the membership. But it’s amazing what these guys get done. The other one is called the unified group. And I highly recommend once you get to your five or six, and you’re doing

500,000 to a million dollars in sales, that those types of groups would be really great for you. But up until then I’d recommend checking out getting into a mixed group.

So that wraps up the five steps. And I hope that’s really super helpful to you. Again, this is not a complete rundown a complete list of everything that you need to do to consider starting your own skilled trades business, but it’s going to be an awesome start. So I hope you get a lot of great value out of this. And don’t hesitate to send me a message if you have questions, concerns, ideas that you think I should share with the rest of the community out there things that are working for you in your new business, or things that are working for you as you’re planning a new business and things that aren’t working are also very, very helpful. connect up with me on LinkedIn. You can also email me at M King at process chiller academy.com

Transcribed by https://otter.ai