Managing Your Service Department: Do You Really Want to Start Your Own Company?
Monday, April 20, 2015
I’m sure you’ve heard the statistics; about 90-95% of all trades companies are owned by individuals who used to be a technician working for someone else. What that does not mean is this: that every technician who starts their own company succeeds. Listen to these two scary facts. According to the government, 90% of all companies that start up this year will fail the very first year. Secondly, only one company out of 1,000 that starts this year will ever see its 20th birthday. Sobering numbers aren’t they?
Now, I am not trying to discourage anyone from starting their own company! But before you dive into entrepreneurship, you might want to consider the following.
Not Much Profit
The difference between what you are being paid, and what the company is charging, is NOT all profit. It costs a lot to run a company in terms of basic overhead, non-billable time and the costs of equipment. The average trades company owner actually only nets about 3-5% of gross sales. That is a lot of work for not a lot of money!
Consider the Business Side of the Business
The most profitable companies within the industry are run by owners who understand the “business side” of their business. If you don’t have a basic understanding of the business side of the business, you are likely to fail within 3 years. If you are serious about starting your own company I would strongly suggest you invest in some business training classes……before you start the company.
Cash on Hand
It takes a lot of cash to run a company, much less start one. Think about this. You decided to start a company, and you already have some contacts who will provide work for the first month or two. What money is going out, immediately? You will have to pay for gas to run your vehicle, and you will need insurance both of which will be up-front dollars. If you have a second tech, they will need to be paid (and don’t forget about payroll taxes, which MUST be paid within a specified time period!). You will probably have to purchase some parts up front and, unless a family member owns the distributorship, you will be on COD for at least a while. That requires cash! These are just a few basic things to think about. Now unless you are a shrewd business person, and have your collections policies in place when you perform your first job, you will probably not be paid immediately. Normally it will be 1-4 weeks before your first money rolls in … that is if you have carved time out of your busy schedule to invoice the customer! Start-up cash is critical and most start with none, so you are behind the eight ball right out the gate!
The Cost of Personal Relationships
Starting your own company will require long days, and lots of them. Typically you will work 40-60 hours in the field and another 20 a week doing paperwork. Count the cost. Do you love your wife? Do you want to spend time with your children? The cost, in terms of relationships, is high when it comes to starting your own company and the extra hours tend to NEVER go away. As a tech, your job is finished at the end of the day; your nights and weekends are your own. Also, you get paid each week, which is unlikely to happen as a new owner.
Now I could list at least a dozen more things to consider before starting your company, but this is just some food for thought. The bottom line is this: count the cost BEFORE you make the break. It’s kind of like buying a boat. Typically a boat owners two happiest days are they day they bought the boat and the day they sold it. That’s clean. Getting out of business, once you are in, is a lot more difficult.