How to Start Your Own (Electrical or Plumbing) Business

Are you ready to open your own business so that you can sit on top of your own totem pole?

Are you ready to start your own electrical or plumbing business? You’ve spent years mastering your profession, making it to the point where you know all the ins and outs of your trade. During that time, you may have worked under the commands of a boss who dictated your schedule and undoubtedly made all kinds of decisions with which you didn’t agree. After spending years working under your boss, knowing that he’s raking in the spoils of your hard work, you suddenly have an epiphany. You think to yourself, “What if I started my own company? I could finally take control of my own destiny and do things the way I think they should be done.” But then doubt whispers into the dark recesses of your mind. “What do you know about running a business?”

After much thought, you decide that you do have what it takes to start your own electrical or plumbing business. You’ve done your research and found that there are software programs available that will help you with your estimating and accounting needs. You feel confident that you have the skills to do the work in the field. You understand that there will be long days in the beginning but you’re okay with that. You have the audacity to believe in yourself. After all, this is America, where you have the ability to pursue your wildest dreams and achieve whatever it is that you want.

You put in your two weeks’ notice and go down to your local courthouse to register your new contracting business. Now you’re official with your new business license in hand.

Congratulations, You’re a Business Owner! Now What?

Taking that first step and starting your own electrical or plumbing business takes a lot of courage, but your journey to a successful electrical or plumbing contracting business has only just begun. The next step is ensuring you have all your fiscal ducks in a row.

Financial planning plays an enormous role in the failure or success of businesses. This is especially true for new startups. Getting a firm handle on operational costs and overhead will help keep you on the path towards profitability. For example, you should account for current and future business expenses while keeping constant tabs on cash flow.

Electrical & Plumbing Contracting Financial Analysis

When you’re just starting off, you may be your only employee. If you want to grow, you should always be on the lookout for reliable people you can add to your team. You don’t want to turn business away because you’re stretched too thin.

Besides employee wages, payroll taxes, insurance, and other assorted burden expenses that will be incurred once you win a job, electrical and plumbing businesses have overhead expenses that are incurred simply because you’re in business, regardless of the jobs that you’re awarded. You’ll need to account for your company’s overhead expenses such as vehicles, software, office supplies, business insurance, marketing, etc. These costs can fluctuate throughout the year. Many companies either lose jobs or lose money because they are not including the correct overhead numbers into their estimates.

You and any team members you employ will need the essential tools and equipment for their work as well as a vehicle that can carry it all and get them to job sites. Tools, equipment, and vehicles aren’t one and done expenses either, so make sure you account for operating and maintenance expenses such as insurance, gas, and vehicle wear and tear when factoring in costs of business operations. These expenses can vary depending on whether you buy new or refurbished and how well you maintain your equipment.

Use Current Burden & Overhead Costs in Your Estimates

Your business model won’t be a fixed-cost operation since you’ll hire and fire employees as needed. One thing to keep in mind is that if your overhead expenses stay level, whenever you hire a new field employee, the overhead cost per hour that you use in your estimates actually decreases. Inversely, whenever you fire a field employee, the overhead cost per hour that you use in your estimates will increases.

For example, if you have overhead expenses of $30,000 per year, and you have a single employee that will work 2,000 hours per year, the overhead rate per hour that you use in your estimates would be $30,000 divided by 2,000, which equals $15.00 per hour.

Now let’s say that you hire a new employee. This employee did not cause your office overhead to increase. Remember, the costs for field employees in your estimate is a direct job expense and is not included in your company overhead. Now you have 2 field employees working a combined total of 4,000 hours per year. $30,000 divided by 4,000 hours equals $7.50 overhead cost per hour.

If you continue to use the old $15 overhead cost per hour in your estimates, your break-even cost will not be accurate. Your bid price will be higher than it should be and you won’t win the job. Take the same example but in reverse. Let’s say that you fire an employee but continue to use the old overhead cost per hour in your estimates. While you might win more jobs, you’ll lose money on all of them.

Contract Bidding—Hitting the Bullseye

If you’re going to be a successful contractor, you must become a business person. You must know your numbers. You must update your employee burden costs and your company overhead expenses in real time. If you are not using accurate data in your estimates, you will flounder around for a couple of years, wondering why you’re not making the money that you should, and eventually go out of business.

A significant portion of your time will likely involve bidding against competitors for the jobs that are available. You want to price your bids competitively to entice clients to hire you, but it’s imperative you never price yourself out of business by working at low rates that will keep you in the red. Calculating bid prices requires you to have a firm grasp on your overhead costs as well as your employee burden.

Regardless of the number of employees you have, it’s imperative that you accurately analyze employee burden (how much a worker costs per hour of work factoring in all expenses such as pay rate, insurance, taxes, healthcare, and vacation time) so you can make job bids that are low enough to be competitive while also charging enough to ensure you don’t lose money.

TurboBid includes step-by-step wizards for calculating your employee’s burden cost, as well as your company’s overhead expenses. If you ‘re going to correctly determine your break-even cost to do a project, it is imperative that you have these numbers right. If not, your bid price will be higher than it should be and you won’t be awarded the project. Even worse, your bid price could be lower than it should be and you’ll end up losing money on the job!

Please feel free to Contact TurboBid to discuss any issues that you might have regarding starting your own electrical or plumbing business.

William Ruffner

TurboBid Founder & CEO

The Importance of Knowing Your Break-Even Cost in Contracting

Before you can determine how much to sell a job for, you need to know exactly how much the project is going to cost you to complete. This is called your break-even cost. Only after you have calculated your break-even cost are you in a position to determine your bid price.

Profit is only possible if you know your break-even cost

Please allow me to tell you a little story about my own experience back when I was an electrical contractor.

I was the type of person that desperately wanted to win every single job that I bid on. Once I took off my “Estimator” hat and put on my “Sales” hat, I was determined to convince my customer that they would be crazy to award the job to anyone else. Even if my price was a bit too high, no problem. I would enter into negotiations that would make any diplomat proud.

It’s important for you to understand that my electrical contracting company used to do a lot of work for many of the big home builders back during the housing boom. I’m talking about communities consisting of hundreds of homes that would take a few years to build out. These were incredible contracts for my company to be awarded.

I was fortunate enough to be able to develop strong personal relationships with the contract managers for these builders. They were very important players in my universe. After all, they had the sole discretion to award these really lucrative contracts and, right or wrong, having a good personal and professional relationship played an important role.

Not to say that these guys were pushovers. Just the opposite. They were tough. They liked their jobs and wanted to keep them. Why wouldn’t they? They had a bunch of chumps like me that would wine and dine them while treating them with the utmost respect and deference.

Their job performance was based on their ability to keep construction contract costs down. So much so that there was a saying at the time that “If they’re a buyer, they’re a liar“.

While this may sound a bit harsh, the truth is that some of these guys took great delight in squeezing the lowest price out of their vendors. I don’t know how many times I heard the following: “Come on Bill, you’re killing me. Out of the three proposals that I’ve received, yours was the highest! If you want this job my friend, you’re gonna have to sharpen your pencil!”

I’m pretty sure that I was told this more than once even though I wasn’t anywhere close to being the highest bid. Don’t get me wrong, I truly appreciated the opportunities that I was given to negotiate my price in order to win jobs.

What I didn’t appreciate at the time was that my old estimating system didn’t give me confidence in my numbers. Truth be told, that’s one of the reasons that I created TurboBid. I needed a systematical method of identifying and accounting for ALL of my costs. The only thing I disliked more than losing jobs was losing money!

Please keep this in mind. When you’re estimating a job, it is of the utmost importance that you know exactly what the project is going to cost you to complete. If you sell a job for less than your break-even cost, you will lose money.

How do you determine your break-even cost?

Many contractors end up losing money on jobs because they fail to accurately identify their break-even cost. This has been the cause and reason for the demise of many contracting companies.

Business is no place for guessing.

Unfortunately, in our industry, many new companies don’t have the required knowledge needed to accurately calculate their direct and indirect costs.

Following are some examples of what should be included when calculating your break-even cost.

Material
  • The cost of material to be installed
  • Waste
  • Theft
  • Sales tax
Labor
  • Material installation time – How many man hours the job will take to complete
  • Direct labor cost – This is simply the number of hours that the project will take to complete, multiplied by each field employee’s hourly pay rate.
  • Burden cost – This is the additional costs that your company incurs on behalf of your field employees.
    • Payroll taxes
    • Workman’s compensation
    • Liability insurance
    • Health insurance
    • Paid time off
    • Paid holidays
    • Bonus’
  • Future pay rate increases – If you will incur a payroll rate increase during the project, you need to calculate the additional labor cost for the job
  • Skill Level Adjustment – If the job includes an employee with a lower skill level that reduces his productivity, you must account for the additional time that the job will take to complete.
  • Additional Labor
    • Material handling
    • Meetings
    • Paperwork
    • Job setup and breakdown
    • Sweeping
    • Drive time
    • All additional tasks that the crew will perform other than installing
  • Labor Hour Adjustments – Different types of work require labor hour adjustments. For example, you can’t use the same labor units to estimate commercial and residential projects.
Miscellaneous Expenses
  • Miscellaneous Direct Job Expenses
    • Permits
    • Inspection fees
    • Equipment rentals
    • Service mobilization fees
    • Trash
    • Anything and everything thing that you’ll spend money on to complete the project
  • Subcontracts
  • Tools and tool replenishment due to wear and tear
Overhead

Overhead consists of the costs that you incur to run your business.

  • Office staff
  • Vehicles
  • Advertising
  • Physical business location expenses – Lease, repairs, trash, maintenance, etc.
  • Financial – Accounting, loans, tax preparation, etc.
  • Insurance
  • IT, website, email, etc.
  • Legal fees
  • Office expenses – Ink toner, paper, postage, software, etc.
  • Owner salary
  • Tools
  • Training
  • Utilities

What are the benefits of knowing your break-even cost?

  • Before you can determine how much to sell a job for, you need to determine exactly how much the project is going to cost you. This is your break-even cost. Once you know your break-even cost, you can determine your bid price by adding the profit that you need to make on the job.

Are you missing the final piece to your success?

  • You’ll be in a position to negotiate your bid price without the risk of losing money. If it comes down to it, you’ll be able to tell your customer with conviction that as much as you want to do their job, if you lower your price any more, you will lose money. At that point, tell them in no uncertain terms that they need to be very careful about awarding the job to anyone that claims they can do it for less.
  • If you’re bid prices are consistently too high, and you are including a reasonable profit margin, chances are that you need to reduce your costs. By having a detailed break-down of your costs, you have the ability to look for areas that you can reduce costs. Overhead costs are usually a big surprise to most people and can usually be reduced.
  • If you have a high degree of confidence in your break-even cost, and you really need to win a certain job, in theory (as strange as it sounds) you could take a job for zero profit if…..
    • You have a project winding down and you need a new job for your key field employees.
    • Work is slow and you need cash flow to pay your company’s bills.
    • If you work with the tools, you are not just an owner. You are an employee. If you’re not out working with the tools, you’re not earning a paycheck as an employee.
    • You want to develop a relationship with a new customer that could lead into a lucrative long term relationship. I’ve been known to “buy jobs” in the past.

In conclusion, building a profitable business is really hard work. While you may be the world’s best electrician or plumber when working with the tools, becoming a business person is a whole different matter. If you want your business to prosper, you have to know your costs.

Best regards,

William Ruffner
Founder & CEO
TurboBid

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Century of Electrical Standards: History of the ANSI – Guest Blog from Carl Babb

The following is a guest blog from Carl Babb:

Century of Electrical Standards – History of the ANSI

The American National Standards Institute, also known as ANSI, is a private non-profit organization. Headquartered in Washington, DC, ANSI has coordinated the development of a voluntary standardization system in the U.S. for almost a century.

ANSI acts in the interest and needs of consumers, the government, private companies and organizations. Its mission is to enhance the competitiveness of U.S. businesses on a global scale. It works with other standard organizations around the world to promote the use of U.S. standards.

 

Early Standards

Before the establishment of ANSI, a nongovernmental standardization was initiated with the foundation of the International Electrotechnical Commission, or IEC. This began at a meeting of leading international scientists and industrialists in 1904 in St. Louis, Missouri.

Today, IEC establishes and approves international standards for all electrical and electronic technologies, such as those for circuit breakers and protective relays. Its work covers a range of fields, from home appliances to nanotechnology.

It is made up of national committees from countries around the world. The U.S. branch of the IEC would eventually move on to establish the first ANSI.

 

Founding of ANSI

Several groups of professional organizations founded ANSI. It originated in 1916, when members of the United Engineering Society, or UES, came together. Initiated by the American Institute of Electrical Engineers, an UES member, the electrical engineers invited other members, namely the American Society of Mechanical Engineers, the American Society of Civil Engineers, the American Institute of Mining and Metallurgical Engineers and the American Society for Testing Materials to participate in the establishment of a national organization with the aim to coordinate standards development. They were later joined by the non-UES member, namely the U.S. Departments of War, Navy and Commerce.

The original name for ANSI was the American Engineering Standards Committee, or AESC. During its first year, it had an annual budget of $7,500, pooled together from the founding members. Its executive staff was a mechanical engineer named Clifford B. LePage.

 

Early ANSI Projects

ANSI’s first project was a standard of pipe threads, which occurred a year after AESC was founded. In 1920, AESC took on the major task of replacing current safety codes to improve accident prevention.

It was highly efficient and by 1921, the first American Standard Safety Code was approved. This code outlined safety procedures for industrial workers to protect their heads and eyes. By 1926, AESC had established national standards in many fields, from construction and traffic to electrical and mechanical engineering.

AESC was also one of the first organizations to promote international cooperation in the establishment of standards. It played a key role in the creation of the International Standards Association, or ISA, as it hosted the 1926 conference that was a precursor to ISA’s establishment. The ISA would eventually change its name to the International Organization for Standardization, or ISO, as it is known today.

The AESC soon evolved and grew out of its committee status. In 1928, it changed its structure through a reorganization. It was renamed the American Standards Association, or ASA. Later, in 1931, the ASA would become affiliated with the U.S. branch of the IEC.

 

ANSI During the War

The ASA played a role during World War II when it established a War Standards Procedure. Completed in 1940, this procedure improved the efficiency of standards development by accelerating the approval of new standards. It was the work of 1,300 engineers and covered areas such as quality control, safety and equipment components for military and civilian radio devices.

After the war ended in 1946, the ASA worked with the standard organizations of 25 other countries to form a single international standard organization. This resulted in the formation of the International Organization for Standardization. Its goal is to promote international standards development to streamline industrial processes.

 

Background

The American Institute of Electrical Engineers, or the AIEE, was the primary group responsible for the establishment of ANSI. The AIEE itself was founded in 1884, 30 years before the founding of ANSI.

Some famous AIEE founders include Nikola Tesla and Thomas Edison. Alexander Graham Bell, notable for being the inventor of the telephone, would also serve as the AIEE president from 1891 to 1892.

The first electrical standards established by AIEE was in 1885. This was the standardization of wire gauges. The AIEE would go on to develop its own electrical apparatus standards, such as for electrical switches, circuit breakers and protective relays. By 1926, it had approved a total of 71 standards.

 

Early Electrical Standards

Electrical standards in the 1920s were the responsibility of the Protective Device Committee. The committee’s work includes acknowledging and testing the ratings of breakers, as well as their abilities to interrupt currents. Much of their early work was completed in shared facilities with the breaker manufacturers. One such cooperative was with the Westinghouse Manufacturing Corp, a major manufacturer of electrical components at the time.

One of the earliest standardizations was for the oil used in circuit breakers. Later, this became the basis for the establishment of circuit breaker standards.

By 1924, standard definitions were being proposed for circuit breaker terminology. It included terms such as Operating Duty of Oil Circuit Breaker and Standard Operating Duty Cycle.

 

Formation of IEEE

The Institute of Electrical and Electronic Engineers, or the IEEE, was founded in 1963. It was the result of a merger between the AIEE and the Institute of Radio Engineers, or the IRE. Since both the IEEE and the IRE had developed their own standard programs at the time of the merge, a single IEEE Standard Board was created to streamline both standards.

There were three other accredited American National Standards Committee when the IEEE was first established. To promote a more coherent set of standards, a memorandum of understanding (MOU) was established. This memorandum gave the power to all three organizations to choose which one of their standards would be recognized as the single American National Standard.

 

Reorganizations and Name Changes

Throughout the 1950s and 1960s, the ASA helped industries and governments with standardizing the fields, such as nuclear energy, information technology and materials. In 1966, it was reorganized as the United States of America Standards Institute, or USASI.

Later, in 1968, the USASI worked to oversee the licensing of its name to manufacturers. This voluntary standardization approval was in response to increasing consumer demands for higher quality products.

The ASA changed its name to ANSI in 1969, and the name it still used today. It would go through more reorganizations while continuing to make new efforts to coordinate and approve new national standards. The voluntary national standards are currently known as American National Standards.

 

ANSI Today

With increasing globalization activity in the late 1980s, businesses and communities realized the importance of a globally accepted set of standards. In 1987, ANSI worked to administrate a joint ISO/IEC technical committee on Information Technology. This committee has now become the largest standardization committee in the world.

Today, ANSI continues to change and adapt to the needs of the interconnected global economy. Its work has improved consumer confidence in products and services throughout global supply chains. Currently, it is facilitating innovations in nanotechnologies and working to improve energy efficiency for greater environmental awareness.

Carl Babb is a retired Electrical Engineer from Massachusetts who blogs about the industry for Relectric.com. He is passionate about Green Energy and Building practices. Now retired he enjoys writing, spending time with his grandchildren and staying current (pun intended). For more from Carl visit the Relectric Blog.