It’s been 15 years since I made my living as a carpenter; back then, decks were pretty rudimentary. The four years I’ve been editor of PDB have been an eye opener. I’ve learned so much I sometimes fantasize about giving up a regular paycheck, health insurance, and paid vacation to fire up a deck business. That would take planning.
For small businesses, planning isn’t just about money, it’s at least as much about creating a business that satisfies the owner. Articulating your goals — personal as well as financial — and planning how to apply your talents and resources to reach them provide a big-picture way to gauge success. From the big picture flow the details of how to run the business.
Four basic questions underlie every business plan. They’re listed below, along with my take on them. The goal of this column isn’t to suggest a universal business plan, but rather to get you thinking about your own. Your answers will likely differ from mine, and so should the ideal structure of your business.
What Do You Want From Your Business?
- That’s the essential question every entrepreneur has to answer to define the big goals. The chief reasons I’d start a business are toHave more control of my career
- Indulge my love for designing and building
- Make a decent living
I’d have no interest in growing big — my kicks come from doing good work, not from counting dollars. But maybe you are excited at the thought of building a legacy for your kids, or maybe you see a way to create a large, profitable concern.
Whatever your goals, write them down. Regularly refer to them and ask the big question: Is my business working for me? If it isn’t, you need to know why. It could be you’re doing something that needs to change, or it could be that your goals have changed.
What Are Your Strengths and Weaknesses?
Honestly assessing your skills is crucial. Your skills should align with your goals; if they don’t, you don’t have a realistic plan. Strengths should shape your role in the business, whether you function better selling, designing, building, or what have you. And since some functions are vital to all businesses, your weaknesses point to things you should hire others to do — perhaps, for example, money management.
- My own strengths and weaknesses includeExcellent carpentry skills
- Strong knowledge of codes, structure, and materials
- Good design sense
- Good people skills
- Good communication skills
- Poor paperwork skills
- Poor business management skills
Pretty much everything about structuring a business springs from the answers to these first two questions. For me, a sole proprietorship with no employees would be right. That’s as simple as a business structure gets, although I’d probably form an LLC or an S-corporation to protect my personal assets without overly complicating the bookkeeping. To make up for my weaknesses, I’d need to hire a bookkeeper — one who understood that part of the job was cracking the whip to make sure I held up my end of tracking jobs and billing.
You may like having a partner whose skills complement yours. Or maybe you want a large business, with several crews and a showroom. In those cases, you might need a partnership agreement, or a corporation that’s set up to allow for investors who own part of the company in return for a share of the profits. (And you may also need a far more comprehensive business plan than I’m talking about here.)
What’s Your Market?
If there’s no demand for your product, you’ll starve. Match what you build to what the people within your service area want to buy. There are ways to do detailed market research, but we’re talking about building decks here, so I think we can keep it more basic. Unlike the first two questions, this one requires additional questions to get at the answer:
- What area do you want to serve?
- What kind of decks do people in that area buy?
- What else can you sell to your market?
The area you work in can be large or small. If you plan to grow large, then you’ll need to be in a densely populated area or be willing to travel. I like the idea of focusing on an area small enough that I could go home for lunch most days. That limits my potential, but it also saves travel expenses and reduces unbillable time (more on that later).
I live in a fairly upscale area (in spite of my editor’s salary) with a lot of well-kept older homes. Most of the new homes look like well-kept older ones. Vinyl siding starts neighborhood feuds. You don’t see many treated-wood decks. Synthetic decking and hardwood are about evenly split, and oh yeah, that synthetic decking had better not look like plastic.
Decks are only part of the outdoor-living market where I live. Screen porches are big. So are fences, bridges, pergolas, sheds, pool houses, and believe it or not, chicken coops. I like variety; why wouldn’t I want a part of that bigger market? But maybe you want to run multiple crews — specialization would enable them to get in and get out in a predictable manner.
How Much Do You Need to Charge?
You have to know this. Otherwise, you can’t determine whether your business model is likely to work. You don’t even know if you can make enough money to live. Like the previous question, this one comprises a series of questions.
- How much do you need to make in a year?
- What is your overhead?
- What is your desired profit?
First, have a number in mind for an annual salary. That’s pretty simple.
Overhead — the cost of opening your doors, so to speak — is more involved. It includes your office and your tools. It includes a truck, or multiple trucks, gas, and maintenance. Trucks wear out, so you need to set aside money toward a new one. Tools and office equipment also wear out.
Insurance for you and your employees adds up — not only liability and worker’s comp, but also health, disability, and life insurance for you, and maybe for your employees.
Government at all levels gets a cut too. There’s federal self-employment tax of 15.3 percent, which is twice what you pay in FICA tax at a regular job, state licenses, and business taxes. Registering with the EPA as a certified RRP contractor: $300 up front covers 5 years, plus $200 for the class. Maybe property tax on business equipment. There are one-time costs for incorporating and registering a trade name. There’s marketing and advertising. You’ll need pros to fill in weak spots, which can mean fees for a bookkeeper, an accountant, or a lawyer.
All those numbers, including your salary, add up to the gross cost of doing business. There should be profit on top of that, to make the effort of business ownership worthwhile and to add fat for emergencies and the future. Profit can be figured as a percentage of the gross or the net (what’s left after paying overhead).
Convert that annual total, including profit, to an hourly rate by dividing it by the number of billable hours in a year. That number may differ for the owner and for employees.
Forty hours a week doesn’t run a business. Fifty is closer to reality, maybe a little low. But some of those hours will be unbillable — you can’t charge directly for marketing, record keeping, and maintenance. As an owner, I would expect that of the 50 or more hours a week I worked, only 40, or fewer, would be billable. Three weeks off a year leaves 49 work weeks at 40 billable hours for a total of 1,960 hours. My annual number (with profit) divided by 1,960 is the hourly rate I would need to charge.
The same logic holds true for employees. Discounting overtime, figure you’ll pay them for 40 hours a week, but only 35 may be billable.
Working On Your Business
Business texts rightly advocate “working on your business” as opposed to “working in your business.” Because I would be a hands-on artisan, my focus would have to be working in the business. But if I didn’t also work on the business, well, I wouldn’t be working in it for long.
For me, working on the business would mainly consist of marketing it to the demographic that’s likely to buy my services. It would also entail creating structures to deal reliably with money with as little of my involvement as possible. I’d need a fast, reasonably accurate way to estimate, probably a modular system. I would need feedback on whether my estimating was in fact accurate — by job-tracking and comparing what I charged with what I thought I would make, and adjusting my price modules accordingly. Part and parcel of that is scheduling and tracking billing and paying bills, which I would hire a bookkeeper for.
When you own a business, it’s not simply a profit center, it’s an integral part of your life. If you just “let it happen,” it can dominate your life. But if you plan it and make decisions based on your articulated goals and your strengths and weaknesses, then you run the business.