Contractor Describes Why He Went Into Business

August 19, 2004
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Steve Burch
LAKE TAHOE, Nev. - Steve Burch made a wise decision when he started his own plumbing-heating business. He was rewarded with the "Contractor of the Year" award by the Associated Plumbing-Heating-Cooling Contractors of Texas (APHCC-Texas) at its annual meeting here.

After receiving the award, he talked to his peers about his reasons for going into business. Burch, the owner of Modern Plumbing in Pasadena, Texas, listed four main reasons:

"I am a second-generation business owner. I was overloaded with personal debt and needed to find a way out. I wanted to control my own destiny. And I wanted to enjoy some personal freedom."

Burch said he needed to weigh the risks versus the rewards for going into business. Four common risks, he said, are loss of vacation time, loss of any time off, uncertain retirement, and more stress. The rewards, he said jokingly, include having a new truck, more time to do things (being the boss), and wealth.

Business Facts

In order to be successful, Burch said, business owners need to understand the nuances of financial statements, including the profit and loss (P&L) statement and the balance sheet. "It is important to know what you have, who you owe, and who owes you," he said.

"Know your numbers and have a good feel for the past so you can have a good feel for the future."

He said he uses some well-known sources to learn more about the plumbing and heating trade, such as reports from the Robert Morris agency, which lists industry (S.I.C.) business codes, and Dun & Bradstreet reports profiling the plumbing and heating industry.

Burch asked the contractors, "What profits do you think your company should make? I'm asking this group to be at least three times the national average [profit margin of 3.2 percent]."

He said that to simply break even in today's service market, a business would need to earn five times the base pay of the hourly labor rate. And he said contractors need to bill six out of eight hours a tech works each day. "You've got to communicate your goals to technicians, too," he said.

Adequate Compensation

He also said it is important for business owners to pay themselves adequate compensation.

"If you have a plumber who makes $50K, you should budget your own salary at $100K because you assume all of the risk. Have an employment contract with yourself, guaranteeing your own wages.

"Evolve yourself up into the owner's pay. Don't pay yourself tech wages and have owner stress."

Burch said technicians need to be paid good, competitive wages in order to retain them and offer the best service to customers. "We are in the mindset that we pay techs $12 to $13 per hour and expect them to produce on a high level.

"Have you communicated to your employees that they have the potential for a raise? We can offer a lot more for our techs."

Burch closed his discussion by asking attendees what they plan to do with their business. "Do you plan to sell it? Partner with someone else? Retire? Pass it on to your children?"

If you plan on selling the business, Burch recommended first figuring out your net worth. He said there is a simple mathematical formula. "Multiply your age times your salary times 0.112," he said.

Publication date: 08/23/2004

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