Download - Plumbing night 1 legal forms of business
Plumbing Business Related Costs
Linda Herbison
Who is here?
Name Business Experience What would you like to get out of our 5
evenings together?
My experience
BS in Computer Science, MBA, CAGS in Education
15 years teaching at Monty Tech 4 years as church treasurer 2 years as union treasurer
My objectives
Provide information and resources on business decisions relating to plumbing businesses
Provide hands-on practice with computers to solve business problems
Each student will produce a business plan for their own plumbing business
The Plan For Our 5 EveningsDate Topics Product
Tuesday, 11/6 Legal Forms of BusinessMethods of Going Into Business
First section of business plan
Wednesday, 11/7 Types of Plumbing BusinessesAnalyzing the CompetitionMarketing, Part 1
Second section of business plan
Tuesday, 11/13 Estimating IncomeStartup & Operating BudgetsDepreciation & Taxes
Spreadsheets
Wednesday, 11/14 Sources of FundsLoansCash Budget
Spreadsheets, Tax Form
Tuesday, 11/20 Marketing, Part 2Accounting Statements
Final Business Plan
Tonight’s Objectives Understand the advantages and disadvantages of
these forms of entering a business:– Buy an existing business– Start from scratch– Buy a franchise
Understand the advantages and disadvantages of these legal forms of business:– Sole Proprietorship– Partnership– Corporation– S Corporation– Limited Liability Corporation
Methods of Going Into Business
Buy an existing business Start from scratch Buy a franchise
Advantages of buying an existing business?
Buy an Existing Business - Advantages Proven record Established clientele Established location Bank and supplier relationships Trained employees Established facilities Low purchase price
Disadvantages of Buying an Existing Business?
Buy an Existing Business - Disadvantages Poor record? Ill will? Wrong location? Poor physical condition?
Steps to Purchase a Business Visit during business hours. Ask for complete financial accounting
for the past 3 years. Ask for important information in writing
– Complete list of assets to be transferred– Statement about any past or pending legal action
against the business– A copy of the business lease or mortgage– List of all suppliers
Purchase Steps Determine how you would finance the
business. Get expert help to determine a price to
offer for the business.
Advantages of Starting From Scratch?
Start from Scratch - Advantages
Freedom to make decisions Opportunity to develop image Choice of location Choice of physical facilities
Disadvantages of Starting from Scratch?
Start from Scratch - Disadvantages No record No established clientele Time-consuming tasks
– Training new employees– Purchasing inventory, tools, vehicles, etc.
Difficulty in obtaining a loan
Buy a Franchise
Franchise: contract Franchisee: person who purchases the
name/concept Franchiser: corporation who sells the
name/concept
Advantages of Purchasing a Franchise?
Ben Franklin Plumbing
Read the article – what advantages does Steve Dohner give for becoming a franchise?
Mr. Rooter
What did you learn from the Mr. Rooter article?
Advantages of a Franchise
Start-up help Advertising Financial assistance Established brand name Proven method Equipment and supplies may be less
expensive
Disadvantages of Purchasing a Franchise?
Disadvantages of a Franchise
Limited control Franchise fees
– Initial franchise fee– Royalty fees (weekly or monthly)
Potential image problem The franchisor can terminate the
franchise agreement
Evaluation of a franchise
What can a franchise do for me that I can’t do for myself?
How is the contract? Are there enough potential customers? Is this a good fit for me, financially and
the type of business?
Some Plumbing Franchises
Source: Entrepreneur.com
Franchise Startup Costs
Ace DuraFlo Systems LLC $36,000 - $410,000
Benjamin Franklin Plumbing $29,000 - $528,000
CityWide Sewer & Drain $83,000 - $118,000
Mr. Rooter $61,000 - $156,000
Rooter-Man $46,000 - $137,000
Legal Forms of Business
Sole Proprietorship (DBA) Partnership Corporation S Corporation Limited Liability Corporation
Advantages of a Sole Proprietorship Easy to start All profits to owner Complete control & flexibility Secrecy Single taxation Easy dissolution Only one allowed before you become a
Master Plumber
Disadvantages of a Sole Proprietorship Unlimited liability Limited life of business Difficulty in obtaining capital Little incentive for employees
Liability & Plumbing
“Absent contractual limitations, liability for economic losses resulting from the sole negligence of a professional in the construction trade is limited only by the extent of the assets and/or insurance of that professional. Once a contract enters the picture, liability for such losses can be limited or distributed among the parties in a number of ways through limitation-of-liability provision.”
Kristi Morley, “Limitation-of-liability provisions – Can a Plumbing Subcontractor Cap Liability for Sole Negligence”, Reeves Journal 88.12 (Dec. 2008): p. 8.
Side note on contracts:
Advice from Micah Bolduc: Include payment information in contract
– when is payment due, when will there be a late fee?
Can you be found liable even if you did nothing wrong?
Horror Stories – Faires Plumbing Co., Edinburg TX “We have been in the plumbing business for over 75 years . . .
The only problem the prosecution could find was Americans with Disabilities Act violations. Four urinal handles were installed on the wrong side of the stall, and a drinking fountain was installed as specified by the architect, but was in the way of the door swing, so we were cited for that violation as well.”
“Cost: $228,641 -- $74,750 of that was attributed to plumbing; the balance went to legal fees.”
“Never once were we contacted by the owner to remedy the violations. If we had been afforded that opportunity, the cost would have been a mere fraction of the settlement.”
“PHCC Tackling Frivolous Lawsuits in Construction Industry: Tort Reform is a Top Association Goal”, Contractor, 51.8 (Aug. 2004): p. 65.
Black Mold
“Dowdy said that insurance companies need to look at the causes of black mold growth and make sure the responsible parties are educated as to its origins. ‘Homeowners are keeping their rooms cold and dark’ he said. ‘They need to bring in fresh air. It is not the fault of air conditioning contractors if homeowners act irresponsibly.’”
John Hall, “Texas Contractor Tackles Mold Liability Head-on”, Air Conditioning, Heating & Refrigeration News, 215.15 (Apr. 8, 2002): p1.
Legionella
“As awareness increases about the role plumbing systems play in transmission of Legionella bacteria, plumbing engineers could be named in more and more Legionella-related lawsuits, even in suits involving properly designed systems, since those systems can become contaminated with Legionella if they are not operated and maintained to minimize Legionella growth.”
Matthew Freije, “Legionella and the Plumbing Engineer – Responsibility Liability and Opportunities”, PM Engineer, 8.2 (Feb. 2002): p 34.
Advice from Micah Bolduc
Liability falls on the person who pulled the permit.
If you pull a permit for your boss and others do the work, defectively, you are liable – be sure you have insurance for this!
If you do defective work on someone else’s permit, you can be disciplined by the plumbing board, but you are not liable.
More Advice from Micah Bolduc
The plumber who pulled the permit is supposed to be at the inspection.
Time management is important – you can’t be at one job site for the inspection and doing work at another job site.
Advantages of a Partnership
Easy startup– Articles of Partnership– Partnership Agreement (see p. 38)
Added capital Combined management skills Single taxation Employee incentives
Disadvantages of a Partnership
Unlimited liability Limited life of business Divided authority Frozen investment
Corporation
An enterprise that has the legal rights, duties, and powers of a person
Charter – written document outlining the conditions under which the corporation will operate
Stockholders – owners of a corporation Stock – shares of ownership in a
corporation
Corporation
Board of Directors – meet several times a year to elect senior officers, determine their salaries, set corporation’s rules for conducting business
Dividends – distributions of profit to shareholders by corporations
Advantages of a Corporation
Limited Liability Continuous life Easy transfer of ownership Ability to attract funds Specialized management
Disadvantages of a Corporation
Government regulation Little secrecy Charter restrictions Complicated and expensive formation Double taxation
Double Taxation
Joe the Plumber Income: $100,000 Fed Inc. Tax: 16,297 State Inc. Tax: 4,834 FICA/Med: 7,650 ------------ Joe can spend $71,219
Joe the Plumber, Inc. Income: $100,000 Fed Inc. Tax: 16,297 State Inc. Tax: 4,834 ------------- Joe’s Dividend: $73,083 Fed Inc. Tax: 10,661 State Inc. Tax: 3,407 FICA/Med: 11,182 ------------- Joe can spend $47,833
S Corporation
A corporation that chooses Subchapter S status for tax purposes
Must meet the following requirements:– No more than 35 shareholders– Only one class of stock– All shareholders are U.S. residents– All shareholders are individuals– Corporation operates on a calendar year
financial basis
Advantages of an S Corporation
Limited liability Single taxation – income passes
through to individual shareholders and are reported on their tax returns
Disadvantages of an S Corporation Owners may be required to pay taxes
on earnings even if they have not taken any money out of the business
Limited Liability Corporation/ Limited Liability Partnership Same advantages & disadvantages as
an S Corporation, but easier to set up When you’re ready to start a business
for real, SEE A LAWYER and TAX ACCOUNTANT and understand the current situation!!!
Business Licensure (MGL 248 CMR 3.00) All corporations, LLC’s, partnerships, or
other such entities that have plumbing or gas-fitting employees are required to maintain a business license.
Individuals practicing under their own name or a DBA do not require a business license.
A business license shall be a certificate for purposes of M.G.L. c. 142, 3B
Business Licensure - Exceptions
A non-plumbing business does not need to have a business license if it employs 1 or more licensed plumbers or gas-fitters and the only work performed by licensees is for the premises owned/leased and operated by the business.
Undiluted liquefied gas installations
Business Licensure
The applicant for a plumbing corporation must be a master plumber who is a listed officer of the corporation.
The applicant for a plumbing LLC must be a master plumber who is a listed manager of the LLC.
All partners in a general partnership, limited partnership, or LLP shall possess current Master Plumber or Master Gas Fitter licenses.
Business Plan: Write a paragraph on each question: Do you plan to buy an existing
business, start a business from scratch, or buy a franchise? What are the advantages and disadvantages of this choice?
What legal organization will you choose for your company? What are the advantages and disadvantages of this choice?