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?