Before Doing The Work

[cabinetman]

There's been a few questions on going from hobbyist to a business. There are many areas of conducting a business that are better being aware of than finding out too late. I posted this on another forum as suggestions, that may be of some help here to those that are interested.

Besides everything that has been discussed, there's some good habits to get into. Whether you maintain your craft as a hobby for extra money, or as a profession, develop a package of "contract documents" that accompany any and all work. They can eliminate or at least minimize problems during the work and could be a determining factor if you'll get paid in the end.

First, I recommend an evaluation document. That's one that is taken by you when making contact with the client. It should have all your notes about the project, sketches done on the spot, dimensions and details as to anything that affects your work. Items like windows, doors, appliances, plumbing, outlets, electrical circuits, walkways, flooring, thresholds, wall construction, materials and finishes of near or adjoining furniture or fixtures...just about anything you can think of that could have a bearing on your work.

Next would be a proposal document. Your first meeting may prove to be the only one to get a signed contract. If not and you need to "get back to them", your evaluation document will be with you to remind you of what you saw while there. You won't be able to remember everything, and it will be your guide to figuring out what will go into the work.

The evaluation document will also be a document that will give evidence of any changes to the site that happened after your first visit.

So, your proposal can be your contract, or could be a bona-fide estimate in writing. Whatever the case, it should be written with any and all details that are inherent to the project. It's the "gotta be in writing" theory that protect both you and the client. It should include details of any question you or the client could have.

You might benefit from having a lawyer draw up a general contract for you with space for you to add details that enable the parties to sign or initial for approval.

You might think out how you want to get paid. Personally I don't take work without a deposit...usually 50%. That could cover cost of materials and some labor, but on some jobs it might not be enough. If it isn't enough to carry you to the next draw, make sure you have adequate resources to CYA. If the balance is due upon completion, remember you built and installed the entire job on half the money.

I contract for 50% up front, 25% upon inspection in the shop at a time when some changes if any can be made. That is a great time to hit them up for draw. Some installations can take a long time, and you may break up the balance in some way. I like collecting 15% at the time of delivery to the site, and 10% when I'm all packed up ready to leave.

I must say coming up with a payment schedule sets parameters for both the client and you. I have designers that I've worked with over several years that don't like to be nickeled and dimed. But, with all that in mind, getting stuck for the balance is no good either. The thought here is if you are going to get stuck, the less it is the better. Once you deliver, or install, its not your property anymore. It's up to a court to decide. That could take a long time.

I think clients appreciate honesty in how business is done. If you set standards in the beginning, then you have an understanding.

Your contract documents should include drawings to show what is being done. Both you and the client should sign off on your copies. Both you and the client should have the same details. This eliminates any question of what comprises the work. It also provides a basis for change orders, which if discussed in the "proposal/contract" will provide for change details and any charges and method of payment for those changes.

Your contract documents should contain any samples or itemized details for materials, colors, finishes, hardware, anything that goes into the work. You don't want any misunderstanding. All samples should be signed off as approved.

Your "proposal", or "contract" should be detailed as to charges other than just doing the work. Items like delivery, installation, removal or moving of any existing furniture or fixtures, any demolition and removal of debris from the premises.

You can't really ignore the law either. I'm not trying to put out your fire, but offer some thoughts that might help. If you do this as a hobby, and sell it, legally, you need an occupational license. If you aren't licensed, and you have to go to court to collect your money, you will likely not win and could be charged criminally.

Of course, once you apply for a license, there may be stipulations of where the work is done, questions about Workmans Comp, liability insurance, just red tape stuff. Some states allow you to manufacture and sell what you make, but require certification to install.

I would like to add to this run on dribble that I never got much satisfaction from getting a job being the lowest bidder. I also have lost bids because the bid was too low. I like the jobs I get where I'm the highest bidder. I guess that's a lot like being the only bidder, which happens when you are the only one that can do the work.

It's always foremost in my mind when I think about how much work should cost, because time out of my life will go into it.
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[Uncle Cracker]

++++1 on getting a lawyer's advice, not just for contract language, but to help you set up your company with the least personal exposure to liabilities and pratfalls you might encounter. He can advise you whether or not to incorporate, and if so, which type. For a few hundred bucks up front, you can avoid real problems later.

[os1kne]

Very good information! It's always a good idea to have a document (contract) that spells out what is expected of each party (and when).

[woodturner]

If you do this as a hobby, and sell it, legally, you need an occupational license. If you aren't licensed, and you have to go to court to collect your money, you will likely not win and could be charged criminally.

Licensing requirements vary by location - certainly at the state level, but often at the local level as well. In many states, retailers do not need a license. In my state, for example, I can do essentially anything related to woodworking and no license is required. I do need to get a sales tax number and pay sales tax if I sell retail.

My state recently passed laws requiring contractors to be licensed. So, I can build kitchen cabinets without a license - but if I install them, I must be licensed. As with most states, the licensing requirements specify civil penalties, not criminal penalties.

One other issue to consider - in many states, if you use your name as the business name - for example, "Sanford and Sons" instead of "XYZ recycling", you do not have to file for a fictitious name or get a business license. If you incorporate, it limits your liability, but greatly increases your costs. It's best to talk to an attorney before deciding how to name and legally form your business.

So, the point is that one should check with their local municipality to make sure they understand the licensing requirements in their area before starting a business.

[cabinetman]

Licensing requirements vary by location - certainly at the state level, but often at the local level as well. In many states, retailers do not need a license. In my state, for example, I can do essentially anything related to woodworking and no license is required.

I would suggest checking local requirements for what's required to manufacture and sell a product before doing so.

I do need to get a sales tax number and pay sales tax if I sell retail.

As in licensing regulations, the need for a sales tax number can also vary by location. In some instances you may need no sales tax number if you pay sales tax on your purchases. If your sales are to tax exempt statuses, you may need a sales tax number for just the reporting and documenting those accounts. You may need no sales tax number if your sales are "tax exempt". Some items you make may be taxable, and some may not be. That may vary by state. Check with your local revenue department as there are "sales" and "use" taxes.

My state recently passed laws requiring contractors to be licensed. So, I can build kitchen cabinets without a license - but if I install them, I must be licensed. As with most states, the licensing requirements specify civil penalties, not criminal penalties.

It can be charged as a misdemeanor.

One other issue to consider - in many states, if you use your name as the business name - for example, "Sanford and Sons" instead of "XYZ recycling", you do not have to file for a fictitious name or get a business license.

That might depend on the state, as naming the business as a fictitious name requires filing and advertising the name. If you are doing business either as your own name or a fictitious one, you may still need an occupational license.
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[jabe]

Good advice

[toolguy1000]

the few times i've had to hire a contractor for anything, they always seem to want a large downpayment. it's ranges from 1/3 to 1/2 of the total contract. yet tom silva of this old house suggested in an older TOH never to give a contractor a DP of larger than 10-15%. his reasoning was that if the contractor doesn't have trade credit, they might not be someone you want to do busines with. if the suppliers don't trust the contractor enough to extend credit, a consumer shouldn't trust them with a large percentage of the contract up front (again, this is silva's suggeation).

he further suggested that, after the DP, payments should be matched to mileposts which cover that pecentage of the contract covered by the work completed.

i'd be interested in any comments from any contractors here.

[Uncle Cracker]

In my job, I deal with contractors on percent-of-completion pay draws all the time. A reputable contractor will have trade accounts at multiple suppliers, and will not be out-of-pocket at any time in the process. The draw schedule should be pre-arranged, and spelled out in writing. There are those less scrupulous individuals, however, who will try to overdraw the project, and then get themselves kicked off intentionally (or simply vacate) and leave the owner in a bind to get the work completed. The amount they have overdrawn typically represents their profit margin on the job.

If there is a performance bond in place (not always the case), then the owner has to try to collect from the bonding company, and often has to front the money to get another contractor to complete the project in the meantime. If there is no performance bond, the owner has to fund the completion himself, and then chase down the scoundrel and try to get legal reparations, which can drag on for years, particularly if the contractor shuts down the one company and emerges under another name the next day, as they often do.

Bottom line is to deal with a reputable contractor, with a stable history and adequate financial wherewithal. It may cost more (and it should), but it almost always works out better in the long run. Read the contract, and have your lawyer look at it also if there is substantial money involved.