This is Part 1 of an article series that tells the story of what I learned from several businesses that I’ve started.
I was 22 at the time and had three brothers all looking for some extra money. Two of my brothers had worked the previous summer for a small residential concrete company, installing new cement driveways, sidewalks and steps. The work was labor intense, which was great because it limited the number of people willing to do the work and drove up the profit margin.
Not knowing much about the different types of business entities at the time, I decided to start with the easiest and filed my business name with the $25 filing fee as a Sole Proprietor. A Sole Proprietor is great if you have no employees and few assets that need tax planning and deduction schedules. My brothers didn’t want anything to do with the business part, they just wanted to show up for the jobs and get paid. This worked out well since we all became very skilled at the craft, I was able to treat my brother as independent contractors rather than employees.
If I controlled their hours or how they did their work, I would have had to consider them employees - which meant paying unemployment tax, workers compensation and many others. The fine line between the two was essential to our profitability. It wasn’t until many years later that I realized how common it was for a business to operate under a fine line between tax codes. My research and our careful understanding allowed us to succeed as a profitable business.
Ophoven construction was a great business to start with. I loved working hard, I got to see my brothers, I learned a few things about business and I make some money.
Business Model Constraints
The only problem was that the concrete business is seasonal because you cannot pour concrete in the winter. Of course we were also getting older and as two of us got married, our extra time to invest in a side-business was reduced. The only way to continue the business was to find a way to hire out the work, but that was very difficult with a seasonal business because you can’t rely on someone that you trained last year to be available next year. I couldn’t find a way to grow the seasonal business model into a business with a proven system and consistent employees. Therefore after two years, I folded Ophoven Construction.
Primary concepts that I learned
The primary concepts that I learned from this business were;
Good people are key – When I tried to expand the business, I realized that not everyone was as skilled as my brothers or as easy to communicate with. I knew my bothers so well that we could communicate with each other sometimes without even talking, and we were all equally motivated to complete a job as efficiently as possible. This was not the case with other hired hands. Having competent and motivated people was a key to our success.
Seasonal businesses are difficult to grow – Seasonal businesses are difficult to grow because you cannot leverage trained employees as few return each season. The only successful examples that I have found is a business that operates several seasonal businesses throughout the year, which allows employees to be moved around to different tasks as each season brings a wave of work for a specific niche.
Money management and paperwork are essential – I was lucky enough to find a good accountant who showed me where to find information about business entities. Accounting is essential from the beginning. You have to keep track of all your paperwork and understand your income, expenses, deductions and profits. Even if you later hire an accountant, it is essential to learn these things so that you can clearly understand what your accountant is doing. The roll of an accountant is perhaps the most important roll in business today. Understanding your cash-flow with respect to your tax obligation is essential to every business.
Next article: Businesses I’ve Tried and What I’ve Learned - Part 2: Publication
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