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Make Trades Great Again
Top 3 Mistakes New Business Owners Make and How to Avoid Them
Ever dreamed of running your own business? Buckle up as we reveal the top three blunders new entrepreneurs often fall prey to, and how a solid business plan can prove to be an invaluable tool in sidestepping these common pitfalls. Guided by the enduring wisdom of Benjamin Franklin, we underscore the role of meticulous planning in both life and business.
Wondering how to safeguard your venture from the perils of overspending and underpricing? We dive deep into our own experiences and shed light on these potential hazards. From exploring the intricate links between personal credit and business to understanding the integral aspects of business operations, we've got you covered. We end on a crucial note, emphasizing the role of budgeting and the much-needed mindfulness in averting overspending. Get ready for an enlightening and informative discussion that could be a gamechanger for your entrepreneurial journey.
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Eric Aune @mechanicalhub
Andy Mickelson @mick_plumb
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is getting to day six of the week or whatever, and going.
Speaker 2:I didn't know I had to pay taxes.
Speaker 1:Yeah, you know, yeah, yeah.
Speaker 2:Yeah, yeah.
Speaker 1:Yeah.
Speaker 2:Yeah.
Speaker 1:Hey Andy, how you?
Speaker 2:doing? I'm doing good, eric. How are you? I'm good. Everybody, welcome to the Make Trades Grating and Podcast Andy and Eric here. Andy, the title says it all. Top three things we think new business owners are doing wrong.
Speaker 1:Yeah.
Speaker 2:And, you know, if anybody knows us at all, it's that we are probably, you know, at least top 1,000 in business magnets from around the world.
Speaker 1:Top list of you know top 1,000.
Speaker 2:I'm just that's not giving us very much credit, I guess.
Speaker 1:I feel like we're on that. You know, the unpublished list is probably where it's at there.
Speaker 2:Yeah, yeah, we didn't even make the list.
Speaker 1:There's those that are in the limelight, that you know that get published and they paid the money to get published.
Speaker 2:Well, I don't wanna undersell your acumen here. I bring it up just a joke because I don't wanna make it sound like we know everything there is about running a business. But after over a dozen years of doing it on our own, we have figured out a lot of the things that we have done wrong. We've learned from a lot of people that have pointed those things out. We've read a lot of articles. We've listened to podcasts to tell us what we're doing wrong and what we might try to do better right.
Speaker 1:Yep, yeah, exactly.
Speaker 2:Yeah, I think today we can cover those three things that are big for us on our list. We've got a list together and number one on what we thought was a big challenge for new business owners. It was for us and if we look at our friends that are doing it currently and we look at just kind of how the whole process unfolds, the first step would be a business plan. Is that correct?
Speaker 1:I think so. I mean, we were just chatting about this and it was like well, what is a business plan? Yeah, and a business plan is just that. It's a plan. Yep, you know, how much money do we want to make, right? How much stuff do we want to sell? How are we going to sell that? Who are we gonna sell it to? What's our target audience? How are we gonna talk to that audience? I mean, the business plan, in my opinion, is that it's that overall, it covers a lot of the things that we're gonna talk about here, but it starts with, like the nuts and bolts of the business.
Speaker 2:Yeah, well, I mean, you wouldn't go on a 20 mile hike into the wilderness of any terrain, you wouldn't go anywhere without an understanding of how you're gonna get there and how you're gonna make it back right.
Speaker 2:So, like, basically, the business plan is your roadmap or your trail map, to use the hiking explanation or example, and part of that plan.
Speaker 2:Like you said, the nuts and bolts is just one of the first things are the objectives basically coming up with a plan of like what it is your business is going to do. And I think, without getting into all of the parts and pieces of a business plan cause that's a whole show in itself, I think, one of the things we've brought up in other episodes. It clearly shows that this was a challenge for us, because we've talked many times about, like, just taking on work that you're really not even qualified to do, and that is an example of how you're not following your plan, because if you had a solid plan, you probably would look at that plan. Maybe it changes over time, but you probably wouldn't say, well, I'm a residential plumber and all of a sudden I'm gonna be, you know, flying in rooftop units on this local outlet mall and now I do HVAC just out of the blue. I mean you can grow into that.
Speaker 2:But you know, year one you're probably not gonna go from what you're really good at then to taking on stuff you're not really good at, right Right.
Speaker 1:Yeah, I think that's one of the topics that was in this outline. That we're looking at is that growth side of things, and I think the business plan is important. In your business plan to identify those things. How fast do you want to grow? You know, ultimately, in my mind, you know, having the business plan is more about giving yourself a guideline. And if you've ever done any kind of technical writing or you know written a short story or short book, something like that, if you've ever done any of that, you have an outline, right, yeah, and that outline is just this. It starts out as a hey, we're gonna follow this path. But the thing that an outline does that isn't kind of written, is it helps you identify the things you didn't think about, and that those are the ones that make businesses fail, you know, is getting to day six of the week or whatever, and going.
Speaker 2:I didn't know I had to pay taxes.
Speaker 1:And going well, wait a minute. I didn't factor that 30% of what I make is gonna go to taxes.
Speaker 2:Well, that comes up in another point we want to make. And? But before we move away from business plan is I guess I just looked it up while we're talking yeah, there's a quote and I didn't know who to attribute it to. That's why I looked it up, but it's from Benjamin Franklin in 1790, according to the internet. So you know, it's true that if you fail to plan, you plan to fail. There you go. I mean, that's it, doesn't. It doesn't seem to be any more true than when you're talking about a business plan like an actual outline, like you're saying to your story or like I was using the analogy of you know your roadmap, yeah, you're not gonna go somewhere and just wing it. You can't, because I mean, you can do that. You're just not gonna have the same realization of goals and things that you're gonna set for yourself, Right? So that moves us to number two. So the number one business plan you got to. You got to understand what a business plan is. You got to work on it and you have to follow it and consult it as you go.
Speaker 2:Overspending. I know we talk about price setting, your price, charging enough, how to do that. The intricacies about that surround that altogether. Taking deposits, not doing free estimates. All those kinds of things are just details that go into that, really the over kind of the overarching topic of overspending, and you had a really good example, Andy, about the truck and stuff. So what do you, what would you say when you talk about overspending to somebody new? What does that mean to you as a business owner?
Speaker 1:Well, yeah, I mean, I think it's the part of this, that's of owning business or being in business, that is really easy to get sidetracked on is, let's say that we have a job, you know we're gonna do project X for you know, this customer and we're gonna come away with $10,000.
Speaker 2:Right, Sure, and so like a 50 you're saying, like just an example 50% profit margin.
Speaker 1:Yeah, here's yeah. We got a 50% margin, basically meaning that we got 10 grand from the customer and it cost us $5,000 in material labor and whatever to get there.
Speaker 1:Right, yeah, this is, this was our expenses. If, in fact, you actually had $5,000 in expenses and that covered everything, then you're gonna be. You know, yeah, you got $5,000, that's profit, right? If you went to it and said well, we built this deck for Mrs Jones and the deck was $10,000 is what we charge Mrs Jones and we had $5,000 in lumber, so we made $5,000.
Speaker 2:Yeah, yeah, you haven't paid anybody.
Speaker 1:That's where people right, that's where people get into trouble with the overspend, because they go. Well, man, we made five grand, I got paid myself $5,000 and I was there for, let's say, I was there for 40 hours.
Speaker 2:Yeah, it's easy to get caught up in that. It's easy to think of it that way, especially when you don't understand your costs and which we will get into as well but it's easy to think you can walk away and be like, well, I made five grand in two days. Yeah, that's it and it's you didn't? You didn't at all Right. Part of what you came away with was the. You know you had five thousand dollars that needs to be dispersed in different ways and it's definitely not all going in your pocket, and if it does, then you're in trouble, and that's what we're talking about not trying to stay out of that trouble. Yeah, so overspending you you brought up earlier before we started recording, but like the, the f 350 in the Ranger boat, Like that's a perfect example in Minnesota.
Speaker 2:I'm just gonna tell you. I live close to a major Highway that goes up north, where all the lakes are, you know, cabin country, and I see him every weekend and I think, oh, there's so few of these people there are just so few of them that can truly afford that whole rig. Because I know what an f 350 costs, I bought one you know what I mean and I know what those Rangers cost because I want one and I'd tell you what.
Speaker 2:That's, you know, you got to build a lot of decks and you got to probably have a lot of people Building those decks for you in order for you to truly, truly afford that.
Speaker 1:Yeah yeah, and that's you know, I think that's that. That overspend part is is an important one to keep in mind, especially the new business. You know somebody that's starting out and going hey, you know what, I want to have a nice vehicle. You know, my business is service oriented. I'm going to the homeowner, to, to the homeowner's House. Right, we're gonna, you know, we're gonna do service plumbing. Let's just just call it is yeah.
Speaker 1:If we're gonna do service plumbing, it's important to show up in a vehicle that is functional and I, as part of the mark of, as part of your marketing, it's the thing that the per the customer sees first. Yeah, absolutely, you know, unless they don't have windows on the front of their house.
Speaker 2:Well, in real life, yeah, I mean, they see first, like your website, things like that but, yeah, absolutely no, you're, you're dead on. We've talked about that in the past.
Speaker 1:Yeah, and so it's in. It's important to go hey, you know what we're gonna. We're gonna, we're gonna scale into this. You know, do you have to start business by going out and buying a brand new thing? No, you don't. You certainly don't. You could. You can certainly find a, you know, quality used vehicle. You could find something like that and that that helps factor into some of that overspend.
Speaker 1:You know what is your starting capital, that you identified during making your business plan that you have available to buy a vehicle and we're pay for the vehicle. Right, and you know, I mean that's. It's one of the one of the things that, when I remember, you know, filling out my business plan it was probably the hardest thing for me and I think it was maybe one of the most valuable pieces of it was. There's a question in there how much are you gonna make this year? I don't know. I've never done this before. Yeah, right, yeah, how the hell am I gonna figure that out?
Speaker 1:And then you start reading into it and it says well, here's the things you need to factor in. Do you think you're gonna work this many hours a week? Do you think you're gonna sell this much product? You know, and you start making some educated guesses, and that's something to really keep in mind in that building of the business plan. Is it is an educated guess, at the end of year one or at month nine, you should have a already looked at your business plan numerous times as you're going, because it's the map, and to see how you're progressing. But you need to adjust it. The business plan is should not be a one and done. No, of course, but no of course. But part of that, though that spending, though, is.
Speaker 2:I think you have to keep that in check as well, just the same as you have to consult that business plan. Sure, you have to think about that all the time, wouldn't you agree, right? Yeah, absolutely, I think. I Think it's easy to let things get in the way like wanting something for your business like I want, just like I want a new vehicle, okay, right. Or I want that, that really awesome Kubota, you know, mini track hoe, like I want that.
Speaker 2:But the thing is is like Wanting it and absolutely being able to pay for it or to probably they're probably not in the same category early on, and then like wanting something, like to own it, to go out and say, like this is mine, is there's a lot of Pride in that and there's, you can get swept up in that. And but then realizing like well, and I'm using this stupid tractor reference, right, like this, this backhoe, this track hoe thing. Like wanting it because it, you know, I can use it, I can make money with it, is one thing, but like Do I just rent it? Right, so staying back to that business plan and not over spending and thinking about what, where your money is truly coming from, and so there's a lot of things that go into this and we can't sum it up in just a few minutes and cover everything. But, like that over spending it's easy to use the example like I did with the truck in the boat, but that's so prevalent we know it is we all get caught up with that a little bit.
Speaker 2:You think you're making some money and Like I've got more money coming in seemingly than I've ever had before. This is great. I'm gonna say from my experience that you'll have that feeling. As long as things are going well and you're working hard, I'm gonna. I'm gonna go out on a limb and say most people will have that like, they'll think that way, or at least it's easy to to think that way. But the but the reality is is that it takes a long time before that money, like truly, is built up and you can say like I do have some money to spend.
Speaker 1:Yeah, well, and, and I guess one one last topic I have on on the overspend is To be aware that life changes yeah and and there may be a case, something that's completely out of your control, that will inadvertently cause you to have overspend.
Speaker 1:Let's say you, your vehicle, gets stolen, or you know something that's out of your control that nobody else is gonna pay for. Right it happens. You get sick, yeah, yeah, you get sick. You get in whatever it's important to, to be able to identify those, those, the items that you're spending money on, and say what is my contingency plan If? If this happens, how do I, how do I still pay for this, so that we're not upside down? If my employee that I have quits, what? How do I? How do I a comp? How do I accommodate that? Do I have five vehicle payments and all of a sudden now I have three vehicles sitting in the yard that aren't moving one, you have less jobs completed, less money coming in, I think it's.
Speaker 2:I think there's a good perfect as kind of I'm gonna tax something out of that. Yeah, I think with the life changes or things that come up beyond your control. Also kind of related to that is the idea that, with the spending, your credit, your suppliers, anything that you've got Extended out there, like if you go to a wholesale house to get your materials or you're using a credit card to buy and purchase this stuff, all of this is first and foremost connected to you as a real person. I think there's a misunderstanding of like well, I'm an LLC and like that protects me, like if I go bankrupt, I'm not gonna lose my house. Well, that's not. That's not the case in almost every small business like ours, where we're not you know, we're, first of all, we're not attorneys. We probably haven't hired one To make sure everything is kind of somewhat insulated and protected. Yeah, my point being this you go to a wholesale house. In our case, we'll just use Ferguson. You know, everybody in the industry knows who Ferguson is right plumbing, heating, a sailor you go to Ferguson as your you're with, as your new business, not no longer chucking a truck but Chuck's plumbing right. Yeah, you fill out a credit app Before they give you any credit. As a business, they could care less. To be honest with you, if you have a tax idea and stuff like that, they want that. Don't get me wrong, that's a big part of it. What they want most is your guarantee is a real person. You put your social security number on there. You are putting you down as collateral, so Right, in the event that unexpected life changes happen. Whatever business doesn't make it, you're on the hook for all of that. Right, you as a person.
Speaker 2:So overspending in its big broad, as a big broad Category, is really important. When you start looking further and further into it, what does it mean? It's not just buying the truck because you wanted it, or not buying the equipment instead of renting when it made more sense to do it that way. It's Just literally buying the box of nails for the or the box of screws for the deck that you built for 10 grand for mrs Smith and you thought you made five. Well, you owe money on the box of screws and if you go out of business and you don't pay that bill, it's on you as a real person, not just. You don't walk away from this when your business stops. I think that's the one thing that people don't Think about.
Speaker 2:And then so on the topic of pricing, we said top three things on our list. Yeah, so so far we've gone pretty. I think we've covered it pretty well. But business plan and what that really means, the roadmap, the outline, the overspending I mean we could talk about that all day long. We really could, because it is such a big lesson to learn over and something you kind of takes a long time to learn. For most people, something works really good at that. But then the third one, um, underpricing. So we have talked at length and it gets brought up throughout the podcast. If you've been listening a long time, you've heard us talk about a million times. We're not going to get into the details of it, but underpricing, knowing your costs, knowing what you have to charge right.
Speaker 1:Yeah, I mean, I, I think it. It goes into, you know, all of these things. It and it's interesting in this that all of the things that we're talking about are going to link right back to your business plan. Um, they're, they're going to circle. Let's circle back and find ourselves at home plate again. Yeah, because that's where it's going to keep leading you and and part of that you know, understanding that pricing is what prevents you from being, or having, overspend.
Speaker 1:You know, do you actually have the profit margin that you think you had? Do you have the amount of money in the in the bank? Did mrs smith's um $10,000 deck project with 50 markup cover your taxes? Did it cover your payroll insurance? Did it cover, you know, your, your state fund or your work comp coverage? Does it put retirement money in the bank? You know where, how many of these things can you check the box? And and it's so much easier to find um expenses Then it is to find income items or credits, if you will. Um, you know, when you're sitting down making this business plan, it is daunting, yeah, like you start looking at it and you're like, what? The everybody wants a piece of my money, absolutely. Why? Why am I giving away, you know 84 of my money? You know I don't know what the national average is For for a profit margin for you know contractors, but I'm guessing that it's 20 or less Right, and it should probably be in the 30 to 40 range.
Speaker 2:Well, it's a scale I mean, depending on the, the type of business you're doing.
Speaker 1:For sure, yep but I mean you, you're here. You know people that are like oh, we do cost plus cost plus 10, why?
Speaker 1:Yeah, well, it's different for every business too right, it is right. But. But I I asked the question of why? Not because it's wrong. But why do you do 10 cost plus 10? Where did you come up with 10 percent? What does 10 percent cover? And and if you haven't gone through to figure out what 10 percent covers, then you probably haven't covered all the bases. No, you're probably making five and a half percent right, which might be awesome.
Speaker 2:If you're doing 20 million dollars of the business, you know that might be good enough for your corporation, as long as you're covering your true costs. Um, right, yeah, so the the underpricing thing as it relates to just, let's say, somebody's going to start out and like they're literally mobile car washing okay, um, relatively, your biggest expense on mobile car washing is going to be vehicle, yeah, labor, probably marketing, you know what I mean. Like those three things are probably gonna be your first, your biggest line items. And you, you know, maybe you're just working, like, maybe you're like me, you start out your business, you're working out of your garage, like, yeah, like you don't have to go out and get that, you know that shop and things like that. So your, your, your initial costs early on are gonna be very low and but those are real and you still have to. You still have to pay him back, you still have to maintain him, all that kind of stuff.
Speaker 2:Like you said, it does really go back to that business plan. Like it, you don't get away from that. In fact, that business plan ultimately should be changing as your business changes. It should be fluid. Yeah, absolutely, I don't know that there's any way or scenario that I can think of that it doesn't, unless you just get to a point where you're like I'm done growing, I'm done doing anything different and like, five years from now, I'm afraid, right, well, I guess, even when you plan to close shop, things are changing. You got to think about things differently.
Speaker 1:Yeah.
Speaker 2:Huh, that's interesting, man. I just learned something from us, yep Top three things man Business plan.
Speaker 1:That's it.
Speaker 2:Overspending and underpricing.
Speaker 1:Yep.
Speaker 2:We could go on and on. We're not going to.
Speaker 1:Yeah, I think there's a lot of different facets to this Yep and I think this is why business is so exciting to so many people. I get, you know I say I'm not really that much into the business ownership side of it, you know. But I get I'll get off in the weeds in this stuff at home and it drives my wife nuts.
Speaker 1:Well it's important Because I'll be like hey, can you, can we pull up expense reports for this? You know what did this cost us? And she's like, seriously, and you know. So, anyway, it's I yeah, because I'll overanalyze things, not you. No, not at all. Never, never done that before.
Speaker 2:Took you 12 months to decide like To start a business plan. Hey.
Speaker 1:I had a business plan to make.
Speaker 2:All right, dude, that was fun. It's a neat topic. I think some people are going to listen to this. See the title, whatever. Look, I get it. Some of you will want us to talk about just fun, goofy stuff, and then a lot.
Speaker 2:We get a lot of feedback from a lot of people saying I'm in that spot, here's where I'm at. You guys just talked about this in an old episode or something. They start asking questions and the questions are coming down to ultimately, yeah, they're coming to us and with the basically asking how can I do this better? What can I? Can you give me any tips on how to be more successful? And to that we're trying to offer our experience. And I came started the episode admitting like we're not the foremost professionals on this, right, right, but with some years of experience, we're honored to have people asking us and wanting to listen about these kinds of conversations Because, like you just said, you can get off in the weeds. You get a little nerdy. Look, that's super important that you have that in you.
Speaker 2:We do business with people all the time, right? Think of the last person you hired to do something around your house and, like, I got a buddy coming. Not a buddy, just a guy. I've had work on my shop a few times at the garage doors and openers. I have some issues with them. They're just goofy, I don't like them. That's another topic.
Speaker 2:But I feel like this guy has got it figured out. But I know for a fact in talking to him it took him a while and he's just like me. He doesn't have guys working for him. He's out there working, answering the phones, taking on the calls and scheduling all of that. And I know just by talking to somebody like where you get a sense of where they're at. And it's because we've finally worked ourselves into a position where we're starting to understand all of this stuff a lot more than we did. And it takes a while and I just hope somebody listening, I hope it takes them less time than it took us. Like that's my whole motivation about even bringing this up, because I know Chad's going to listen to this and he's going to be like oh my god they're talking about. Oh wait, I'll do my best, chad. They're talking about doing business stuff again. You know where are my Lincoln Log plumbing pipes? No, I'm sorry, chad, I'm not sorry.
Speaker 2:Chad, we love you, chad, we love you. Anyway, I'm going to end it there. I think it was a fun talk. I like this topic a lot and I think we could go on and on about it, but we're going to hit stop on the record button. What do you think? No-transcript.
