Starting an excavation company

I am a PM with a general contractor. I am looking to start my own business and looking at 2 options.
Option 1. Go out on my own as a general contractor or subcontractor. I have approximately 30k in the bank.
Option 2. My boss has indicated he would like to start a subsidiary to our GC company as a site work company. We have discussed that I would run the company as an estimator and PM. I have little site work takeoff experience other than gathering numbers from our site contractors. My boss has offered to put up around 200K in order to purchase a mini, a skid steer, trailer and dump truck. We have not negotiated my stake in the business, but in my mind I would like to shoot for 51% ownership since he neither has the time or interest to be involved in any of the day to day operations. While this is obviously putting a lot trust in me, I now typically run 1-3 jobs at a time ranging from 1-3 million in value. We have discussed hiring an operator and a couple laborers, with the experienced operator having the capability to help me with bidding until I have a good handle on it. Our company puts around 20 million dollars worth of work in place a year so there would be opportunity to do our own site work as well as bid out to other GC's. My idea is come to an agreement that I would take a salary and my portion of any profit in the business would go into paying back half of the 200-250k in capital that he initially invests plus interest.
There is a lot of construction going on in our area right now and I feel like there is a good chance of success whether I go this route or make a clean break and go on my own.
Any advice?

think i would go with option 2 .
1) 30 grand wont go far buying equipment.
2) you will need insurance - not cheap
3) if you like to run equipment ok, but if you start hiring people you will spend more time finding work and paper work and less time running iron.
4) if it fails you dont totally loose every thing.
5) if it succeeds you can buy him out and get all of the learning on his dime.

Your boss takes all the risk and puts up 200K and you get 51% ownership and a salary to boot. If it goes bust do still have to pay back the 100K+ or get to just walk away? I think the best you could hope for would be to have the option to be a part owner/share holder. An equity in the company type of deal based on the amount of work the company does and part commission for your running the operation might work but I think it would have to start at about 5-10%. Are you still going to be running the projects for the existing business? 30K to start on your own site work business is robbing the last pennies from the piggy bank with no safety net at all. Now if you could get guarantee's that your current boss would hire you as his sub-contractor could go a long way in securing financing and coming up with a business plan. There might not be a lot of profit if you're looking at paying back 200K in equipment plus expenses, and insurance, etc.

I think I would have quite a few sleepless nights if I were trying to pay off a $200,000 note with the profits from a mini, skid steer and a dump truck. Maybe the hourly rates in your part of the country are alot higher than what I'm used to. If so, then thats great and maybe it will work. My intention is not to discourage you in any way what so ever. Just my $.02

Are you a certified PM?

The only ship that sinks 100% of the time is a partnership, I don't mean this as discouragement, just be sure it is all mapped out and you and the other guy fully understand who gets what.

I don't know why he would give you 51% ownership when he is the one putting up the $200,000. Who will cover payroll, insurance, and unexpected job costs?

Welcome to the Forums PMWITHQUESTIONS.:drinkup

They beat me to the questions I had -

bam1968 said:

I think I would have quite a few sleepless nights if I were trying to pay off a $200,000 note with the profits from a mini, skid steer and a dump truck.

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The though of paying my salary and a $100K note back off a mini and skid with a dump truck gives me the shivers...

movindirt said:

The only ship that sinks 100% of the time is a partnership, I don't mean this as discouragement, just be sure it is all mapped out and you and the other guy fully understand who gets what.

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Very, very good advice. I will never enter into a partnership again.:cool2

plumberkc said:

I don't know why he would give you 51% ownership when he is the one putting up the $200,000.

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I know I wouldn't if it were my cash, I would want control of my investment.

Something that might work better is getting him to pay you to run it plus profit sharing there is no way a sensible person is going to hand you a company with no money in I Assume you would still be using his shop for repairs his office to do payroll his name to get bonded and insured ect ect if he has to hire someone experienced to show you how to run the business couldn't he just give the sacks of cash to him? Also hope you realize you don't make salary when you own a business not at first at least

Partnerships can be rough going. I would start simple with these steps:

1. Find a need and a want (ask what is needed and wanted)
2. Fill it
3. Make lots of communication lines and help others get what they need and want

Doing that alone will improve conditions towards what you want, and then more steps once that is accomplished

Never crawl into bed with somebody that has more money than you! With leasing and flexible financing these days, start small on your own and build.It can be done.

bobcat1 said:

Never crawl into bed with somebody that has more money than you!

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Good advice and I'll also add don't go into business with someone that has a lot less money that you do.

I have seen many times where a partnership of unequal financial partners gets to be successful and the partner with more money forces the partner with less money out. It's called a "cash call". Often times the partner with less money is the one that busted their arse to build the company and gets forced out when the company begins to get profitable. Dirty but it happens.

In general it is going to be difficult to go it on your own. It will be even more difficult with only $30k. You could look at financing with other outside sources if you prefer to go it solo but generally speaking most lenders see startups as to risky because they lack the track record to measure risk (even when you have all the experience in the world). If you have an extremely strong credit score, at least 20% of the project cost to put down, collateral and a solid business plan your chances rise but it is still slim. Might be worth it to go into the project with a couple partners who can pitch in and work out an ownership agreement. What a lot of start ups do is apply to every lender that pops up offering low rates or they assume just being a small business in America they will automatically get an SBA loan. Not so much the case and you may end up doing more harm than good if you get to many hard inquiries. Get your business plan together first (use a site like Bplans if you want a solid one) register your business even if you do not take it live immediately have an EIN so that you are taken seriously, you might have other potential partners coming to you

An example of a "cash call". I recently purchased an existing business that was once strong but had declined over the last several years. I partnered with the man that had been the manager for 15 years. He was most concerned as he wanted to continue to get his current weekly salary, to which I agreed. I took no draws. In the first year we were able to squeak out a small profit . His salary ( now considered a draw) ate up most of the profit. So basically he owed me half of his draws for the year. He was not happy, and I have nothing against him , think his job performance was good , and was pleased with his willingness to make changes from the way things used to be done. But still he is left with the decision to pay up , loose ownership stake , or get out . The numbers don't lie and it is just business.

One partnership that works is building a spec house because the goal of the partnership is to end the partnership ergo sell the spec house. And this is not meant as a smart remark...just that the end becomes none of the means.

partsandservice said:

An example of a "cash call". I recently purchased an existing business that was once strong but had declined over the last several years. I partnered with the man that had been the manager for 15 years. He was most concerned as he wanted to continue to get his current weekly salary, to which I agreed. I took no draws. In the first year we were able to squeak out a small profit . His salary ( now considered a draw) ate up most of the profit. So basically he owed me half of his draws for the year. He was not happy, and I have nothing against him , think his job performance was good , and was pleased with his willingness to make changes from the way things used to be done. But still he is left with the decision to pay up , loose ownership stake , or get out . The numbers don't lie and it is just business.

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Good example of the other side of the "cash call" coin. I agree with you - you can't finance his salary. Another reason why I shy away from partnerships.

Keep this in mind

If you take on a partner they need to bring at least two of three things to the table money ,contacts or experience if the can't then you are going into business with a a mate.