This weekend, an old friend approached me with a proposition. He is a developer (fairly new at it) and offerd to employ me full-time as his woodworker. I would be building custom kitchen cabinets, vanities, stairs, and all interior trimwork. No framing or flooring. His offer was $62,000 a year with 2% bonus at time of sale, and medical insurance.
Last year I grossed just under $90,000 from my shop, with a net (after some new machinery) of about $45,000. I don’t give myself bonuses, and I’m one of those millions of Americans without health insurance. The offer is very tempting.
Here’s my dillema…since I would just about abandone my growing business, is it wise to jump ship at this point? Is the housing market still growing enough to sustain my employment? Who would do this?
P.S The friend is trustworthy, is building one house now and purchased two additional lots, and he has purchased furniture from me before, paying on time.
Replies
You pose a very difficult question since the answer to it is more personal than objective. On the objective side you need to estimate how long it would take you to earn $62K+net on your own and how probable that would be. Balanced against that is the credibility/reliability of your employer's ability to continue to pay the wage. If he is building one house at a time, his ability probably is limited. At the same time, if there is a slow-down and he has to cut your hours, you may be able to balance that with continuing some of your own business.
I would think the key consideration is determining what is more important to you: Is your first priority earning more money (and you're willing to consider a number of ways of doing that) or is your greater priority working for yourself, or creating fine furniture, or ???? There is no answer that is inherently better than another, but knowing what is more important to you will help you to weight the objective alternatives.
Giving the proper weight to the risk variables is very very tough because you never have enough facts to let you make a well-informed decision. You're really guesstimating the answer.
Good luck.
p.s. Forecasting the strength of the housing market is also very tough. Mortgage rates remain low (compared to the past generation) but there are plenty of signs that interest rates could continue to rise over the next few years except that NOBODY can predict the future course of rates -- and plenty of homes have beeen sold when rates were much higher.
What you may be able to check is the strength of your local housing market. If you are in an area with good population growth and good job growth, then your market has a better chance of remaining strong (or of weathering a downturn). If the population is only stable (or declining) and if jobs are under pressure, then your market is more exposed to downturns. But the toughest thing to gauge is your friend's ability as a new developer to compete against more established and larger home builders. He may be clever (talented) enough and aggressive enough to break in and create his own niche--that's been done by lots and lots of people but you have to be sure he's good. If you were out of work, or unhappy with your currrent position, you'd probably be well-advised to take this offer. But for you it's a more difficult decision because you have to weigh in the cost of giving up your promising business.
Thank God I'm too old to have to make such decisions!
Edited 2/21/2005 6:19 pm ET by Larry Martin
Larry, you offer some very wise advise. Thank you.
You might want to wander over to Breaktime with this question.
Some things that come to mind are:
Who springs for the Worker's Comp?
Who buys the materials?
Who covers your overhead?
Do you really want to work for someone else, meeting their deadlines, their idea of "quality", their "suggestions" on how to do your work?
What happens to the customer base you've developed so far? Is it going to be there if your friend goes belly up? Speaking of which, just what would be your liability in that event?
Who gets dinged for the expense of call-backs when the customer is unhappy with some aspect of your work?
The more I think through this, that $62,000 is really starting to shrink!
I've been thinking about all those questions you pose. His material, his overhead, he covers worker comp, I'm essentialy his employee and I don't run a seperate business. I would miss the creative freedom I enjoy now, but even that is relative to what a particular customer wants. And $62.000 isn't very much here ( Chicago ), luckily I don't have a wife or kids to put into the equation. But at 37 years old, I don't want to take that many risks either.
Thanks for the sound advise.
So how many hours is he wanting you to work for the money?
I cannot imagine a new developer having enough work for a full time trim/finish carpenter.
Perhaps it is time to think about hiring an employee and keeping both options going.
I would counter the offer with a bid to support his business with yours. You can make much more as a sub to him than you can working for him. The bonus he offers you is only worth 4-6K per house and how many can you reasonably finish in a year? Why not work your own business in support of his. If you do the math, he is getting the entire trim carpentry and cabinetry work for a house at 35K? Not a good deal for you in my mind. Also, you see very little change in compensation verses complexity. I would recommend saying no and making a counter offer.
TDF
Edited 2/21/2005 7:21 pm ET by Tom Ferreira
I think that Tom has a great idea here. You might offer him a 'volume discount' if he generates enough work to keep you busy for extended periods, but if you stay independent you still have the option of keeping your own business going.
I'm looking at a somewhat similar situation. My woodworking business is finally hitting the 'break even" point and things look pretty promising for this year. Recently, I was contacted about going back to my old engineering profession for a year or so and I'm kinda on edge about which way to jump - if the engineering deal comes thru.
I vote with Tom. If you are concerned that you won't be able to keep up with both operations (your current customer/business base, and this new obligation) then you should scan the horizons for "hirable" or "subable" talent.
Tom, thank you.
Yesterday I met with him to go over some more details. I understand why he wants to hire me full-time, he would essentialy be customizing his homes with high end cabinets, vanities and staircases for a fraction of the actual costs. After all, marketability of the house is the name of the game. The better house for the same amount of money gets sold first. These McMansions are selling for $1.4M average (Lincolnwood, Northbrook Illinois).
I countered the offer by asking him to buy out my business, equipment and all, for $50,000. He refused. I turned him down.
As it stands now, he might order the cabinetry from me, he was pretty vague about it, and I'm beginning to feel insulted by his attitude. For the sake of the friendship, I'll let this one slide.
BTW...any relation to a Jason Ferreira in Hawaii? He taught me everything.
Why not go for it? You'll still have your shop and tools. If you can make good money even for a couple of years then things taper off and he has to let you go, you're still no worse off, other than having no backlog for a while. But, the increased income, assuming you bank it rather than spend it, will make a nice contribution toward retirement.
I would insist he employ you legitimately, and not under the table. Get what you are legally entitled to so far as worker's comp, social security, and so forth.
You would still be accumulating a portfolio you could use to sell yourself in the future, as well as making contact with potential future clients in case the job doesn't work out.
Only you can judge your ability to work for him and get along, and whether his quality and business skills are good enough to keep him going at least for a year or two. Having you on his staff can put him in a better competitive position, separating out his offerings from the typical spec builder.
Can't advise you on which way to go......too much personal emotional baggage attached to be objective. (I've shunned re-entering the work force for far too long to give up my freedom of self employment.) But I will advise you to get yourself some health/accident insurance. You're one microsecond away from financial hardship.
Regards,
Jeff
Health insurance has been on my mind every day, because of the risks. I managed to put aside some money as catastrophic insurance, say a severe cut (knock on wood). I know that just covers the hospital costs and not the loss of income. But insurance for a self-empoyeed woodworker has reached $450. a month, that includes medical and lost income with a $5000 deductable. Simply outrageous and out of reach for now.
Thanks for responding.
benchdog
Just read this thread, and I might have some input. First of all, Blue Cross, Blue shield has a fantastic insurance plan for myself and my family of 4 for $262 per month. Covers all except office visits, and they go towards the $2500 deductible.
Also, with regards to a builder building one at a time. He will not have enough work to keep you busy doing just woodworking, and I can guaranty you that you will become his mule, even with the best initial intentions. If you feel your business is growing, which it sounds like it is, then handling this new business while remaining self employed as a sub is the way to go. I can assure you that your growing client list will come to a screeching halt if you are not able to give them the proper attention. I lose 3 or 4 very large and nice commissions because I can't deliver them on time because of my other business. When this happens, you will also lose all the referrals from this 'customer circle' due to not being able to deliver.
The extra $15K per year is certainly nice, but your existing business can easily grow to greatly exceed that if you stay with it, and you truly like what you're doing. You should be able to service this builders needs easily, and balance them with your existing and future projects with your business staying intact.
Good luck, and as Cstan said, hang in there!!
Jeff
Can you give me some more details on the health coverage you have. That cost sounds too good to be true. I have seen quotes of 2 to 3 times that amount. On a related subject, have you or anyone used the COBRA law ( Consolidated Omnibus Budget Reconciliation Act ), for extending your former employees health insurance coverage ?
Robert
Blue Cross, Blue Shield Select plan. You can just call them, they will send you the details. I've never been an employee, so don't know anything about Cobra.
Jeff
rpholland,
CORBA simply gives you the option of extending your employers health coverage for you and your family (up to) 18 months. You pay the same price your employer pays..and if your employer changes the plan during that 18 month period, your plan changes along with ...and you pay the cost. It is less expensive than you buying similar coverage on your own.
Thanks Jeff, it's been a long time since I saw your name here. I will stay independent but I get the feeling he won't hire me as a sub. Doesn't matter, got along fine before he showed up.
As far as insurance, the best quote I got from Blue Cross was $540 with $5000 deductable, citing the dangerous nature of my work. Plus they would not cover any preexisting conditions such as my eye injury from 1988.
For insurance possibilities: Contact the various small business associations that operate nationally and locally. They serve as a group for insurance purposes and thus lower rates can often be had. You will have to join an association but that cost is negligible compared to monthly insurance fees. Jeff
benchdog
Yeah, it's been a while since I've replied here. I still check in, just haven't had much to say. I don't know why your insurance premium is so different from mine. My occupation shows concrete contractor, which I know is the worst rated when it comes to workmans comp, because that premium is rediculous. Anyway, if he likes your work well enough to want you full time, then it shouldn't matter having you as a sub. From an expense standpoint, he's trying to get you cheap. I'd hang in there, which I'm glad to hear it sounds like you're gonna do.
I know it's easier to say that from where I sit, but in the long run, you'll be much happier if you keep working hard for yourself. Good luck!!
Jeff
Thanks Jeff, I'll stick with it. Last night I closed another deal to begin in April (another kitchen), my main concern was losing all my referal customers like this one.
I believe, insurance rates are also based on credit scores, below 700 you pay the price!
Another option on health insurance is to work one day or a couple nites a week part-time for a big box or some other large corp as ther rates are low, some are $250 or so a month for a single person. There insurance is pretty good but not the best, but there deductables are lower than $5000. Believe me I know this option sounds terrible but it will only be temp for you unitl the business grows.
MIkeD
That's something I never thought about, great idea. I'm not too proud to work a few hours in a big box for that reason, I can tune out just about anything!
Thanks MikeD.
Hey guys,
I'm young and in pretty good health, so this may not be a good solution for everyone. But I only carry a "catastrophic insurance policy". I forget the details (my wife is in charge of that stuff) but I think that the deductable is like $5000 and it covers no check ups or any thing else. I believe the policy is only $500 a year or something like that, maybe it was even less. I've done the math and for what the insurance rates are I prefer to pay out of pocket. I have never met any of my deductables ever in my whole life! not even on my cars. So all the money I paid in premiums was wasted. Obviously there is a piece of mind. But basicly the higher the deductable the cheeper the insurance is EVEN IF YOU HAVE TO PAY THE DEDUCTABLE. Look at the different plans and do the math. To get a $500 instead of a $1000 deductable you will pay $900 more a year in premiums. If some thing happens ( I rock climb, mountian bike, and other "risky" sports) I will have to come up with the $5,000, but we are prepaired to do that. Even if I have to use a credit card I am better off. I know that not every one is comfortable with that kind of set up, but really there is no difference. It is a pay now or pay later deal. You either pay the high premiums now to get a dispoportunately less deductable, or you can pay a lot less for the premium and mabey you will have to pay the deductable. I have saved several times my deductable over the last three years, and I try to keep the amount of the deductable in savings.
Hope that made sense,
Mikeplease excuse my spelling.
benchdog,
Try looking into a Health Saving Account (HSA) for your health insurance. This type of policy is growing in popularity and make a lot of financial sense.
Glad to see your sticking with your own business.
Good Luck
Sean
I am also self employed. The family (wife, 2 kids) and I are insured through Unicare, which I think is based out of IL. We pay something like $750/quarter, $5k deductible. The HSA will save you some money on your taxes; contributions are deductible to a small degree.
When deciding which insurance to go with, I ran the numbers, comparing BCBS with the Unicare coverage. The premiums for the BCBS added up to the Unicare premiums plus the high deductible. So in good year with no medical attention at all, we would pay the same amount for both. In a bad year, we'd have to pay the BCBS co-pays, plus a percentage of the actual cost of whatever medical treatment. Unicare covers 100% after the deductible is met.
Insurance laws vary by state, so your results may vary. We did not find any truly inexpensive options.
The information I have gathered on the specialized "small business, self employed, health insurance companies" is that they are largely scams, operating on the very fringes of legality. Folks that have used them had uniformly bad experiences to report.
I don't have any idea how credit scores would affect your premiums.
Just curious, have you had any dealings with NASE? They approached me about 15 years ago, even then their healthcare insurance seemed too good to be true.
Does Unicare have a website?
No dealings with them. We have some contact with a pretty large number of self employed people, and those who had dealt with the NASE and other similar organizations had uniformly negative things to say about them.
The consensus on Unicare was that while it's not cheap, they do what they say they will. We have used them for 4 or 5 years, and I agree with that opinion. I would add, it started out not cheap, and it keeps getting more expensive.
You know what they say, "You get what you pay for, or a little less" seems to be as true with insurance as with tools.
I guess the bottom line with any health insurance is that there is no free ride. You are going to pay for your healthcare. When working for a large corporation with good benefits, the cost is less visible, but you still pay.
www.unicare.com
Not sure what you pay for Health Insurance, my company (with two subscribers to HMO Blue (or HMO Blue New England) $10 copay for most dr visits, $10, 25, 45 for perscription copay - it's something like $1200 month for one family. - Steep but if your grossing $90K, $14K in health insurance should be affordable. (something like $26,000 a year for two families)Another option, the small business service bureau (http://www.sbsb.com/)You can buy health coverage through them at big company rates (they consolidate many small companies).Hope that helps.Mark
Measure it with a micrometer, mark it with chalk, cut it with an ax.
Mark,
I don't know why you sent this info to me. I'm not the originator of the post.
Jeff
Sorry, meant to go the group not the individual...Mark
Measure it with a micrometer, mark it with chalk, cut it with an ax.
Here's an update for those interested...
Met the "friend" last night, he wanted to show me his blueprints. He signed contracts with stairbuilders, trim carpenter and put a deposit for cabinets through kda! In essence, left me out of the picture. He still wanted my advise on certain revisions!
Left him at the bar with the tab...####hole!
Sorry to hear that. But, definately not the guy you want to entrust your living to, so alls well, as they say. Better to find out now.
Jeff
Yeah Jeff, it's all in the past now.
Did you see the Cubs today? What did you think? I thought the starting line-up did well, the others need work, maybe some bench pillows!
Georgie
I didn't see them. I was moving into my new shop Friday and Saturday. I finally got the building insulated, and all the electric outlets in. Very exciting for me. Hopefully, the Cubbies will do it this year. Where do you live. We'll have to catch a game, I always have extras for a woodworking buddy.
Jeff
Jeff,
I'm on the Northwest side of Chicago (Edgebrook) Devon and Central. Congrats on the new shop, I'm excited for you! And yes, I'd love to catch a game with a fellow woodworker, anytime.
BTW...can your new shop churn out 400 chairs and 100 tables? I'ts for Gibsons steakhouse. Sorry, I had to ask!
George
George
Definately on the Cubbies! Did you get the Gibson's job. Sounds like a whopper! If you're serious, and you need some help, I think I can get it for you, but I won't talk about it here. Email me at [email protected].
Jeff
Having some email trouble. Getting it fixed tomorrow.
So is this 'friend' trying to make a statement? Charge him atleast $85/hour consulting for opinions.
of course this service is included in your cabinet package price, right?
Tom offered the best idea. I have been in a similar situation and it can take a while to recover. That was many years ago, but it's still fresh on the mind. Your friend should respect your desire to stay independent, just as he wants to be on his own. Also this is the way lots of long time friendships get ended.
Jimmy
as always I wish you enough
My vote is for remaining self-employed.
Have you considered a high-deductible major medical policy? I'm happy to pay the odd doctor's office visit out of my pocket. What I needed, and bought, was coverage for a major medical incident (hence the name).
Hang in there.
Edited 2/22/2005 3:31 pm ET by cstan
Your vote has been counted cstan, thanks for responding. I just finished responding to jpatrick about insurance if you care to read it.
thanks again.
Stick by yourself. The key work here is "Developer" rhymes with "realtor" and they are always in it for one reason...........Themselves. Stay your owne boss and go fishing once in a while! Let them call you for your craftsmanship!
Thanks Craigmic, the negotiations fell apart, I'm staying as I am.
BD,
I don't know where you live but around here (Dallas area) NOBODY would take a salary like that. If you are good enough to do all that kind of work you would make double that as a contractor. Also I have worked in the home building/ remodeling buiz all my life, still do. Dad and grampa are builders. I have NEVER heard of a salaried carpinter. I am going to assume that these are nicer houses as no one can compete with spec homes. A trim out bid on a nicer home with a stair case can easily exceed his proposed salary. If this guy thinks he can hire ONE finish carpinter to do his work ON SALARY he is nuts. I mean It will take more than a month to do a house. A decient 3,000 sqft home with crown and trimmed windows could easily take you 3 months. I suspect this guy will not last very long.....
Mike
Stay with what your building. Your almost there.
Jim
I haven't read the whole thread, so someone may have covered this, but you're essentially asking about jumping over to being a finish carpenter, and to me, over the long haul, your friend's offer is semi-irrelevant because who knows which way the wind will blow him. So, if you abandon your business and get into being an employee, you'll want to know what the market and pay scale is for finish carpenters. Most contractors will tell you that they have a hard time finding highly skilled and reliable employees who are presentable to clients and work well in the chaos that a construction site can be. Most posh urban areas have plenty of jobs for trim guys that pay between $25 and $35 per hour. You could do some research on wage levels in your area by calling some of the contractors that do high end work and see what they pay their guys.
I've done both shop work and field work and they are very different. Working alone in the shop is one thing, working in the field with a lot of other trades and the homeowners around you is another. Which appeals to you more?
HOLY SH*T.
I think that I like living here in manitoba Canada. If I get hurt, so long as I don't need an ambulance, I go to the hospital and get treated, and go home. That is all. I can stay there for 5 months and no bill. I suppose that I pay off my income tax, but not $750 a quater.
The government does a good job of making health care look free. That works for me.
derek
When you read such an encouraging answer as yours, I wonder why the rest of my fellow Americans are so afraid of socialized medicine!
There are valid reasons on both sides of the issue for socialized medicine, however, I believe what Hawaii has done is the better solution. When I lived there, anyone working more than 20 hours a week was insured through their employer. This was compulsory, no exceptions. That leaves the question of self-employed insurance unanswered.
The two extremes -- Hawaii and Maine -- both seem to have taken some innovative steps. More power to 'em!
That's a good point you raise.
Shop work for me means working mostly alone in an environment I create, my radio etc.,etc.
Field work is working with others, in someone else's house with their rules. And when a client is watching you during an installation,that can make stress become more stressful.
I'm not sure of benchdog's age, but working for a company for health care reasons is no shame.Many folks do it. Being independant is admirable,I used to run my own business, but reasonably priced health care and age can help determine his path.
I just scanned through your post, and I wanted to say that I think you made a wise decision by turning down the offer. I made the mistake of giving up my self-employment in the software industry. Among other motives, the 'friend' wanted to take over some plug-ins that I had developed. The details are irrelevant here, but my self-employment never recovered after we parted ways. Your 'friend' reminded me of this person.
If you are grossing about $7,500/month, you are doing ok. If the business is growing, you will do much better than his salary that will not grow as fast as your business. If you have the motivation to nuture your business, you will never regret the rewards of self-employment.
You will get to pick and choose your projects, and your clients will value your input on custom furniture. The other way, you would have been micro-managed. I just spoke with some friends today that are having a kitchen remodeled. They said they are most likely going to have to terminate the relationship with the company doing the cabinets and find a new one. While the cabinet maker is not happy, at least he does not have to work with them again. Had you chosen otherwise, once the friendship turned sour, you would have regretted this decision.
sorry, this was longer than I had intended. A final comment or two. When you need medical care, make sure that you tell them that you have no insurance. Some self-employed business acquaintances have told me the bills are often reduced, probably because they would never collect 100% from the insurance plan. If you find that 'special someone', that might get you covered.
Keep your fingers and good luck.
You're without medical insrance. He's including it in his offer.
That alone could be worth anywhere between 6-8 thou / year in premiums alone, or well over hundred(s) (of) thousand(s) if you get ill.
Eighteen months ago my body somehow decided to grow a nasty cancer on my neck. Thank "Whatever" for the BCBS PPO insurance. The bills ran well over $200,000.
Does this help?
-- Steve
Enjoy life & do well by it;
http://www.ApacheTrail.com/ww/
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