Why do I need 300,000 a year?

[shutupdan]

Hey guys, just need some help with something. I own my own business, and right now it's just me and my partner. We each make around 120,000 a year. Our business basically provides computer and technology support to businesses for about 900$ a month. Many other businesses have come to us saying they want to work with us, but we have enough work as it is. For whatever reason, I'm having trouble deciding on whether or not to expand and get an actual office and some employees. If we did, we would each make about 300,000 a year, because we would have enough support to handle more businesses. I have no idea what I would do with 300,000 dollars a year. I already have a nice house, a couple nice cars, and really everything I need. I don't even work that often, so I'm pretty blessed. If I hired theses employees, I would work even less. I'm only 24. Can someone help me decide whether to expand or not? To some of you this may sound weird, but I can honestly say that I wouldn't know what to do with that money. I never wanted to be an elite person, just wanted to have some nice cars(lambo), a one bedroom apartment a tv so I could watch family guy, and have enough money to pay for an upper middle class life. That was my goal. What should I do?

[tallen]

So, as I figure it, you and your partner are providing support to something on the order of 25 businesses now. Let's say there are another 50 businesses out there that would like you to support them as well, but to do so you need to hire some additional employees. Have you adequately figured out what it is really going to cost you to hire those employees, maintain an office, etc...? Your expenses will go up significantly! I don't see how you end up with a $300K draw, unless you are talking about a much, much bigger expansion.

[Freelancier]

A single person making $120K per year is the top 3% in the USA. Congratulations, you're definitely already upper-middle class.

However, if you get married at that income, you drop to the 72nd percentile and are back to just being middle class and struggling to pay for the things your spouse wants. And then the kids come along and your little one bedroom apartment and sitting around watching TV doesn't cut it. See how that works? :)

If you feel comfortable with your business, someone will come along and steal your lunch money and leave you hungry. Never get comfortable for too long.

Your best bet is to start thinking about what you need in terms of infrastructure to expand. I'd say "office" is the lowest priority item. Instead, you need a phone system that works for a virtual setup, a manager to keep people doing what they should be doing, someone to keep looking for more business all the time, someone to do the work... basically you need to think about what your business looks like when you expand, who does what job, whether you're going to be awesome at the jobs that are left to you. Then you work toward your plan step by step.

[turboguy]

Sometimes it is better to keep things simple. Once you are a lot older you will look back on your life and think about what you would have done differently if you could do it again. In my first business which lasted a couple of decades I always wanted to build an organization. I had a nice life when I worked alone and made good money. I ended up with a dozen salespeople, none who could do quite what I could, an office and a full time secretary. I was one of the few in my industry with that set up. What I found was my time was spent managing and helping my staff and was far less productive. I had far more headaches and no more income. If I could do my life over I would have stayed working alone.

One other suggestion. You have it good right now. Put some money aside while you can. All businesses have a life cycle and starting to save while you are young will pay off later.

[shutupdan]

Thanks guys. I imagine me an my partner would do a little management, but it couldn't hurt hiring a manager. My future employees would just be simple computer technicians and helpdesk technicians, so even if I payed them 35k a year, they would be making more than average. Generally our clients are very low maintenance, we only work about 20 hours each, and that's supporting 30 businesses(15 for me and 15 for my partner). We imagine that we could get each employee to support about 10-12 contracted companies. So 3 employees could be 30 contracts. That right there before any taxes or expenses is 288,000 dollars. We are involved in many small business "networking" clubs, where you get to meet people. Out of the 3 that we spend the most time at, at least 80 business owners have come to us about setting up a contract. Even if we just take 80 out of the 240, that's 768,000 dollars a year. You may think I'm wrong with my numbers, but even if we just add a modest(in our situation) 50 more businesses, thats 480,000$. Say we take a 120,000 dollar salary for that for each of us, hire 4 or 5 employees at 32,000 a year. We would still be left with at least 80,000$ a year for rent and other expenses. Am I wrong about all that? If so please explain it to me. Thanks

[Harold Mansfield]

Even if we just take 80 out of the 240, that's 768,000 dollars a year. You may think I'm wrong with my numbers, but even if we just add a modest(in our situation) 50 more businesses, thats 480,000$. Say we take a 120,000 dollar salary for that for each of us, hire 4 or 5 employees at 32,000 a year. We would still be left with at least 80,000$ a year for rent and other expenses. Am I wrong about all that? If so please explain it to me. Thanks

You haven't paid taxes yet.

[shutupdan]

That is true...

[shutupdan]

In short, if we hire employees, it will be on an as-needed basis(duh), and we would make 4000 to 5500 a month from each employee.

[Freelancier]

and we would make 4000 to 5500 a month from each employee.
Minimum you will find you need to make on an employee is about 50% over their salary and 100% is better. The bigger consulting firms usually like to charge about 3X an employee's cost, which usually translates into income of about 2X their salary. General rules of thumb, every case will be different, but that's the general rule you want to follow to be profitable. We've got some contractors doing work for my company and I'm billing about 1.8-2X what they are billing me and that turns out to be mildly profitable. Nothing as good as my doing the work and keeping everything I bill, but we're expanding, so that's one of the things I had to let go about.

[shutupdan]

I just don't want to lose all my free time. I'm only 23 so I feel that the "boss" title doesn't fit me very well. I like just working with my partner and being able to go out and do stuff whenever. I know that if we don't act soon enough, we may lose some of these interested businesses. My partner really wants to expand, he's 24 and he has told me that he's looking forward to "Mornin boss" and the like. I guess I'm just afraid that my current work situation that requires me to only work 10-20 hours a week, so I get a lot of free time, will change.

[Freelancier]

I think you and your partner need to be on the same page before you take the next step. If you're not both 100% committed to the growth and how to pay for it, you're going to create conflict that you didn't want.

[billbenson]

I'm old. I work a lot. But I get up in the morning, get a cup of coffee and park my butt in my office still wearing my underwear. I like that lifestyle. I make a decent living.

Having said that, I don't see a path to retirement unless I make at least $1M a year for a number of years. From my perspective, the only way to do that is to build a company. I really don't want to, but I may have to. If I do, I may take a salary hit initially.

You also mentioned paying people 35k per year. Nobody that is competent is going to work for that. If you aren't paying someone in a professional position at least 60k they will leave. You are lucky. 20 years ago that number would have been 100k or more.

[shutupdan]

Amazon only pays 15$ an hour for computer technicians.

[Fulcrum]

Amazon only pays 15$ an hour for computer technicians.

But what's their employee turnover?
What are the technician's responsibilities and what are they accountable for?

You can't compare your company to Amazon. They're in completely different league than anyone, to the best of my knowledge, on this forum is. Besides, it would be a safe bet that Amazon's top IT people are taking home $100K+.

[Harold Mansfield]

Amazon only pays 15$ an hour for computer technicians.

Fulcrum beat me to it, but that was my first thought when you compared yourself to Amazon..."Let us know when you're Amazon".

Someone may take a job at Amazon for $15hr. with hopes of moving up in the largest e-commerce company in the universe. It's not a bad plan. Or they may do it for the experience to learn how the largest company in the universe does things and to get it on their resume'.

No offense, but you ain't Amazon. From what you're saying there's no room for advancement, and I dare guess that you're not offering any benefits either. As Fulcrum said, you also have no idea what a "technician" at Amazon does, compared to the work load that you would expect from your technicians. It's a broad term.

If you think of your employees like you're doing them a favor not only will they despise you, but turn over will be high, and they will not give you 100%. Especially not for the industry minimum. That will affect your productivity, which will affect your bottom line.

[Fulcrum]

As Fulcrum said, you also have no idea what a "technician" at Amazon does, compared to the work load that you would expect from your technicians. It's a broad term.

I didn't intend for my post to be taken that way, but after reading it through again I can see how you arrived at that. My intention was more for Shutupdan to think through everything about what he would want an employee to do. If the employee has a minimum of responsibilities than I can understand an entry level wage; however, as soon as the scope of duties expands beyond that than wages need to be increased proportionately.

I'm in the service industry as well (though not IT related) and an employee that can only do the minimum work with me having to micromanage is useless. I'd be better off not having anyone than having to waste my time looking over shoulders and fixing a mistake (at my cost) after the third attempt, when it should've been done correctly the first time, or fixing a machine because of a crash due to improper setup/inattention (the most expensive I've seen cost well over 6 figures including lost down time - still don't know or understand how the operator caused the crash).

[Freelancier]

I'm in the service industry as well (though not IT related) and an employee that can only do the minimum work with me having to micromanage is useless.
As part of my expansion, I'm contemplating that ALL employees must be superstars. Normally in IT firms, you have a range of people being billed at a range of prices. But what happens if you decide that everyone must be a superstar (and get paid like one)? Hopefully the work is exceptional (the biggest win is happy customers), but what would that firm then be worth when you go to sell it?

[billbenson]

Amazon only pays 15$ an hour for computer technicians.

A sales clerk at a retail store makes about $15. So what. That's not a livable wage in most areas. You are going to have a high turnover rate at that wage and you customer service will be horrible. You get what you pay for.

[turboguy]

It depends a little on where you are too. Here $ 15.00 an hour is a livable wage. $ 18.00 is a high wage here and lots of jobs here pay $ 10.00-$ 12.00 an hour and get lots of applicants. A computer technician would be considered a skilled job and would be more in the $ 15-18.00 an hour range. Our starting pay for our workers is $ 10.00 an hour with a bonus that kicks in after 60 days that averages $ 3.00 an hour.

[billbenson]

Where are you turboguy? Here in kinda rural Florida where salaries are pretty low, people that make $15 an hour have to work two jobs or have multiple incomes in the household.

Yes, there are a lot of people working for $15 an hour here, even for semi skilled labor like working for a cable company. But that is a pretty unlivable wage for a household.

[shutupdan]

First off I would like to say that we are not the kind of IT firm you may be familiar with. Employees will have 2 tasks, because we only provide one service. It's computer and device support, so they will either receive calls and tell them how to fix the problem, or they will go in person and fix it. Generally when I think of IT professionals, I think of someone with a BA in programming or networking, but these people will basically be computer repairmen.

[billbenson]

First off I would like to say that we are not the kind of IT firm you may be familiar with. Employees will have 2 tasks, because we only provide one service. It's computer and device support, so they will either receive calls and tell them how to fix the problem, or they will go in person and fix it. Generally when I think of IT professionals, I think of someone with a BA in programming or networking, but these people will basically be computer repairmen.

Kind of a moot point. If you are only going to pay people $15 per hour, you will not get good people and you will have a high turnover.

[Harold Mansfield]

Just to address your original statement. You said you're 24 and you have everything you need right now.
Many of us who are older look at 24 as the easy years compared to how life changes and gets more expensive as you get older.

Right now may be fine. But nothing stays the same. You won't always be 24 with this level of responsibility. As you get older things are going to cost more. Your responsibilities will increase. The cost of doing business will increase. You may have more competition and have to spend more on marketing. The industry could under go significant change ( as it always does) and you may need to make significant investments to keep up.

How much do you have in your retirement account?
Are you completely debt free?

The bottom line is you're really just starting out in life and are only responsible for yourself. That's likely going to change and when it does your current salary won't be enough to keep the lifestyle that you currently enjoy.

I'm not saying you should or shouldn't expand. That's up to you and your partner. What I am saying is you've just begun.

You have no idea what's about to come, and whatever that's going to be for you..kids, mortgage, 2nd mortgage, 2nd car payment, family responsibilities, aging parents/grand parents and so on...will surely cost more money than your current salary can handle.

Life and business has one constant. The more we make, the more reasons we find to spend.

However, if you feel none of that is going to happen to you and everything will always stay just like this, then don't do anything. Just stay the same.

[billbenson]

I agree with Harold above.

@Harold - The most expensive thing you can do in your life is get married :p At times I am envious of two friends in martial arts. They are both about 30 and have been training all of their lives. They live simple lives, single. And they both travel around the world giving seminars and staying with friends.

What a life!!

[Freelancier]

What a life!!Everyone's life always looks better on the outside. (well, ok, that's not always true, I know a few people whose lives are complete disasters from where I sit.) But there's a reason you've chosen the path you're on and not the path they're on.

[Fulcrum]

As part of my expansion, I'm contemplating that ALL employees must be superstars. Normally in IT firms, you have a range of people being billed at a range of prices. But what happens if you decide that everyone must be a superstar (and get paid like one)? Hopefully the work is exceptional (the biggest win is happy customers), but what would that firm then be worth when you go to sell it?

I think we both said the same thing in different ways. It's great having all superstars working for you, though many are scared off at the initial cost of bringing them in. The benefit in the end should be a minimized workload of fixes (or scrap for those of us with physical product).

As to the value of a firm when selling, I would think having that kind of a workforce would generate a higher overall value as the company can truly be valued as a going concern without needing the owners labor.

Thanks for clearing up the IT scale for me and it appear that it follows the same scale as most businesses that I am familiar with.

[shutupdan]

Thanks guys for helping me with this, your advice has helped me make some decisions. Sorry if I made some of you angry or snappy with me, wasn't trying too. So our initial idea was to bring on some low payed employees to handle about 10 contracts, but now we are thinking of hiring some one that is more at our level(minus the little bit of business training we have) and paying them more(around 60k a year, that's good right?). We will be helping someone out, plus we will be profiting and supporting more companies!

[Fulcrum]

Thanks guys for helping me with this, your advice has helped me make some decisions. Sorry if I made some of you angry or snappy with me, wasn't trying too. So our initial idea was to bring on some low payed employees to handle about 10 contracts, but now we are thinking of hiring some one that is more at our level(minus the little bit of business training we have) and paying them more(around 60k a year, that's good right?). We will be helping someone out, plus we will be profiting and supporting more companies!

I don't think anyone was angry. It's the internet so we all need to take what is posted with a grain of salt. No one made any apparent attacks or name calling, so I call this a win.

[shutupdan]

Yeah me too.

[MyITGuy]

Can someone help me decide whether to expand or not?

Expand now while you can.
-You're not going to be 24 forever, your needs and work ethic will change
-You're not going to want to work every year for the rest of your life, so expanding will help you build up your nest egg, or train staff to do the job.
-You're clients will move on, so you will need to replace them
-You're reputation can be impacted via word of mouth once word of mouth gets around that you are declining business

[CCAdamson]

Is $60K right? There are many resources out there to find out if that is the right number for what you expect them to do, the education you expect them to have, and the area you work in.

Visit the many web sites that show salaries in your area. Take them all with a grain of salt though because if you don't live reasonably close to a major city the data is skewed. It doesn't hurt to reach out to others in similar fields as well, you said you were in some social groups see who is willing to share some information.

Have you thought about what you total offer will be to someone? Will it be $60k plus medical benefits, vacation time, 401k, etc. or will the total package be $60k, in that case what is salary and what is everything else. Travel expenses for driving to jobs? % of travel expected? These things will help the candidate decide if they want to work for you.

Are you properly equipped to process payroll and taxes for an employee or do you farm that out?

Just a couple of thoughts my HR brain had.

[billbenson]

I'm just saying 60k plus the extra's you mentioned is the minimum to have an ok lifestyle in most major cities. Can you survive on less, yes. You won't have money to date, eat out, support a family well, buy a house etc. well though.

[CCAdamson]

The question was really for the OP as to whether or not he had planned that.

I get your point though billbenson, I grew up near Pittsburgh and trying to live a life (especially when I was young) adds up.

[turboguy]

, I grew up near Pittsburgh and trying to live a life (especially when I was young) adds up.

Just out of curiosity where did you grow up? I am near Pittsburgh as well in Beaver Falls.

[CCAdamson]

I grew up in Belle Vernon. South of the city.