Derriere in the Air...Maybe

[PolarBearBob]

PolarBearBob here, not sure I'm proceeding in the right direction with my new venture. I've already gotten some great advise from Paul but thought I'd re-post my concerns in hopes that others of you would wade in, please.

I've started a commercial swimming pool repair and maintenance company; sort of. My company is Polar Pools and it is a D.B.A. of my L.L.C. Arctic Eye Enterprises here in Alaska. Now before you all start rolling around on the floor laughing, there are quite a few swimming pools here in the "Great-land". If any of you have read my intro you know that I happened upon this business opportunity by pure chance.

I'm not a professional engineer but I've been in the Water & Wastewater industry for almost 40 years and I carry Class IV state licenses in Water Treatment, Wastewater Treatment, Water Distribution and I'm a Certified Pool Operator. This pool thing is a rather natural fit for me, the equipment used in swimming pools is identical to drinking water filtration and disinfection equipment only on a smaller scale. I've got the knowledge and skills to diagnose these systems regardless of complexity, size or type of treatment.
The bonus is there is no one in Alaska using their skills to work on these systems.

My challenge, is the path I'm on now, is it going to put me out of business, eventually. The next question I have at 63 years young, is "eventually" a bad thing, since I'm already retired from a full career. The best description of my work is "Consultant", I'll try to explain. It became apparent after working on two of these projects that I didn't have the infrastructure or manpower to expedite work at this level. I have the knowledge but not the muscle. I contacted a friend I've known for 30 years, he is in the commercial/residential HVAC business here in Anchorage. His business is Klebs Mechanical and they are a name in Alaska and around Anchorage especially. We had a meeting and made a gentleman's agreement to work together in trying our hand at this business.

So here is our division of work:
1. We are both actively looking for jobs and work (so far that hasn't been to difficult).
2. I look the job over and determine what is needed to either repair or replace the used or broken equipment.
3. I offer suggestions to my partner on items that will require work or modification.
4. I research equipment from various manufacturers and get bids for the equipment.
5. My partner draws up the bid for the client and interfaces with the client. In a word, he is doing the selling.
6. If our bid is accepted my partner's company purchases all the materials and equipment and his workman complete the work.
7. All the equipment is installed to my or the manufacturers specifications.
8. I trouble shoot, inspect and start-up all systems after work is completed.
9. I train all client personnel on the system and provide written SOP's (standard operating procedures) to the client.
10. I get paid when the client has paid my partners company for the completion of the work.

We have negotiated my fee to be 12% of the total cost of the actual repairs or installation. My partner and his people add their markup onto that subtotal to give the client the final bid price. My work is listed within the contract as either consultant, design engineer or some other form of professional intellectual assets. We are starting to get some traction here and we are bidding some larger more complex projects. My partner, who by the way is a friend was pointing out that our latest contract which is $160,000.00 I will be getting $19,000.00 for my services and that may be difficult to sell to the client. I don't know enough about business to challenge my friend but here is his point of view. If we sell a part to a customer, say for $5.00, my take on that sale is $0.60, customer hardly even notices. We have a bid currently for $250,000.00 on a project and my take will be in the neighborhood of $30,000.00 at 12%, customer has a seizure and drops our bid like a hot rock because the engineering costs are so large. My partner feels that we need a sliding scale for my percentage and I don't know if he is right or if that is a standard in the world of business.

So here are my questions to you fine people:

1. Is there a sliding scale used for ever increasing larger contracts regarding engineering/intellectual assets used for that contract?
2. Do you people take a lessor profit margin on larger contracts versus smaller ones"
3. Am I shooting myself in the head by sharing my knowledge with my partner? He wants to know everything.
4. Eventually my portion of this business will be passed on or sold as I have no children. Should I make arrangements for this now while our business is still new?
5. Does it honestly appear that I'm earning more than I should from a risk versus reward posture?

I freely admit that my friend has a larger risk since he is doing all the actual work and if the client gets a case of the red a$$ they probably won't be looking at me as much as my partner. I believe because of that fact it has a monetary value and he should be paid for his trouble. I know that I want to keep my mind sharp and making money at the same time is kind of nice.
I maintain Professional Liability insurance at 2 mill and General Liability at 1 mill. I don't want his insurance company coming after me if something were to go sideways. I maintain a business journal and I document everything(engineer buddy recommendation).

I'm really not sure which direction to go with this, I don't believe I want to play "General Contractor" and be responsible for the whole ball of wax. I'm also not the only consultant or professional in this situation, I'm hoping that one of you fine people may be able to provide some insight.

Thanks,

Bob Walker
Polar Pools

[PolarBearBob]

Hello SBF Campers

Did I do something wrong? Doesn't seem to be anyone out there willing to share their thoughts. Hey it's a free shot, even if you think I'm full of guano, wade in. I'd really like to hear what you people think. Is the post to long, to crazy, confusing, whatttttttt.......
The silence is deafening, a sphinx is more chatty.

PBB

[vangogh]

You did nothing wrong Bob. I think it was simply a long post (with a lot of helpful explanation of the issue) that deserves a long reply. I've looked at your thread a few times, but just haven't had the time to respond yet.

I'm not a contractor and have no idea if numbers like 12% or $250,000 are reasonable, but I assume they are. When your partner says your fee is a hard sell on some projects does that mean he mentions it separately or that it raises the bid on the project too much? I assume it's the latter and where a $250,000 bid is acceptable, a $280,000 bid on the same project means you don't get the job.

1. I don't know if a sliding scale is officially used, but with any project that has a negotiated price, everything is a sliding scale. I used to offer web design and development services. A client would tell me their project and I'd give them a price. If the client said they couldn't pay more than 10% less of my price, it was up to me whether or not my fee slid down 10% or perhaps something a little less.

2. Different sized projects probably will have different margins. I couldn't tell you what it's based on in your industry, but I would expect certain jobs result in more profit than others.

3. I think partnerships need to be based on trust. If you're partner thinks you're holding out on him, it'll probably lead to mistrust between you. I'd add if your value to the business is knowledge your partner can acquire in time with or without you, then your value to the business is limited. Is it a bad sign he wants to know everything? Maybe, but if his plan is to gain the knowledge and then cut you out of the business, he really doesn't need your help to do it. He'll be able to find the information elsewhere. I'd rather he trusts me when he learns what he wants to know.

3. It's never too soon to think about how you'll exit the business. Like it or not we all stop working at some point. Better to have a plan for that day than not to have one.

5. Unfortunately I don't have enough experience to even guess at this one.

Hopefully something in there helped and be aware since it's now Friday evening or later for most of the U.S. and this forum can get quiet over the weekend, especially Super Bowl weekend, it's possible it'll be a few days before others add their thoughts. If you reply on Saturday, I'll reply quick on Sunday and we can keep the thread active through the weekend.

[Fulcrum]

I think a better approach to your fee is whether or not you are bringing 12% worth of value to the bid. Don't take this the wrong way as I'm not sure how to quantify a percentage and I have zero experience on large, fixed bid projects without taking swimming pools and water into consideration. You'll have to decide this if bid rejections start piling up.

[Paul]

Hi again,

I don't have too much to add to what I said before. Like Fulcrum, I can't really comment on pricing in that industry. However, it does sound complex and your engineering seems to be a critical part of each project. For that reason you probably don't need to back down on your prices. It doesn't make too much sense to me that client who is presented with a $ 280,000 bid is going to focus in on the engineering part. The client will look at the entire cost, not just your part. As I already said, if your partner is convinced that that is the sticking point hen just don't line item it, just include it.

If clients resist pricing then you and your partner can decide to reduce the overall cost, not just your part. He takes less and you take less. Why should you take the hit only. Also, consider this;what would your partner need to pay a different engineer for the same task?

As I said before, my only experience in larger projects is building restaurants. The engineer/architect was critical. We paid a premium for good ones. Even small mistakes could cost several times the cost of the engineer. We learned that the hard way.There are probably many similar considerations, running electric, plumbing, hvac, roof cut outs for grill venting, reconfiguring walls etc. Having to do over any of those things because of mistakes in engineering were very costly. I expect the same is true for you.

Assuming you are good, and I'm sure you are, it's not just the basic engineering, it's the prevention of problems that may be even more valuable. Imagine knocking down the wrong wall, or installing the wrong size pump or filtration system or some unintended damage to a structure. He will wish he had paid you!

Just a few thoughts.

[PolarBearBob]

Thanks to You, One and All.

Thought I was on a ghost site, Just kidding. Several things have been brought to my attention. I've joined SCORE and a couple of state and university organizations that provide business courses and mentoring of Small Businesses. After speaking with one of the mentors so far, it has been proposed that I undertake some of the following suggestions.
1. What my partner and I have agreed to "is what we have agreed to" 12% of the contract is my fee and where or how it is placed in the bid package is irrelevant.
2. If we find that on any bid there is a concern regarding fees, profit margins or otherwise that threatens the success of the bid we'll look at those items openly and place them on the table to be examined by both parties.
3. My partner is a very successful businessman and it's due to the fact that he is talented and smart. Right now I'm a very necessary evil for him to branch out into this field. That may be another story in three to five years.
4. I need a defined timeline and exit strategy for our business relationship.
5. I've given my services exclusively to his company and that has a monetary value in itself.
6. What ever we agree to has to be put into writing for our mutual well-being.

I'm going to make a guess here that we're going to need some type of legal representation to draw up this agreement and all concerned parties to sign.
I have a meeting scheduled with my partner on Monday to go over things, wish me luck.

Thanks Again,

Bob Walker
Polar Pools