Critical Mass

[ACE]

I have been thinking about the logistics of getting (mostly) off the truck and running a small multi-truck operation. There are allot of variables here but I’m interested to hear from those who have done it. Assuming I need a salary of at least 50k how much dose the company need make so I don’t need to pick up the wand?

I plan to rework a business plan this fall and may post it here. I would guess the benchmark for my company would be 250-300k. This number could be lower, but I envision nice fringe benefits for me and the employees like Group health, Life 401k and newish equipment.

 

[Mikey P]

You cant make 50k for yourself by yourself with out all the hassle of multiple trucks and chimps?

 

[FB7777]

Hmmm, pretty sure if I wanted to net $50k without having to push a wand I'd have to scale back to one van , one tech

 

[Royal Man]

Like Mike said. I would be a very hard way to make 50K

I doubt that your area would support such a venture with about 60 cleaners already in your area and such a low population area,

With such an operation you are always working, Training employees that drop off, Prospecting jobs to keep the guys busy, checking back on jobs, answering calls,doing payroll , repairing the equipment the guys tear up, paying bills...............

 

[Able 1]

With such an operation you are always working, Training employees that drop off, Prospecting jobs to keep the guys busy, checking back on jobs, answering calls,doing payroll , repairing the equipment the guys tear up, paying bills...............

WOW, looks like all the things I already have to do...

 

[ACE]

You cant make 50k for yourself by yourself with out all the hassle of multiple trucks and chimps?

Sure, I’m already making a little more than that with a full time helper. I want to see what kind of growth is possible. I feel like if I don’t grow soon, I will get to set in my ways an O/O and it will never happen. I know it’s a hard road but the worst that can happen is that I fail and sacle back to where I’m at now.

Like Mike said. I would be a very hard way to make 50K I doubt that your area would support such a venture with about 60 cleaners already in your area and such a low population area

I work in one of the wealthiest cities in the state. To say that I have maxed out my marketshare in a service area of about 120,000 with one truck is crazy. It’s not as big as Lincoln so I would have to actually retain customers not just keep churning and burning them with high dollar porty mount cleaning.

With such an operation you are always working, Training employees that drop off, Prospecting jobs to keep the guys busy, checking back on jobs, answering calls,doing payroll , repairing the equipment the guys tear up, paying bills...............

Huh, that sounds like running a business. I have to do all that now but don’t really have time to do it because of my carpet cleaning job :roll:

 

[Ken Snow]

It sounds like you want to own a business, not just a job Mike. The path you have in mind sounds great and with good planning and execution seems very doable in your market.

One suggestion would be to try to make time to go to SFS. There is a tremendous wealth of knowledge packed into 5 days and worth many times the price. If you buy from JonDon it could be free or half price depending on spending level.

 

[ACE]

Okay,,, let me throw out some numbers.

Fixed expenses..
Mike’s salary....................................................................................................50,000
3 full time employees that are garentted 40hr /week averging 30k yr.............................90,000
Payroll taxes, health WC, UI...............................................................................25,000
2 fully loaded truckmouts / van all equipment payments per yr.....................................20,000
Utilitys............................................................................................................3,500
Rent...............................................................................................................6,000
Auto, General Liability Ins...................................................................................6,000
Total...........................................................................................................200,500
Variable Expenses
Advertising / Marketing..............................................10%
Supplies....................................................................3%
Chemicals..................................................................2%
Fuel.........................................................................5%
Total.......................................................................20%

So in that example, we will need a minimum of $253,150.00 in revenue.
$300,000 is very doable with 3 techs and 2 trucks. In that case my net would be around $90,000. I would start out with one new truck, 2 techs and see if I could get close to the critical mass while still on the truck part time.

 

[Mikey P]

What sort of lifestyle does 30k afford a person in your area?


thanks for posting your numbers Mike, very interesting..

 

[Desk Jockey]

30K isn't bad especially if you have a wife making the same or more, you can live pretty good out here in the sticks.

My 22-year old son has a decent sized savings account and would like to buy a 1500-1800 sq/ft home next year. He works as a Fedex delivery driver and makes around $35,000.00 a year. He may need to save another year just to get him into a nicer area of town.

 

[Ken Snow]

Mike- I think your numbers make a lot of sense and are conservative sales wise.
2 trucks with 3 employees could bring in closer to 500k if you A) have the work available & B) make their pay commission based. 50-60k or more each for 2 lead techs and 30ish for the floating assistant and your payroll goes up to 140-150k plus taxes etc, but your gross is almost double.

 

[ACE]

Yea it looks alright on paper but, to do it right there would be a huge investment and risk. I would guess most guys with a busy 2-3 truck operation have a lot more skin in the game than an owner op or a even Mr. Ken Snow. How many personally guaranteed loans does hagopian have?

As I said, I’m still thinking through the logistics at this point. I think a key to success will be to dedicate resources to the venture good weeks and bad. I will probably take over the weekend janitorial accounts and evening work during most of the year to guarantee my salary and allow techs to focus on the core business of carpet cleaning.
Paying by the hour or salary with bonus makes more since starting out because there will not be a steady flow of work till I get well past critical mass. How the hell does hagopian stay so busy through the winter in Detroit?

 

[Steve Toburen]

Wow, I think I am hallucinating. A rational, reasoned, non-snarky thread on MB without a lot of chest thumping machismo! Congratulations to all involved.

Mike, I grew up in Kansas City and still have a lot of ties there. Your numbers are reasonable and very doable and especially in the Lawrence area. Plus you can always expand into (cough-cough) Topeka since I hear there is one operation there top-heavy with very complacent management.

Here are a few thoughts:

1. You mention one of the phrases I use a lot in SFS- "Critical Mass". I define this as the point where the business will run with you or without you and just continue as a cash flow machine. A worthy goal and once again- doable in your market.

BUT what you are envisioning- two trucks with three employees just isn't going to achieve the above definition. At this business level you will just have more headaches, more pressures and more problems with little net income increase to show for it.

IF you decide to go for "Critical Mass" you will need to pass through this phase- just don't stay there unless it works for your life-style. (I would hate this level personally.) To me Critical Mass means a middle level of management that can let me take extended vacations without worrying and to support this you're going to need at least a 1 to 1.5 million dollar a year business. Doable- yes but...

2. Do you have the "fire in the belly"? To build a 1 million plus business you are going to pass through a number of very stressful business levels. Building a "Business Infrastructure" with written systems, selling more and more work to "feed your monster" and dealing with an apparently never-ending succession of cry baby employees and government regulations and ... you get the idea.

3. IF you decide to go for it (and please know I'm not being negative in #2 above- building a CM business was one of the most gratifying and exciting things I've ever done!) I would start by building a base of regular commercial contract work. (Including possibly building commercial routes in Kansas City.) The regular cash flow will fund your expansion plans.

Mike, you are getting some good advice in this thread. I would just say don't set your sights too low with the goal being the "two truck- three man" business you are envisioning. Either stay small and highly profitable (nothing wrong with that as long as you have lots of life insurance and are consistently funding investments for your retirement) or go for it and build a million dollar plus true Critical Mass business.

Steve Toburen
http://www.SFS.JonDon.com

PS Seriously, Mike, I hear there is a pretty good "second generation" business model for you to follow in Topeka and they might just mentor you with a clear non-compete agreement. But remember my emphasis on how long the Chavez boys have been around- getting to CM is not a short process. Only you can decide if it will be "vale la pena". (Worth the pain.)

 

[Desk Jockey]

Mike is a sharp guy he can definitely do it if he wants to commit himself.

He has found he didn't like following our path. I don't blame him, the WDR is a mean gig. Great when it works out but it is often demanding of your time plus losses come at the worst time. Evenings, weekends, holidays, birthdays, anniversary's, you name it.

 

[Steve Toburen]

Mike is a sharp guy he can definitely do it if he wants to commit himself.

He has found he didn't like following our path. I don't blame him, the WDR is a mean gig. Great when it works out but it is often demanding of your time plus losses come at the worst time. Evenings, weekends, holidays, birthdays, anniversary's, you name it.

Yeah, without restoration and especially W/D getting to Critical Mass will be tougher. doable yes- but you won't be getting the "easy money". (Calm down, Richard. I know Water damage is hard, brutal work that crops up at the worst time!)

So you can do it without W/D, Mike. It will just be harder. In my 1.3 million company around 400K of our gross was restoration related and yet restoration accounted for 70% of our net profit.

For a newer company (without the solid client base that a second generation business provides) to hit Critical Mass ONLY on residential will be extremely difficult. Which I guess leads me back to my regular commercial contract "routes" above.

Steve Toburen
http://www.SFS.JonDon.com

PS The nice thing about commercial work (and especially encap) is you can dip your toe into the selling thing without a lot of capital/employee investment and see how you like it.

 

[Desk Jockey]

I agree, next best service to WDR is commercial carpet cleaning using low moisture.

From SFS and Chuck Violand would you rather do 400 homes at $100.00 or 10 businesses at $4000.00 a year. 8)

Each will bring you $40,000.00

 

[Ken Snow]

Banks have gotten tighter and tighter with funds Mike. I am a personal guarantor on 2 commercial mortgages & 4 commercial leases as well as on the 40ish vehicles that have active loans still. Thankfully this stuff doesn't show on a credit report amd none have asked me to disclose others that I guarantee (except for mortgages) cause if it all defaulted I couldn't cover 10% of the debt lol.

Personal guarantees are gonna be here for a while.

 

[Steve Toburen]

Personal guarantees are gonna be here for a while.

Maybe I was just viewed as a high-risk candidate but I was always asked to personally guarantee my business loans.

Steve

PS Frankly, I had no problem personally signing off on loans to my sole proprietor business. After all, I KNEW I was going to repay the money so what did I care? In fact, if you are unsure on the repayment part maybe you shouldn't be borrowing the money!

On the other hand, I'm not a financial expert so maybe there is something I'm missing here.

 

[Ken Snow]

Good point Steve- only really since about 2006 that I've had to sign for vehicles and leases. Mortgages always.

 

[Desk Jockey]

Good point Steve- only really since about 2006 that I've had to sign for vehicles and leases. Mortgages always.

+2

 

[Ken Snow]

We are much slower like everyone who is in a Northern climate in the winter and lost a lot of money first quarter. Our worst winter was a few years ago when the snow just didn't stop till early April. We went into May almost 1/2 million in the hole.

 

[ACE]

I was defining critical mass as the minimum sales volume needed to get off the truck not as an end goal. Personally, a six figure personal income with the company fully contributing to my health ins, life ins, 401K, and a few other fringe benefits is where I want to be in about 3 years. Over a million in sales would be hard to do without expanding the service area or focus.

I know there is tons of money in restoration, but I sleep much better at night without it. My idea to keep the operation streamlined is to focus jobs that can be done during banker’s hours. Running all over Kansas City every night and cleaning up sewer backups does not sound like the recipe to making my life easier.

 

[Ken Snow]

I think the numbers you posted originally sounded like you would be hitting that point Mike. I agree with you about restoration at this point. With respect to Steve T, doing restoration work in the 70's and 80's was a whole different animal than today. Back then I was on a truck (early to mid 80's) and no one thought about protective gear (waterproof boots) to lesson the risk of hepatitis etc. and we were not ding the sophisticated drying that is done today. It was basically suck it out, remove wet pad, move air to dry, replace pad, clean & disinfect. Today a "flood" dry out is many times more complicated, requiring more trips, more skill sets, more safety practices albeit a much higher ticket.

Do what you are comfortable with and excel at it.

Ken

 

[Hoody]

I'm not trying to bust your balls or correct you. But if you saying your variable expenses will be 20% of your gross of 253,150 that is 50,630 - leaving 202,520. Where is the missing 2,020 at? Unless that only means you need 251,130 to make it doable?

I'm just trying to understand, as I've been in this position as a manager, and made that leap, and want to brainstorm as well.

 

[ACE]

I'm not trying to bust your balls or correct you. But if you saying your variable expenses will be 20% of your gross of 253,150 that is 50,630 - leaving 202,520. Where is the missing 2,020 at? Unless that only means you need 251,130 to make it doable?

I'm just trying to understand, as I've been in this position as a manager, and made that leap, and want to brainstorm as well.

You’re correct. I had quickly compiled some ball park numbers. When I pull the trigger on a course of action I will be more thorough. I would welcome any advice from those who have gotten off the truck.

 

[Hoody]

Since you're not going in restoration, I'll echo Steve T's words about commercial carpet cleaning. Hit that market hard, and buy a few cimex's, pads and chems.

You'll need the monthly cash flow from maint contracts to help ease your growing pains. Your variable expenses will decrease, aside from your marketing which will be higher initially, which can be offset and justify your salary.

The biggest hurdle is balancing and maintaining what you already have while growing, often there are times something gets neglected which will ultimately hurt your bottom line. If you can automate, and manage cash flow within the first year it'll be much smoother sailing, start doing that NOW.

 

[Lee Stockwell]

Ahh the growing myth of easy commercial that so many hope will fill their dreams...

 

[Royal Man]

Ahh the growing myth of easy commercial that so many hope will fill their dreams...

X2

I have noticed that with the recession commercial is harder to get that even and more price motivated.

Many are not cleaning at all, or certianly less frequently or going in-house.

 

[ACE]

I do have a good amount of commercial work (weekend janitorial, floor service and encap) that helps cash flow and currently allows me to keep at least one lead tech year round.

I have a contract on a house that will be a much better base of operations. I can’t do anything too ambitious until that deal is done and we get moved in. By then it will be fall with winter around the corner. Hopefully I can have the staff, marketing and equipment in place to come out swinging in the spring.

 

[Desk Jockey]

Today a "flood" dry out is many times more complicated, requiring more trips, more skill sets, more safety practices albeit a much higher ticket.

You're right Ken, especially in this litigious society we are in.

We are currently processing 7-losses from last week and the weekend, one we did Friday has the most liability exposure. It's in a 100 year old building, 7-floors of retirement apts with a bank on the bottom.

Several apts on the 7th & 8th floors got wet with concerns about asbestos, lead, plaster and drywall dust. We contained the affected areas with a critical barrier and immediately setup air scrubbers.

The goal would be to not just dry the structure but do so without losing anyone. I've seen Jimmy naked

Actually anyone can do this work, it just takes a little training and some common sense.