2E // Real Estate & Home Builders Guide // February 2017
LEARN THE
BASICS OF
BUILDING A
SUCCESSFUL
BUSINESS
THINKSTOCK IMAGES
By Ilyce Glink
and Samuel J. Tamkin
Tribune Content Agency
Q
: I’m thinking of starting a home
remodeling business with one of my
close friends. He knows the most about
the remodeling business because he has
done it in the past and was successful
with it. The only difference now is he
doesn’t have the capital, has a low credit
score and is going through a tough
divorce.
Since I’m very new to this line of
work, I’d like to get all the advice and
education about this business that I can
before I get started.
I don’t have capital we need, but I have
a credit score over 720. Will I be able to
take out a business loan to start a project?
And if I can take out a loan, what type
of loan should I get? Do I need to have
some kind of collateral to take out a loan?
Maybe a better question is: How does it
all work?
: It isn’t that hard to get into the home
remodeling business. In some states
all you have to do is hang out a shingle,
while in other locations you might have to
obtain a business license that allows you
to work in that field.
But making a home remodeling
business work without getting into
financial difficulties is likely to be the
challenge you’ll need to overcome.
Think about the division of labor to
start. If the division of labor you imagine
is that your friend will provide the home
remodeling, and you’re going to provide
contacts and connections to get the work,
and you’re going to divide the profits in
A
half, that’s fine. Or, if you’re going to put
up some cash to get started and he does
the labor and marketing and you’ll divide
the profits, that’s fine, too. There are many
ways for you and your friend to determine
how the profits of the business will be
split.
The key thing is to have this conversa-
tion now and get your agreement about the
business in writing before you start trying
to borrow money. It’s also important to
figure out what type of business you are
going into.
There are lots of decisions to make on
the business side with your friend: You’ll
need to figure out what the ownership
structure of the company looks like, what
percent you and your friend own, what
responsibilities each of you has, and how
any cash you leverage or put into the
business will be repaid before (or after)
you and your friend get paid your salary,
not bonuses. Will you hire employees?
What benefits will you offer them and how
will they be paid?
If you get through this first part of
determining what the structure of the
home remodeling business will be and
how all the details will pay out, you
should then pay for an attorney to put your
agreement in writing. Both of you should
sign it.
If you’re still on speaking terms (and a
lot of prospective business partners don’t
make it through the first step), the next
step will be to figure out how you plan
to operate the business from a financial
perspective.
You have a number of options: You can
borrow on a home equity line of credit
(which will put your house at risk but will
be cheap, fairly easy-to-get cash -- if you
have the equity). You can talk to your
bank about getting a personal line of credit
(you will need to put up some collateral,
and it will be more expensive cash to
borrow). Or, you can have your customers
pay you as you go along to cover the costs
and expenses of the project. There may
be some other opportunities as well, such
as charging against a store credit card
or personal credit card, getting a Small
Business Administration (SBA) loan.
Finally, you’ll need to know who is
doing the work and how you’re going to
pay your people if you’re going to hire
someone else. So, think through how this
business will work before pouring your
heart, soul and equity into it. We’d suggest
you sit down with your friend -- he has
experience in the business -- and walk
through several different projects that he
completed in the past.
As he talks to you about these projects,
have him explain to you how he got the
project, how he got paid, and how he paid
others. Your partnership will only work if
you two are on the same playing field, and
you understand the business that he has in
mind.
Here’s something to keep in mind: If
you start with small jobs, you might not
need much capital, if any. You can get paid
for the jobs by the person hiring you. Keep
all the profits in the business and use that
money as capital for bigger projects. Many
books have been written on the subject,
and you might want to pick some up to get
a handle on how it all works.
Just don’t read the “get rich quick by
remodeling real estate” category of books.
You should read thoughtful business
books that will teach you the basics of
building a successful business. Then, find
an attorney, a great accountant and other
partners who will help you through the
ups and downs of the remodeling business.
Good luck.