First of all; best of luck with your new venture. I started a structural firm 19 years ago; no partners, no financing, wife and 3 kids. It has been good. There have been some bad times but overall I am very happy. Anyway, best of luck.
You had mentioned about expenses; I will share with you some of my experiences.
-Do not estimate your expenses based upon residential fees for phone, internet, elec., gas, etc. Everything will be 2 to 2 1/2 times higher in addition to higher deposits.
-There will be hidden costs that you will find out about that you may have not had any idea existed; be ready for the unexpected.
-Pro liability insurance usualliy costs me about $16k a year with $500,000+ in billings (we are a small firm).
It was under 10k a year when the billings were less so your agents suggestion that it would be under 10k is probably relatively accurate. I went bare for about 5 years before I could buy insurance.
-One thing to keep in mind about pro liability is the very high deductibles you can incurr. I would suggest that you define "what" type of claim you are trying to insure against. For example; if you are doing residential designs and the whole value of the house is under 500k you may not need a million dollar policy. Some people will argue that you want to insure against a major collapse but the reality is you can't buy enough insurance for a disaster.
Maybe the worst that would happen is a deflecting ceiling and it needs to be strengthed; surely it wouldn't cost a million on a small home. This is just something for you to think about; not trying to convince you.
-Will you have employees? If so, do you plan on providing health insurance? Even if it is just you then health insurance can be a very costly item depending on your age. This can be a tremendous overhead item.
Also, you will be paying unemployment insurance premiums to the state.
-Receivables can be one of your biggest headaches. Choose your clients carefully. When you get a client that is slow paying you will need to become aggresive which can be hard to do. This client may be one of your biggest clients and gives you a lot of work; it can be a very fine balancing act.
-You can get all of the free work you want. You will be asked by individuals and friends to provide engineering services and generally they are wanting a free ride.
I have them come up to me during church and start telling me about their issues. I politely tell them that I will be glad to help them if they come by my office on Monday.
This way we can get some preliminary ideas together and I can give them an estimate of the costs invovled. Some of them will give you a silly look but the individuals who respect you will make an appointment and will expect to pay you. Remember, you can get all the free work you want.
-If you work in other states and you are a corporation you will need to form a corp in the other states also; figure about $200/year for fees and registered agents.
Also, you will be required to have a certificate of authority from the engineering boards; figure another $200 a year. I have an "S" corporation but if I did it again I would form an LLC (which was not available at the time I set up a company).
An LLC is simpler and cheaper to set up.
-What are planning on doing about accounting? I was so busy doing engineering work there was no way I could learn all of the corporation tax laws, filing of quarterly and monthly reports, depreciation schedules, etc.
I would suggest getting a CPA that will handle your business needs as one of your priorities. It can get very complicated and very, very time consuming. If you try to pay your own bills and do your accounting you can figure at least one day lost every week. If you aren't producing engineering you aren't billing.
Accounting fees for a small firm will run about $300/month plus your end of year taxes.
-Who is going to do your billings? This can be time consuming; same as reviewing contracts, etc.
-Believe it or not, it will be very difficult for you to handle billings, reciveables, contracts, accounting.
Relieve yourself of the difficult items such as accounting.
This will even be more important as you gain employees.
-In 19 years of owning my firm I found early on that my expenses were 50 to 55% of my gross income. Note that I did not say "billings" but your actual gross.
If you gross $200k you can reasonably expect to have a personal gross of $100k. This was my experience with minimal travel expense.
-I hope some of these thoughts give you something to ponder.
Sincerely,
Randy
