[iPaint]

I'm not usually someone who gets discouraged for too long about anything, but lately my upstart painting business has been bucking this trend. My problem is not lacking estimates to do or even getting jobs (although I get the odd dry spell). My problem has been making enough to cover personal expenses. That is, I never quite have enough after all my painting expenses to fully cover my personal expenses.

As a test, I recently did two estimates and deliberately charged exactly what I would need to fully pay my monthly personal expenses, rather than cutting myself short all the time just to get work - I know what net income I need per day to achieve this, so I worked with that amount and added paint costs, amount to set aside for the taxman, etc. Not much to my surprise, I didn't hear back from those people. It's the same thing I experienced when I did my first few estimates but didn't realize I was overcharging. I'm realizing that in my market, if I charge what I need to make, I won't be getting any work.

(One thing I might be overdoing is the amount I set aside for possible income tax payments. I heard a suggestion from an accountant that sole proprietors like me set aside 30% of my gross income for taxes, but having even 10% of that would improve my current situation in most cases. Perhaps someone can give their thoughts on the whole tax thing.)

Anyhow, to those of you who are/have been in the same boat, what would you suggest: Do I keep bidding lower just to get jobs, then take some sort of steroid or substance that will make me beat estimates every time? (I hope you realize I'm joking about the steroid/substance comment.) Should I keep biting the bullet, taking the cut to get a stellar reputation to the point where I can charge what I need AND get the jobs, and hopefully before I'm bankrupt? Or is it time to consider closing shop and looking for another career? Any sincere advice at this point would be great, because I'm pretty bummed about this right now.

 

[Color-Me-Silly]

I heard a suggestion from an accountant that sole proprietors like me set aside 30% of my gross income for taxes, but having even 10% of that would improve my current situation in most cases. Perhaps someone can give their thoughts on the whole tax thing.)

In Alberta the base tax rate is 25% for 2008... Here is a bit more of a breakdown.
Alberta Basic Personal Amount - $16,161
Federal Basic Personal Amount - $9,600 + (add $1000 for line 363 Canada Employment Amount , don't ask me why, it just works)
Up to $37,885 - 25% (10%P, 15%F)
$37,886 up to $75,769 - 32%
$75,770 up to $123,184 - 36%
over 123,184 - 39%

If you aren't sure exactly what this means: If you make $37,885 this year, you will have to pay 25% - 10% of the AB BPA - 15% of the (FED BPA + $1000 for line 363)
OR
9471.25 - (1616.10 + 1440 + 150 (L131)) = $6262.15
This then works out to 16.529% Federal & Provincial Income Tax.

If you made $75,769 you would go:
75,769 - 37,885 = 37,884... 32% of that is 12,122.88 added to your initial of 6262.15 = $18,385.03
This now works out to 24.265% F&P Income Tax <---- I'm guessing you make in this range based on what your accountant said. Its usually wise to keep it a little on the safe side.

Remember, this is INCOME TAX ONLY, it does not include CPP or WC payment deductions.

**These numbers would be calculated like Vermont said down below, based on pre-tax profit. This is strictly what you get to take home with you at the end of the year.

 

[Color-Me-Silly]

Oh and P.S. I wouldn't judge your market based on 2 estimates... I'm pretty sure the pro's in here will back me on that one.

 

[vermontpainter]

I wouldnt be setting aside 30% of gross revenues. 30% of net profit would be safe.

 

[Rich]

ipaint

what kind of work do you perform? high end? apartments? a mix of everything?

the reason I ask is the simple fact that you may be targeting the wrong market...a lot of times painters feel like they need to target everyone-this is not the case at all and this mentality usually leads to chaos

I learned an important thing from a very intelligent businessman at a seminar-you need a niche and you need to carve a specific direction for yourself. Get really really proficient at it and you will see results.

remember, charging more is not always the answer...you may need to work more proficiently and get your production times tighter as well. But then again, if you are surrounded by painters charging $45/hr, you better not be charging $35!

hope I helped some

 

[Pete's Painting]

I was in that boat during the holidays this year. Just moved to a new area, and work was non-existent as you can imagine. I was bidding low and taking what I could. But once the phone started ringing, I wanted to up the prices. So to start, I would bid one job low, and another high, and would delay making a schedule as long as I could hoping the higher bids would get back to me until I could consistently charge what I wanted to make. It took about 2 months of this game, and I was basically only getting the low bids, but if you saw my schedule, prices are steadily going up. The key is getting the phone to ring, go on foot, stick fliers in doors if you have to. Pay some kid to do it, whatever it takes.

 

[Pete's Painting]

Another thing, I never cared what other people were charging. I believe there is a market for everyone. Many of my customers would faint if they saw other people's prices, and would never pay that much. Make what you need to during the rough times, and don't get too worked up worrying about othere people's pricing. Take care of yourself, noone else will.

 

[Brian]

Anyhow, to those of you who are/have been in the same boat, what would you suggest: Do I keep bidding lower just to get jobs, then take some sort of steroid or substance that will make me beat estimates every time? (I hope you realize I'm joking about the steroid/substance comment.) Should I keep biting the bullet, taking the cut to get a stellar reputation to the point where I can charge what I need AND get the jobs, and hopefully before I'm bankrupt? Or is it time to consider closing shop and looking for another career? Any sincere advice at this point would be great, because I'm pretty bummed about this right now.

I think there are 3 aspects to this issue: financial, marketing, and sales.

Financially, you need to know what you need to charge. You seem to have a pretty good handle on that part, though it may need a little adjusting.

Marketing wise, you need to generate plenty of leads. When you have sufficient leads you don't need to "buy" jobs. When you have sufficient leads you have a better chance of having the right kinds of customers calling.

When your price is higher you need to offer more value and do a better job at sales. If you and your job look like the competition, the customer will go with the lower price. We all do that. Nobody wants to pay more for the same thing. To sell at a higher price your job/ company must offer more value. And then you must communicate that value to the customer.

Brian Phillips

 

[EricTheHandyman]

IPaint, I'm just into my second year so my experience this past year may help. I'm not sure about Canadian tax laws, but here in the US they charge a self-employment tax on sole proprietors, in addition to your regular income tax. 30% of your net is close, but I would talk to an accountant or tax professional to make sure.

As far as pricing goes, you'll hear over and over again that you need to price your jobs based on your own situation. If you slash your prices just to get work, but end up not making anything on the job, what have you accomplished? You could spend the time canvassing or marketing. As an example, I just did a bid to tape & mud a basement for a guy. I figured it to be about a 20 hour job. He told me that my bid was three times that of the other two bids he got. If I were to do it for 1/3 the price, I would have had to do it in about 4 hours just to cover the materials. What's the point? I can spend those 20 hours marketing and distributing flyers and maybe get better work down the line.

Keep your chin up, IPaint, things will get better. Don't be too proud to look for a part time job in the meantime. When it comes down to it, you have to feed your family.

 

[vermontpainter]

IPaint

I think alot people are in the same boat. We are currently doing some employment advertising. There has been an overwhelming response from recently self-employed paint and remodel people who are looking for jobs. I think there have been alot of small operations over the past few years that, in a strong economy, could keep moving just enough through word of mouth to keep working. When things slow a bit and it becomes more competetive, they have no clue how to adjust to the new situation. Its a fragile situation and when the market hiccups, if you dont have a plan, its tough but not impossible to recover.

Brian's advice in this thread is right on. Also, there is alot of talk about failure rates for small businesses. What I am observing in our applicants seems to support those stats. It takes some strategy and maybe even a little luck sometimes to avoid becoming a stat, but all the resources are available right here.

 

[iPaint]

Wow, what can I say - thanks so much for the practical advice, everyone! I'm more encouraged, for sure.

Color-Me-Silly (even typing that name out cheered me up - it made me laugh!), what awesome income tax info you provided relative to me living in Alberta. But one question: I currently don't make any CPP or WC payments. Should I be, even though I'm the only "employee"?

Rich, just so you know, I haven't really targeted the residential re-paint market, but that's pretty much what I've done exclusively to this point. I don't feel quick enough as one guy to tackle new-home or commercial painting when there are tight deadlines. And I avoid apartments and rentals in this area because the large immigrant population has brought their bed-bugs with them - I don't want them ending up in my house. But thanks for specifying the need for me to zero-in on a particular market anyhow.

And Eric, thanks for putting things in perspective with respect to pricing. The only reason why I've kept prices lower is simply to get work and get my name out, since I see each completed job as a living 'business card'. However, I now realize that in doing so I might just create the reputation of becoming a - excuse the term - 'Wal-Mart painter', although for a cheaper price I actually provide GOOD quality!

Anyhow, thanks again everyone, and keep the advice rolling if there's something on your mind.

 

[jsmith]

never settle for less than you think you are worth. I agree you cannot base your market on 2 estimates. Estimates are a numbers game, the more estimates you do the more jobs you will get. stick to your guns. It is hard to work at hire profit margins, when some painters are happy with making 5-10% profit. i split my jobs in thirds 33%taxes 33% to business 33%pocket

 

[plainpainter]

Ipaint - you have to charge the amount you need for a salary plus profit. It doesn't matter if people won't pay. If they won't pay - then it's time to look for a different line of work. You can't go on, not being able to make expenses - you are basically subsidizing your clients' salary if you do this - this makes absolutely no business sense - you are running your business at a loss. The unfortunate circumstance in the painting business is that you have to compete with guys that are running their business at a loss - hence the 90% failure rate. The only way to combat this is to leave behind your 'tradesman' attitudes and become a salesman. If you don't 'Sell' a customer on your services - then they are going to go with the cheapest estimate. If a customer gets 10 estimates from companies that are less than 5 years old - the 9 cheapest companies won't be around after 5 years.

So what do you do? You have to charge good money. And be prepared to hawk everything you can to come up with an advertizing budget. Painters that have been around for years, charge much more money than you. Personally with your circumstances - I find it hard to believe you will survive - no offense. That's not to say I was exactly where you were - but the difference between me and other guys - is that I was an oppurtunist. If I was painting a home for $4,200 - and the real price of the paint job was more like $7,600 - I also sold the guy on getting his roof re-done - and I did that popping 1 week 6-7k profits here and there in between unprofitable painting. I also did cedar shake siding, exterior carpentry, re-decking - basically I upsold other more profitable services. Now this ain't the path to fortunes - I still lost money, but the money I lost on painting was being buoyed by the good money I made elsewhere. And I reinvested everything I had into bigger and better equipment, stole from Peter to give to Paul, now I am in a good place. But if you are just starting out painting on a shoestring budget and can't commit to spending 10-15k in advertizing - then you might as well bend over - because the customers you work for, won't care about the quality either - some do - but for the most part you are working for bottom of the barrel customers, I know I have been there. The only way out of your dilemna is advertizing and lots of it.

 

[Color-Me-Silly]

Color-Me-Silly (even typing that name out cheered me up - it made me laugh!), what awesome income tax info you provided relative to me living in Alberta. But one question: I currently don't make any CPP or WC payments. Should I be, even though I'm the only "employee"?

I'm glad I could help! :thumbup:

Workers Comp - Before I post about this, I'll look into AB Workers Comp, just in case its different then here in SK.

CPP - When do you want to retire? This one is really up to you.
I've heard different reports saying that the CPP fund has been mismanaged and that there won't be anything left after all the baby-boomer's have retired. Whether or not this is true, I'm not sure. You have the option to buy into an RRSP as well, this might give you a little more control over how your money is invested.

 

[Color-Me-Silly]

AB Worker's Comp

OK. I found some info for you. I would highly recommend going to wcb.ab.ca/employers - on that page there is a link to a PDF for "Personal Coverage" which is what you would want as a sole proprietor. The minimal coverage would cost you $200/year, and would cover you for $20,000/year or about $1,293.82/month.

When you are not covered by WCB:

-If you become injured while working for a homeowner, I'm pretty sure you are covered under THEIR home insurance. It is very BAD business practice to rely on this.

-If you do work for a business or contractor, they will more then likely get a WCB clearance, stating that you have a WCB account in good standing. If they don't do this step, then they are liable. I'm pretty sure when you bid on a commercial job, they require WCB as part of the contract.

wcb.ab.ca/publications/employers_facts.asp
Item number 40 explains this fairly well. In fact there is quite a bit of good information on that page, I would read it through.

I would recommend getting at least the minimum WCB coverage.

You do have liability insurance on top of this right?

 

[iPaint]

Thanks again for all the great info, CMS! By the sounds of it, I don't have to contribute to the CPP which is more than fine by me - I've had my own RRSP for years.

As for workers comp, I've been avoiding paying into it knowing the risks involved, but frankly I'm trying to minimize extra costs right now. I'm already paying for liability insurance, and my insurance company charges me triple for my van than if I had registered it as a non-commercial vehicle. So I guess I'll just roll the dice right now with comp until I'm more profitable - unless I get injured first!