1. Plumbing Business Related Costs
Linda Herbison

2. Who is here?
 Name
 Business Experience
 What would you like to get out of our 5
evenings together?

3. My experience
 BS in Computer Science, MBA, CAGS
in Education
 15 years teaching at Monty Tech
 4 years as church treasurer
 2 years as union treasurer

4. My objectives
 Provide information and resources on
business decisions relating to plumbing
businesses
 Provide hands-on practice with
computers to solve business problems
 Each student will produce a business
plan for their own plumbing business

5. The Plan For Our 5 Evenings
Date Topics Product
Tuesday, 11/6 Legal Forms of Business First section of
Methods of Going Into Business business plan
Wednesday, 11/7 Types of Plumbing Businesses Second section of
Analyzing the Competition business plan
Marketing, Part 1
Tuesday, 11/13 Estimating Income Spreadsheets
Startup & Operating Budgets
Depreciation & Taxes
Wednesday, 11/14 Sources of Funds Spreadsheets, Tax
Loans Form
Cash Budget
Tuesday, 11/20 Marketing, Part 2 Final Business
Accounting Statements Plan

6. Tonight’s Objectives
 Understand the advantages and disadvantages of
these forms of entering a business:
– Buy an existing business
– Start from scratch
– Buy a franchise
 Understand the advantages and disadvantages of
these legal forms of business:
– Sole Proprietorship
– Partnership
– Corporation
– S Corporation
– Limited Liability Corporation

7. Methods of Going Into Business
 Buy an existing business
 Start from scratch
 Buy a franchise

8. Advantages of buying an existing
business?

9. Buy an Existing Business -
Advantages
 Proven record
 Established clientele
 Established location
 Bank and supplier relationships
 Trained employees
 Established facilities
 Low purchase price

10. Disadvantages of Buying an
Existing Business?

11. Buy an Existing Business -
Disadvantages
 Poor record?
 Ill will?
 Wrong location?
 Poor physical condition?

12. Steps to Purchase a Business
 Visit during business hours.
 Ask for complete financial accounting
for the past 3 years.
 Ask for important information in writing
– Complete list of assets to be transferred
– Statement about any past or pending legal action
against the business
– A copy of the business lease or mortgage
– List of all suppliers

13. Purchase Steps
 Determine how you would finance the
business.
 Get expert help to determine a price to
offer for the business.

14. Advantages of Starting From
Scratch?

15. Start from Scratch - Advantages
 Freedom to make decisions
 Opportunity to develop image
 Choice of location
 Choice of physical facilities

16. Disadvantages of Starting from
Scratch?

17. Start from Scratch -
Disadvantages
 No record
 No established clientele
 Time-consuming tasks
– Training new employees
– Purchasing inventory, tools, vehicles, etc.
 Difficulty in obtaining a loan

18. Buy a Franchise
 Franchise: contract
 Franchisee: person who purchases the
name/concept
 Franchiser: corporation who sells the
name/concept

19. Advantages of Purchasing a
Franchise?

20. Ben Franklin Plumbing
 Read the article – what advantages
does Steve Dohner give for becoming a
franchise?

21. Mr. Rooter
 What did you learn from the Mr. Rooter
article?

22. Advantages of a Franchise
 Start-up help
 Advertising
 Financial assistance
 Established brand name
 Proven method
 Equipment and supplies may be less
expensive

23. Disadvantages of Purchasing a
Franchise?

24. Disadvantages of a Franchise
 Limited control
 Franchise fees
– Initial franchise fee
– Royalty fees (weekly or monthly)
 Potential image problem
 The franchisor can terminate the
franchise agreement

25. Evaluation of a franchise
 What can a franchise do for me that I
can‟t do for myself?
 How is the contract?
 Are there enough potential customers?
 Is this a good fit for me, financially and
the type of business?

26. Some Plumbing Franchises
Franchise Startup Costs
Ace DuraFlo Systems LLC $36,000 - $410,000
Benjamin Franklin Plumbing $29,000 - $528,000
CityWide Sewer & Drain $83,000 - $118,000
Mr. Rooter $61,000 - $156,000
Rooter-Man $46,000 - $137,000
 Source: Entrepreneur.com

27. Legal Forms of Business
 Sole Proprietorship (DBA)
 Partnership
 Corporation
 S Corporation
 Limited Liability Corporation

28. Advantages of a Sole
Proprietorship
 Easy to start
 All profits to owner
 Complete control & flexibility
 Secrecy
 Single taxation
 Easy dissolution
 Only one allowed before you become a
Master Plumber

29. Disadvantages of a Sole
Proprietorship
 Unlimited liability
 Limited life of business
 Difficulty in obtaining capital
 Little incentive for employees

30. Liability & Plumbing
 “Absent contractual limitations, liability for economic
losses resulting from the sole negligence of a
professional in the construction trade is limited only
by the extent of the assets and/or insurance of that
professional. Once a contract enters the picture,
liability for such losses can be limited or distributed
among the parties in a number of ways through
limitation-of-liability provision.”
 Kristi Morley, “Limitation-of-liability provisions – Can a Plumbing
Subcontractor Cap Liability for Sole Negligence”, Reeves Journal 88.12
(Dec. 2008): p. 8.

31. Side note on contracts:
 Advice from Micah Bolduc:
 Include payment information in contract
– when is payment due, when will there
be a late fee?

32. Can you be found liable even if
you did nothing wrong?

33. Horror Stories – Faires Plumbing
Co., Edinburg TX
 “We have been in the plumbing business for over 75 years . . .
The only problem the prosecution could find was Americans with
Disabilities Act violations. Four urinal handles were installed on
the wrong side of the stall, and a drinking fountain was installed
as specified by the architect, but was in the way of the door
swing, so we were cited for that violation as well.”
 “Cost: $228,641 -- $74,750 of that was attributed to plumbing;
the balance went to legal fees.”
 “Never once were we contacted by the owner to remedy the
violations. If we had been afforded that opportunity, the cost
would have been a mere fraction of the settlement.”
 “PHCC Tackling Frivolous Lawsuits in Construction Industry: Tort Reform is a Top
Association Goal”, Contractor, 51.8 (Aug. 2004): p. 65.

34. Black Mold
 “Dowdy said that insurance companies need to look
at the causes of black mold growth and make sure
the responsible parties are educated as to its origins.
„Homeowners are keeping their rooms cold and dark‟
he said. „They need to bring in fresh air. It is not the
fault of air conditioning contractors if homeowners act
irresponsibly.‟”
 John Hall, “Texas Contractor Tackles Mold Liability Head-on”, Air
Conditioning, Heating & Refrigeration News, 215.15 (Apr. 8, 2002): p1.

35. Legionella
 “As awareness increases about the role plumbing
systems play in transmission of Legionella bacteria,
plumbing engineers could be named in more and
more Legionella-related lawsuits, even in suits
involving properly designed systems, since those
systems can become contaminated with Legionella if
they are not operated and maintained to minimize
Legionella growth.”
 Matthew Freije, “Legionella and the Plumbing Engineer – Responsibility
Liability and Opportunities”, PM Engineer, 8.2 (Feb. 2002): p 34.

36. Advice from Micah Bolduc
 Liability falls on the person who pulled the
permit.
 If you pull a permit for your boss and others
do the work, defectively, you are liable – be
sure you have insurance for this!
 If you do defective work on someone else‟s
permit, you can be disciplined by the
plumbing board, but you are not liable.

37. More Advice from Micah Bolduc
 The plumber who pulled the permit is
supposed to be at the inspection.
 Time management is important – you can‟t be
at one job site for the inspection and doing
work at another job site.

38. Advantages of a Partnership
 Easy startup
– Articles of Partnership
– Partnership Agreement (see p. 38)
 Added capital
 Combined management skills
 Single taxation
 Employee incentives

39. Disadvantages of a Partnership
 Unlimited liability
 Limited life of business
 Divided authority
 Frozen investment

40. Corporation
 An enterprise that has the legal rights,
duties, and powers of a person
 Charter – written document outlining the
conditions under which the corporation
will operate
 Stockholders – owners of a corporation
 Stock – shares of ownership in a
corporation

41. Corporation
 Board of Directors – meet several times
a year to elect senior officers, determine
their salaries, set corporation‟s rules for
conducting business
 Dividends – distributions of profit to
shareholders by corporations

42. Advantages of a Corporation
 Limited Liability
 Continuous life
 Easy transfer of ownership
 Ability to attract funds
 Specialized management

43. Disadvantages of a Corporation
 Government regulation
 Little secrecy
 Charter restrictions
 Complicated and expensive formation
 Double taxation

44. Double Taxation
Joe the Plumber Joe the Plumber, Inc.
 Income: $100,000  Income: $100,000
 Fed Inc. Tax: 16,297  Fed Inc. Tax: 16,297
 State Inc. Tax: 4,834  State Inc. Tax: 4,834
 FICA/Med: 7,650  -------------
 ------------  Joe‟s Dividend: $73,083
 Joe can spend $71,219  Fed Inc. Tax: 10,661
 State Inc. Tax: 3,407
 FICA/Med: 11,182
 -------------
 Joe can spend $47,833

45. S Corporation
 A corporation that chooses Subchapter
S status for tax purposes
 Must meet the following requirements:
– No more than 35 shareholders
– Only one class of stock
– All shareholders are U.S. residents
– All shareholders are individuals
– Corporation operates on a calendar year
financial basis

46. Advantages of an S Corporation
 Limited liability
 Single taxation – income passes
through to individual shareholders and
are reported on their tax returns

47. Disadvantages of an S
Corporation
 Owners may be required to pay taxes
on earnings even if they have not taken
any money out of the business

48. Limited Liability Corporation/
Limited Liability Partnership
 Same advantages & disadvantages as
an S Corporation, but easier to set up
 When you‟re ready to start a business
for real, SEE A LAWYER and TAX
ACCOUNTANT and understand the
current situation!!!

49. Business Licensure
(MGL 248 CMR 3.00)
 All corporations, LLC‟s, partnerships, or
other such entities that have plumbing
or gas-fitting employees are required
to maintain a business license.
 Individuals practicing under their own
name or a DBA do not require a
business license.
 A business license shall be a certificate
for purposes of M.G.L. c. 142, 3B

50. Business Licensure - Exceptions
 A non-plumbing business does not need
to have a business license if it employs
1 or more licensed plumbers or gas-
fitters and the only work performed by
licensees is for the premises
owned/leased and operated by the
business.
 Undiluted liquefied gas installations

51. Business Licensure
 The applicant for a plumbing corporation
must be a master plumber who is a listed
officer of the corporation.
 The applicant for a plumbing LLC must be a
master plumber who is a listed manager of
the LLC.
 All partners in a general partnership, limited
partnership, or LLP shall possess current
Master Plumber or Master Gas Fitter
licenses.

52. Business Plan: Write a paragraph on each
question:
 Do you plan to buy an existing
business, start a business from scratch,
or buy a franchise? What are the
advantages and disadvantages of this
choice?
 What legal organization will you choose
for your company? What are the
advantages and disadvantages of this
choice?