If you have people that work for you full time and you 1099 them, number one, you are wrong. Number two, it's illegal. And number three, that is not a subcontractor. That is for all purposes. That is an employee. Hey, welcome back to the show. My name is Brad. I am your host. And today we're going to be talking about different structures for your contracting business. And this is going to depend on if you're a... You do remodeling or maybe landscaping or if you're a handyman, lots of different trades require different types of structures. And what's going to be best for you and which one do you think is maybe the right fit and not the right fit? So we're going to explore all that on this episode and hopefully be helpful for some of you so that you're not just trying things, throwing stuff at the wall and see what sticks. So let's talk about what I mean by structure. If we're talking specifically about remodeling, We can go at to, we can take the employee route where you have employees on payroll, or we can go the subcontractor route, you know, where we sub everything out. Now I want to make one very distinct clarification right now. If you have people that work for you full time, meaning they don't have other jobs, they don't work for other contractors, they work for you full time and you 1099 them, number one, you are wrong. Number two, it's illegal. And number three, that is not a subcontractor. That is for all purposes. That is an employee. How you decide to pay them doesn't change the fact that they're an employee of yours. So if you're doing that, stop. Because if the IRS finds out that you're doing that, you will be penalized into oblivion. They hit hard on this. This happens all the time. I have people coming into the coaching program and then I find out that they're... They have four employees, but they're not really employees. They're 1099. Those people don't have insurance. They don't have licenses. They're just paying them as a check and then 1099 at the end of the year. And one, you're setting yourself up for a ton of liability. And two, you're setting yourself up to get screwed by the IRS. And you're also screwing them because if something happens to them, then they're not taken care of. This is a very common misconception. misunderstood part of employees and hiring. And I know a lot of people that do this and they take advantage of younger guys because they go, oh, we're going to pay you, you know,1099, we're going to pay you just 20 bucks an hour. And you're like, oh, that's great. No taxes, nothing,20 bucks an hour. Wrong. They're going to pay taxes on the back end. And they don't know that. So at the end of the year, you know, they make $60,000 or whatever. And then they get hit with a 15,000 hour tax bill because they didn't know it was coming. So contractors take advantage of people this way. Stop doing that, guys. 1099 full-time employees is not legal and you shouldn't be doing it. All right, let's carry on. Assuming you're not doing that. There's true subs and then there's true employees. Or you could do it by yourself. But for this episode, we're talking about, you know, growing our business, scaling, which model works best and which one should we do. The short answer is there is no perfect model. It really depends on what is your goal? What do you like doing in your own business? And what makes sense? And so that's what we're diving into. Which one makes sense for you? Now, if you're going to be a craftsman and you're just going to have, you're going to be on the tools your whole life and you just want some help, then the employee route is going to be the right to go. If you're just going to have one or two helpers, that's by far the best route to go. So you're going to have W-2 employees where they're going to be paid by you on a regular basis. You can still augment some things with subcontractors, but that's not what we're talking about. We're talking about a full-blown acting like a general contractor and subbing everything out versus bringing everything in-house, doing as much as possible in-house, and then subbing some of the, maybe the mechanicals or stuff out. Again, it depends on your model. in what you want to do. There's trade-offs for both. If you have in-house employees, you tend to have more control over scheduling. You have more control over cost. You have more control over quality. And so, and you have more control over like branding and marketing. So like there's, there's, that's the upside is that you have a lot more control on quality and what's going on. The downside is you got to deal with people, right? So you got to have. If you got three, four, five,10,20 employees, you're going to deal with those people, all of their headaches, all of their bad habits, all that stuff. So you're going to have, you have to have a higher threshold for dealing with stupid crap in your business when you have employees. Now, obviously we want to try and hire the best employees and that does lower a lot of that. And there's lots of companies that have great culture and their employees are phenomenal. And there's no real headaches. It takes time to get there. You're not going to hire two people right away and just have this great culture and everything's fixed. It takes time to get to that level in your business. And if you're not willing to invest the time and energy, that may not be the best route for you. The alternative is going to be your subcontractors where you sub everything out. I mean, you have framers, carpenters, finished carpenters, you have tile guys, you have electricians, plumbers, heating and air, everything's subbed out, drywall, painting. And all you're doing essentially is selling jobs. and then project managing. And that's like the sub route. Now you as the owner, maybe you go out there and sweep the floor a couple of times, but essentially you're running a subcontractor model. The benefit of subcontractors is that if you don't have any work, you don't have to worry about keeping someone busy for 40 hours a week, right? Employees, you don't have to worry about all of the little things that happen if they're late that day to work and all the things you have to deal with that are headaches. on the employee side, you tend to lose a little bit of control on, you know, scheduling. You lose a little bit maybe of control on quality or at least managing the level expectation and quality. Now, I'm not saying you can't do it. There's good subs out there. And if you develop a good system within your subs and you develop a standard that you want your subs to meet, you can still achieve high standards, high quality, all that stuff. But you're going to have a different, it's a different way of attacking it. So with subs, you know, you can't just tell them, you know, I want you here at this time and I want you to do this and this. They're going to have their own freedom and you're working as a, you know, as a team in the sense that you're not going to control them. Now, if they're smart and they want your, you know, they want to keep getting business from you, then yeah, they're going to try and do the best they can to, you know, make you happy. It's a two-way street. With employees, their natural disposition is to want to do a good job, so they keep their job. So there's a little bit more motivation on that side. The benefit of subcontractors is that it's very, very easy to scale. If I'm doing, say I'm doing kitchen remodels, and me by myself with one set of subs, I can do maybe two kitchens at a time. One's already started and one's getting ready to start. Maybe I can manage two or three at a time. That's my capacity. Well, I can always hire maybe a project manager or I could hire a salesperson. And then if I hire a salesperson and they're going out and selling a ton of jobs, then I can just go and hire more subs. I can go get more subs. I can have two or three carpenters. I can have two or three plumbers, whatever, electricians. I can have multiple of those because there's going to be a lot more of those companies around generally than if you have employees. Also within the employee bottle is that you don't have specialties unless you go out and hire them. So I was talking with Andrew from AKN Interiors several weeks ago on the podcast. If you didn't listen to that, I would go back and listen to it. You know, he has multiple employees. I think he said, if I remember correctly, around 20 or so. And he has some specialty people. And that's awesome that you can do that. That's great. But there's a level where like, it's very difficult to like hire one carpenter. and then hire an electrician, and then hire a plumber. Because you generally, within your own work, don't have enough work to keep that trade busy. Now, one thing with Andrew, when I was talking to him, is that they were getting ready to hire a plumber, or maybe they even had a plumber, I can't remember. They either had one, or they're getting ready to hire one full-time. And because the amount of work they're doing is going to keep that person busy. It keeps them busy like 40 hours, I'm sorry,20 hours a week. And then you have to go out and like either sell plumbing jobs or you have to, they have to do some other type of work. And if I remember, and you can correct me, I believe he did have a plumber and he was working like 20,30 hours a week on plumbing. And the rest of the time he was doing, you know, some other labor, general labor stuff. You can do that if that person is willing to do that. Some people are just like, I just want to do plumbing. I don't want to do anything else. Right. So, or I just want to do electrical. I don't want to do anything else. That's the challenges. It's like if you're going to bring in-house specialties in, you have to have enough work in order to be able to keep them busy. With subs, you don't have to worry about keeping them busy. You can use an electrician once a month, right? If you need to. So that's the, that's the beauty of subs is you can scale or go up and down as much as you want. You can hire as many salespeople and just keep, you know, hire more salespeople, hire more project managers, hire more subs. It's very easily scalable. If you go the employee route, it's a little hard. It's harder to scale, but you do have a little bit more control over that. Now, there's another version, which is the hybrid version, and that's where you have employees and you use subs. So sometimes you will have in-house crew where you have one crew. Let's say you're a siding installer and you have one in-house crew, let's say three guys. And they do all of your, you know, one in-house crew does all their sighting and then you sub out additional jobs. You know, it could be a situation where anything that's, you know, over a certain dollar amount or over a certain square footage, or that's more difficult to do, you have your in-house crew do it. Anything that's your cookie cutter, you know, rectangle house, throw it up in one day, you could sub that out because it's straightforward. So that's kind of a hybrid model where you may have some employees and some subs. They're both doing the exact same thing, right? Whereas if you're doing all subs, you're hiring multiple trades. If you're doing all employees, you're doing, you know, your employees are kind of have to be jack of all trades and do a bunch of different stuff unless you have a lot of jobs that are lined up. You know, if you hire in-house tile person, there's got to be enough tile work to keep him busy. What we're talking about with a hybrid is they're both doing the exact same work, right? And if you sell more jobs, you bring in another sub crew. You sell more jobs, you bring in another sub crew. One of my friends who owns a roofing company local, he does that. He has like one in-house crew with his best guys that he's, you know, cultured over the years. Like he's made his team really good. And then he subs everything else out. So anything that's super difficult, high profile, you know, needs to be done like with perfection, the in-house crew does that. And then everything else is subbed out. So that's kind of a hybrid, what I call hybrid model. of how you do that. Hey, just a quick time out from the show. 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Now let's get back to the show. Now. I want to talk about one other, it's still a subcontractor model, but this is a different way of how you approach this. And if I'm being completely honest with you, I'm not a fan of this at all. However, it's a legitimate business. It's a legitimate way to run your business. And there's nothing legally wrong with it, right? So like, it's just, in my personal opinion, I don't like this model. And I'll tell you why. That's where what you're really doing is you're building sales teams. Now, you see this a lot in roofing, in the roofing industry. You see it also in other industries like HVAC, electrical, plumbing, where what you're doing is the owner is just all he's doing is building sales teams, and then everything else is subbed out. Now, it's still the same thing. You're still using subs. But what I'm saying here is the motivation, the reason and how you attack this is totally different. It's a difference in mindset. So the guy who's wanting to build a remodeling business or a roofing business or a siding business, he's doing it to like, you know, feel good about himself, build a legacy, you know, make a difference and really help people and do a good job. And he's proud of his business and what he's doing. Right. And these are the people that typically, A lot of times get taken advantage of because they wear their heart on their shoulder with their business and they want to make sure they do a good job. Then you have people that just want to make money. And that's typically the people that want to build sales teams. Their goal is to sell as many jobs as possible, make as much money as possible, and then exit. They don't typically care about the customer. Now, before you guys scream at me and send me hate mail and all that stuff, I'm not saying everyone's like this. And again, I'm not saying it's not a legitimate business model. I'm just saying there are lots of people out there that are like this and all they're interested in doing is building massive sales teams. They're not really interested in building a construction business, a roofing company. Roofing is just the industry that they pick. What they're in is the business of building sales teams. That's it. These are the ones you can tell super easy on social media because all of their social media is about their sales team and management. They never, ever, ever post pictures or videos of anyone doing the work, right? Because it's all subbed out and it's people they don't really necessarily care about. So like, it's pretty obvious when you see these people. Now, again, just saying it's completely legal. It's a legitimate business model. I'm not a fan of it simply because I'm not, you know, I'm not in business to try and just make as much money as humanly possible and then, you know, exit. That's not my goal. So I don't align with that way of thinking. If that's you, awesome. Go after it, kill it. It's a legitimate way of doing it. So we got the employees, we got the subs, we got the hybrid, we got the building sales teams. Those are essentially the different directions you can go within your business. Which one's the right fit for you? Totally depends. I mean, it totally depends. You can try both. Like I said, the ones that the subcontractor is going to be the easiest to scale. right? If you want, if that's your goal is to scale your business and you can do that and still have a massive business and make lots of money. This isn't about you have to sacrifice money. That's not what I'm saying. Uh, you can still do that. Uh, building a massive, you know, a business where you have 30,40,50, a hundred,200 employees. Uh, it's people do it all the time. It's just not that easy. It's a little bit more, it's a little bit more difficult. There's also points in your business where it makes sense to have employees and it doesn't make sense to have employees. And so you may actually kind of go in and out of these models as you grow at different levels. You may start out as a general contractor, subbing everything out because you don't have any employees. You have no, you know, no resources, no tools, nothing. You could start tomorrow, sell a, you know, sell a kitchen remodel. And then go out and find subs and build a job, right? Like you don't have to have employees, you don't have to have tools, you don't have to have any of that stuff. That's very viable. And then at some point, you may want to bring employees in and to like, again, to bring in the quality control, to bring in some of those standards. So you start out as subs, you get to a certain size, and then you start bringing in some key personnel. And I'm not talking about sales or project managers. I'm talking about like, your, uh, your carpenter, your skilled labor, you bring those people in as well. So, and maybe you start out that way and then you want to scale. So then you start bringing in subs. So like, this isn't like you have to pick one and that's it. The rest of the time you're in business, but it is worth thinking about, you know, especially if you're new and you're starting out, which one makes the most sense for me and what I want to accomplish and, and what do I have the means to do that? So, you know, when I started out, I started out doing handyman stuff because it was just me. And that was the only thing I could get started because I didn't have any money. Right. I never even really never even dawned on me to go the general contractor route. I just thought you had to go. I mean, I understood what general contractors were. Don't get me wrong. But being able to like go sell a job and then just use all subs in a remodeling sense didn't make sense to me at the time. Obviously, new construction. Again, a whole different ballgame. A lot of that is subcontractors. If you want to have in-house, some of them self-perform. You may have a home builder who has a framing crew of four guys that's in-house. They do all the framing, and then everything else is subbed out. Again, it's a hybrid version. It may make sense to you to start out as a sub. It may make sense to start out with employees. You have to decide. I get to see this. firsthand. When I have clients coming in and they're wanting to restructure, they're wanting to rebrand, they're wanting to change what they do. They're wanting to niche down, so on and so on. And that's the last point I wanted to make is about niching down. When you do one thing and one thing only, it's way, way, way, way, way easier to hire people. I made this mistake because when I was running my handyman business in the beginning and I was trying to hire people that can do, you know,10,15 different things. Now, obviously some of them are super easy, but some of them are somewhat skilled. It was hard to find people that had that level of skill and that wanted to do multiple things. I would tell people day one, the best thing about what we do is that we don't do the same thing every day. You don't get bored, you know, just hanging drywall every day. The bad thing about what we do is we don't do the same thing every day. So you never fully get like, super efficient and comfortable with what you're doing. You're constantly learning new things all the time. So it's a double-edged sword. You know, going back, I wouldn't do that. That's why we switched over and started doing remodeling because it made more sense. If I was to start another business, I wouldn't start a handyman business. I just wouldn't. Too many moving parts. So, you know, that's part of it is like understanding the end goal and what you're capable of doing. where you're at, what you can start with, and you just got to figure that out. There's pros and cons to both, right? And I will tell you this is that there are good employees and there are bad employees and there are good subcontractors and there are bad subcontractors. And so if you hire a subcontractor and he goes in and screws everything up, you don't just go, man, subcontractors suck. No. That one subcontractor sucks. It doesn't mean everyone else sucks. Well, I hired three different ones and all three sucked. Okay, great. Those three sucked. It doesn't mean everyone else sucked. And by the way, if you're hiring a bunch of bad people, that usually means you're doing something wrong. I'm just throwing it out there. If you're hiring a bunch of bad people over and over all the time, it means you're doing something wrong. Okay? So back to the niching. When you niche down, it's very easy. You know, I had a client recently came on board and they were doing some, you know, their general contractors, they were doing some remodeling. They were doing like siding decks and different things. They were doing a few different things and even doing some like new construction. And I'm like, you guys need to niche down, figure out what you want to do. And they decided that they wanted to do room additions. They wanted to focus on room additions. Perfect. Once they got that clarity, because they had a few people in house. Once they got the clarity of what they wanted to do and focus on, it made it much easier of how they were going to keep employees or let the employees go or use subs. Like it gave them clarity instantly. Before, when they were doing a bunch of different things, they were having struggle of like how to hire and sub. And, you know, do I got to hire a roofing crew or do I sub it out? Do I got to hire a, you know, siding crew or do I keep my guys in house or? Do we just do framing? Like they were trying to figure out how to keep their people busy when they're doing things that those people don't know how to do. So when you take someone who's expert at siding and you try to get them to do roofing, they may fail. Their production rate may go down to 60%. When they do siding, they're at 90% production rate. They go to roofing, they go to 60%. So you sell a bunch of roofs and you don't know why you're not making any money. Well, it's because your labor that you're using, that's not what their skill is. So that's the part of niching down is that when you go down and you say, all we're going to do is kitchens, all we're going to do is decks, all we're going to do is roofs, all we're going to do is this, room additions, all we're going to do is ADUs, all we're doing is post-frame construction, whatever it is. Once you niche it down, it actually helps you decide which business model is going to help you the most. Again, based on your goals and where you want to be. So that's pretty much it, guys. It's pretty straightforward. For once we got through a podcast that said it was going to be short and didn't go long. It's pretty straightforward. You decide which one you like. Do me a favor. Send me a message. Let me know how you have your business structured. What's worked well for you? I always ask for comments. I always ask for feedback. I get one person that sends me a message. I know there's more than one of you that listen to the podcast because I get the data. Maybe two of you this time send me a message. And let me know what you think, how you have your business structured. So, all right, guys, that's the end of the episode. I'm still looking for contractors to interview. It's actually a little bit tougher than what you might believe to find contractors to actually interview, to get them to commit to a date and all that stuff. It's not easy. So if you know a contractor or if you are a contractor, you don't have to be, you know, doing hundreds of millions of dollars. You don't have to have a, business that's on autopilot. That's not what this is about. I'm just interviewing different contractors to see what you do in your business, how you have it structured, what's working well for you, some lessons you've learned, and that's it. And we don't have to talk about anything that you don't want to talk about. So if you're interested, let me know. Send me a message if you know somebody. Also make that introduction. I really appreciate it. That's the end of the episode, guys. Thanks for hanging out. You know where to find me. I say this every time. You can go to the show notes, you can go to social media, you can search for the Hammer and Grind podcast. And remember until next time, profit is not a dirty word.
