BSCi
7100
To:
Steven Williams, Fellow Students
From:
J. Douglas Martin
Date:
Sunday, November 20, 2000
Re:
Class discussion in preparation for future guest lecturer John Teeples (Teeples
will join the class in the next couple of weeks).
Meeting Date: Thursday, November 16, 2000
|
Attendees: |
John Teeples |
DE/TE Builders |
|
|
Steven Williams |
Auburn University Professor |
|
|
Scott Fuller |
Auburn University |
|
|
J. Douglas Martin |
Student |
|
|
Lance Davis |
Student |
|
|
John Feekes |
Student |
|
|
Thomas Rhoden |
Student |
|
|
Zac Wolfe |
Student |
|
|
Hutch Peden |
Student |
|
|
Ingram Thornton |
Student |
|
|
Jamie Howell |
Student |
|
|
Harlan Price |
Student |
1.
General
1.1
The meeting was held to give the students an understanding of several
issues that need to be addressed when starting a business.
The visiting lecturer, John Teeples, generated such discussion by going
over how he himself started a new construction business in Columbus, Georgia
some nine years ago.
2.
John Teeples described starting his own business
2.1
Worked
for Bill Harbert until starting business in Columbus, Georgia with partner Danny
Dean
2.2
Decision
to start new business of own
2.2.1
Difficulty
moving family (and self) around all the time for new projects with large G.C.
2.3
Five key
issues need to be addressed when starting own building company
2.3.1
Since he
was new in the community, Teeples felt it would be beneficial to hire local
“heavy hitters” for the following services
2.3.1.1
Banking
2.3.1.2
Accounting
2.3.1.3
Bonding
2.3.1.4
Legal
2.3.1.5
Insurance
2.4
Must have
business plan drafted before approaching banker, insurance company, etc.
2.4.1
Business
plan included
2.4.1.1
Type of
construction targeted
2.4.1.2
Anticipated
volume
2.4.1.3
Resumes,
letters of recommendation
2.4.1.4
Etc.
2.5
Must
decide how to structure business
2.5.1
Decided
it should be a Corporation, but what type?
2.5.1.1
Look at
tax issues to decide between C-corp. or Sub-chapter S (S-corp.)
2.5.1.2
Decided
Sub Chapter S because of no double taxation
2.5.2
Hired
Attorney to draft the following:
(The preliminary services of an attorney cost the partners under $1000)
2.5.2.1
Preliminary
buy/sell agreement
2.5.2.2
Stock
certificates
2.5.2.3
Articles
of incorporation
2.5.2.4
Form
2848, which gives authority to the attorney to act on behalf of the new company
in regard to paperwork, etc.
2.5.2.5
Form
2553, which allows the company to be a S-corp.
2.6
Accountant
2.6.1
Set up
tax items
2.6.2
Advise in
selection of accounting method (either Completed Contract method or Percentage
Completed method)
2.6.2.1
Decided
upon Completed Contract with which taxes are charged upon completion of work
2.6.3
The
government gives absolutely no leeway in regard to time and money
2.6.3.1
The IRS:
the toughest people Teeples has had to deal with
2.6.3.1.1
They can
actually draw money directly from a company’s bank account without permission
2.7
Insurance
2.7.1
Companies
are put into “assigned risk pools” which, when beginning can actually double
insurance rates
2.7.1.1
Worker’s
Compensation
2.7.1.1.1
The
biggest in the beginning
2.7.1.1.2
75,000+
per year for DE/TE
2.7.1.2
Umbrella
liability
2.7.1.3
Automobile
liability
2.7.1.4
Builders
risk
2.8
Banking
2.8.1
Must have
a line of credit – “Beg, borrow, promise” to get it
2.8.2
Must have
checking account
2.8.2.1
DE/TE has
three accounts
2.8.2.1.1
Deposit
account - funds transferred to Money Market account as soon as checks clear
2.8.2.1.2
Checking
account – maintains balance of zero, note on account “clear all checks”
2.8.2.1.3
Money
Market account – accrues interest, funds shifted to checking in order to clear
all checks written from zero-balance checking account
Note: With
banks and insurance companies, things that are possible and to the advantage of
the customer (like the money saving three-account option outlined above), are
usually not volunteered by the institution.
“You have to know to ask… they won’t offer to save you money.”
2.9
Legal
2.9.1
Two types
of considerations
2.9.1.1
General
business needs
2.9.1.2
Construction-specific
needs
2.9.2
DE/TE
uses two different firms for these two categories
2.9.2.1
In
Columbus, Ga., most of the law firms do everything and are generally not
specialized. It is for this reason
that they use a more specialized Birmingham, Al. firm for most of their
construction-specific legal needs. A
local Columbus, Ga. Firm handles all the rest.
2.10
Bonding
2.10.1
Almost
all commercial construction involves bonding
2.10.2
When
starting, nobody would bond DE/TE because they looked “too risky”
2.10.2.1
Finally
got bonded up to $100,000 at the company next door to their originally preferred
bonding company
2.10.2.1.1
Started
doing a “small” job
2.10.2.1.2
DE/TE’s
“jobs got a little bigger and a little bigger and a little bigger…” and
the bond amount increased with each job
2.10.3
Today DE/TE’s
bonding limit is somewhere in the neighborhood of $25 Million with a work
program up to about $60 Million
2.10.4
Bonding
limits are directly related to the construction company’s bottom line
3.
John
Teeples began to answer any yet-uncovered questions
(John’s
answers are complete thoughts in and of themselves; therefore the questions
being addressed are not listed)
3.1
When at
first going into business, expect the amount of money that you make to go down
for a little while
3.1.1
One needs
to start with money and not need to make money for while
3.1.1.1
Initial
focus is to build the business. This
is more important than paying one’s self
3.2
Time at
Bill Harbert (very large G.C.)
3.2.1
Teeples’
time with the company coincided with Harbert’s fifth or sixth year of
commercial construction. Prior to
this Harbert had done mainly large civil projects
3.2.2
Teeples
worked with Harbert for about six years during which time each of his projects
were distinctly different.
3.2.3
Teeples
credits the skills and experience he gained at Harbert and his personal
tendencies toward carpentry and construction in general
3.2.4
Learned a
little about accounting (indirectly)
3.2.5
Learned
management
3.2.6
Would not
do much different if he could go back and do it all again
3.3
Currently
only sees his banker one or two times per year
3.3.1
To renew
line of credit (and discuss Auburn football)
3.4
Estimating:
3.4.1
Did
estimating with Harbert for about two years
3.4.2
Do not
take off everything
3.4.2.1
Only get
really specific about self-performed work
3.4.3
Solicit
prices from subcontractors
3.4.3.1
Scope
issues
3.5
DE/TE
does more bid work (as opposed to negotiated)
3.5.1
Because
of the lack of real contacts in Columbus
3.5.1.1
Lack of
opportunity attributed to age and being an “outsider”
3.5.2
Have to
share savings in negotiated work
3.5.3
Too much
time and involvement with negotiated work
3.5.4
Bid work:
“clean”
3.5.4.1
Full
documents
3.5.4.2
“If you
don’t get the job, okay. Go to
the next one. You don’t have too
much time involved.”
3.5.5
Payment
issues regarding private owners
3.5.5.1
Payment
issues are generally avoided on public jobs
Thought:
“Why shouldn’t owners have to be bonded too?”
3.5.6
DE/TE had
about $50,000 of working capital when starting out
3.5.7
Advice on
what to do if one wants to someday own a general contracting company:
3.5.7.1
Work for
a small company for a while
3.5.7.1.1
With a
small company one sees more of the business’ goings on
3.5.7.1.2
Less
exposure to the complete business in a large company
3.5.7.2
Do not go
to work for a subcontractor if you want to be a general contractor
3.5.8
DE/TE
owns equipment (as opposed to renting)
3.5.8.1
Owned
equipment is an asset
3.5.8.1.1
Helps
bottom line look good
3.5.8.1.2
Bonding
Companies like to see owned equipment
3.5.8.2
Buy v.
rent decision:
3.5.8.2.1
Time to
buy equipment when having to rent a particular item almost fulltime
3.5.8.2.2
Maintenance
expenses
3.5.9
DE/TE’s
current volume
3.5.9.1
About $30
million
3.5.10
Current
projects include:
3.5.10.1
Jail - $8
Million
3.5.10.2
School -
$2 Million
3.5.10.3
School -
$10 Million
3.5.10.4
School -
$4 to 5 Million
3.5.10.5
School -
$4 to 5 Million
3.5.10.6
School -
$6 Million
3.5.10.7
School -
$3 Million
3.5.10.8
School -
$2.5 Million
3.5.11
John
Teeples works a lot of hours per day
3.5.11.1
He usually goes to the office between 2:00 AM and 4:00 AM every morning
and works until around 6:00 PM
3.5.12
DE/TE has
70 – 75 workers
3.5.12.1
Nine
workers in the office
3.5.12.2
Nine
superintendents
3.5.13
John
Teeples tries to schedule all his meetings on Tuesday and Thursday
3.5.14
DE/TE
uses Microsoft Project for scheduling
3.5.14.1
Teeples
likes it: “It gets you looking ahead.”
3.5.15
Teeples
likes owning his own company because of “…being able to reap the benefits of
own hard work…” and having “…control over my own destiny.”
4.
After the class, one of the students, Douglas Martin, Sat down for a
brief informal interview with John Teeples
4.1
When
starting out, Teeples contacted and began to consult with the Small Business
Authority (SBA) but found them to be “no help at all.”
They told him that he would never make it and were as discouraging as
possible. He walked out of their
office and never went back. He has
proven them wrong.
4.2
Danny
Dean, John Teeples’ former partner, is from Columbus, Ga., but he had never
worked there and did not have very many helpful contacts.
The two were an effective team for several years.
4.3
Initially
Teeples was commuting from the Auburn/Opelika, Al. area, but he later moved his
residence to Columbus, Ga.
4.3.1
He built
his own home and office just north of Columbus
4.4
Teeples
does not use his Palm Pilot (although he has one), but he does use a digital
hand-held telephone number organizer.
4.5
Teeples
does not drink coffee, but will occasionally drink a caffeine soft drink if he
needs a little boost.
4.6
Teeples
has two young children (both under ten yrs. old)
4.7
Almost
all of DE/TE’s projects are steel framed construction
4.8
Teeples
hired a recent Auburn Building Science graduate in August.
4.8.1
He is
generally very pleased with the new employee’s performance
4.8.2
The
recent graduate goes almost everywhere with John Teeples and effectively
accomplishes the lists of tasks he is asked to perform
4.8.3
Teeples
feels that the success of new employees relies 90% upon attitude and
compatibility and 10% upon education, experience, and intelligence.
4.9
When
asked about his opinion of Auburn’s Master of Building Science degree Teeples:
4.9.1
Wonders
if it is any more valuable than a year of actual work experience with a
contractor
4.9.2
Thinks
that the degree might give students a glimpse of a “bigger picture” to aid
in overall understanding of construction
4.9.3
Has never
had someone with this degree come to work for him, but is interested in perhaps
hiring one someday
4.10
When
asked about how to learn everything that one needs to know when working in
varying locations (regarding licensing and codes, etc.), Teeples explained:
4.10.1
Architects
and engineers are responsible for designing to code
4.10.2
The
various trades (subcontractors) generally address issues specific to the work
they perform
4.10.3
Licenses:
4.10.3.1
In
Alabama one needs a business license general contracting license, which requires
4.10.3.1.1
A
financial statement
4.10.3.1.2
Answering
a questionnaire
4.10.3.1.3
Taking a
test (the questions upon which seem, to Teeples, to be irrelative)
4.10.3.2
In
Georgia one needs a business license general contracting license, which
requires:
4.10.3.2.1
Taking a
test (the questions upon which seem, to Teeples, to be irrelative)
4.10.4
One also
needs to investigate any “special” local taxes that may apply to working in
specific locality
5.
After the informal interview John Teeples, Professor Williams and
Douglas Martin discussed the design and construction of the concrete Building
Science conference table on the fourth floor of Dudley Hall.
Sometime in the next several months Teeples will be building a new table
for DE/TE’s home office conference room.