The Huddle - Episode 79 - Pros and Cons of Subcontracting; Tax Season

This week the guys go over the pros and cons of doing subcontract work, especially during this time as we approach tax season.

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The HUDDLE is where the flooring industry can get together and talk about everything! Lead by Paul Stuart from Go Carrera who is joined by Daniel and Jose Gonzalez from Preferred Flooring.

https://www.preferredflooringmi.com

https://www.stuartandassociates.com

what's up flooring family welcome to the Huddle come to you every Tuesday 3

o'clock Central to discuss maintaining forward progress in your flooring

career with me today as always Mr Daniel and Jose Gonzalez out of Grand Rapids

Michigan we are new tech technology today so sorry

we're late a little bit but's it going fellas it's going good my brother's going to come over here because we can't

figure out the new technology yet yeah we're getting

there so so to get started kicking off the new

year uh we figured what better uh topic to talk about than taxes

take your headphones off so uh today's topic is pros and cons of

subcontracting and um you know this time of year tax preparation that kind of

thing now we're not accountants or um financial

advisors but so take this as entertainment purposes um or just uh consider it as

a um lessons that we have learned or

have experienced and we're sharing our journey so do not take this as Financial

advice but I don't think we'll get in too much trouble by saying pay your

taxes and uh preparation in doing so uh

so to start off with though the the part of the topic that leads up to this is

the pros and cons of subcontracting so at my flooring company we have both

ourly and subcontractors I know that preferred floring does as well

and uh the purposes of having both for us is quality control as well as uh

control in schedule more flexibility with our in-house

guys um I also believe in training a lot so if we can send people to training or

or make sure that our crews are better trained um it's just frankly um an

easier thing to do with um you know in-house employee installers

so pros and cons guys what's theh what's your initial take on um becoming a sub

contractor I would say um you do have quite a bit of Freedom

right like it's really up to you how much work you want to take on or how

little work you want to take on the type of work you want to take on you can be

pretty fussy um if you select to be um I would say that that was and you you can

you can choose who you work with or work for that's a little bit easier as

well yeah those are great points um one of the big things I think that is

appealing is having some flexibility to your schedule uh to people I think one

of the other appealing things is uh you know doing doing the work you love the

most you can kind of choose to do if you're you know a carpet guy you can choose to do just carpet yes you know

and there's plenty of guys that I mean some of the guys that we use we use them strictly because of that that's all they

do so anytime we have that project it's like our a highend residential piece

this is who we're calling yeah yeah um you can build a a reputation around that

so I know that's appealing and that's a great point it is you you find um you

find people willing to work with you and be part of your team who may have strengths that you don't and um I think

part of the the hardest part about that is is just recognizing that hey someone is more efficient than you someone is

better than you but then also recognizing that there are people out there that that are are in fact um

really good at what they do and if they're more efficient than me then it doesn't make sense for me to struggle to

uh to have our guys go and do something that we have someone else available to do so that's what we were talking about

uh we had a meeting this morning and we were talking about you know some projects that are coming up that have

some ceramic tile on it and I was like just one of the last projects it it had two bathrooms and I said if we were to

do it it'd take us you know 3 4 days they got it done in two half days yeah

they just know they just know and they can you can specialize so

obviously that's a um a big plus

um another benefit I think or another appealing thing of becoming a sub is

what you mentioned Jose is you can kind of work with the people that you like working with the most uh you know if you

work for a company by the hour I mean technically you can quit and go to work for someone else but you know working

for other people as a sub doesn't impact the resume the way that working for 15

companies by the hour over the course of a year can impact the resume so you know

you you have more freedom of who you work with and and enjoy working with and doing the type of work you enjoy um so

those are all great reasons to become a sub or to be a sub I mean you know I know plenty of guys that really

specialize in she vinyl and and Flash coing and heat welding and that's what

they enjoy doing and that's what they're the best at and uh I also know some guys that wouldn't touch it with a 10- foot

pole but can do ceramic tile like you wouldn't believe so um you're not don't

have to be you don't have to be as um you know varied in your skill set um

necessarily not to say you don't need to be a problem solver certainly you have to be a problem solver but uh you don't

have to you can kind of like I said just uh hang out on the uh discipline that

you enjoy doing the most floor God in the house um

so when you talk about Subs it's it's hard not to talk about the money that I think is another attractor for a lot of

guys this one is where I think the most pros and cons come into the

earlier uh items you did you mentioned uh Jose

was I think really positive reasons to be a sub like they all make a lot of

sense and very little full or um wh Whiplash from that or or cons to that

when you start talking about the money you do have to start to then be understand it's more of a business

business um Acumen that you need to have there's there's more things you need to

consider um you know being this time of year I talked about taxes already but

I'm going to just dive into that a little bit more here in a bit another thing that you need to learn to track

that you don't have to typically as a hourly guy uh or not so much is the

expenses on the on the project like what are you spending money on how much gas

are you spending in what's your you know vehicle payment do you have a shop

what's that like understanding your cost to do business what's what's overhead and what

is job cost and separating those and understanding what you need to

make to cover those those overhead and uh project cost and if that confuses you

a little bit there is a program out there called The Sim program that will actually help you understand a lot of

what he just said sorry just little plug in there for that yeah well that's that's a good

point and that that program does go into it pretty well I've read through the the

manuals that our guys who got Sim certified um brought back and there's a

lot of good info in there about that and I would say that one one thing to

understand your main difference one of the kind of the Frameworks I I'd put

around overhead versus project cost is if it's if it's something that's going

to incur whether or not you're working or not so your rent or your

utilities employees can be can fall in that as well um and I I say non nonpr productive

employees maybe a bookkeeper who works for you or if your wife is your

accountant and you're paying her uh those types of deals those are overhead

cost member member number four this is Luna yeah

Luna she's back here whining so I figured I better pick her up before she's gets Lun is gonna teach us some

stuff about being cute so um yeah I I look at it like if

it's not directly project oriented that can get confusing because then is your

truck you're driving it mainly for work is that a project cost well the gas to

get there can be but the truck itself you're going to incur that cost next month anyway whether you land a job or

not so it's kind of a oversimplification but maybe a good framework to think

about it in um and then you got taxes and we are upon that time of year where

the profit that you've made um I think in a previous episode we talked about

this but putting a certain percentage figuring out kind of even if you just get close figuring out which bracket you

think you're going to be in and then pulling that money back and saving it uh doing that on a weekly or monthly basis

versus trying to come up with a large sum at the end of the year uh or making quarterly payments into the uh tax

entities so that you know you don't get hit with a huge bill at the end of the year uh those are are all pretty good

practices that I think that would be supported by the you know governing

entities but what what are your guys's thoughts around that because it was one of the things that really caught me off

guard early on thing that catches everyone off guard and you kind of uh I

think when everyone start they don't really realize how much of it actually

has to be put away so they're just guessing right and

if you really look at um the documents that the government provides they

actually give you a table and everything to say if you're making this much this how much you you you should be paying

but that that's all without deductions right so that's without your kids and without your house and whatever other

deductions that you have but still um we we want to say it's the we I think we

stuck to 30 percentage was I think we started 33 right like trying to overdo it but

then 30 ended up being a pretty good sweet spot to plan ahead yeah I'd say that's

um I mean what do you got to lose at the end of the year if you don't pay it all the way in you got money left over in

your account um much different than when you're getting as an employee the

employer handles that and pulls the money out of your weekly paycheck and

then forwards that to the government um and you often would get a refund or a

lot of people would get refunds well my stance is one of the benefits of being a sub in this manner is if you if if

you're over allocating to that at least it's in your hands and not in the

government's hands until they decide to give you a refund right so that's kind of a benefit

if you do it right as a sub put it in a tax bearing or a interest bearing

account that's liquid you know and a lot of a lot of

people will put it into a CD earn you right now pretty good rate you know five six yeah yeah and uh you put that in on

a monthly basis and buy six month CDs and uh depending on the minimums for

those but you can have multiples um and then you're earning interest on your money while you're waiting to pay it in

and then when you pay it in every quarter or every year however you choose to do it you got the money whatever is

left over you just don't liquidate and uh you keep it and it keeps growing for you

so the to me that's a benefit you're keeping your money you're not because

essentially when you get a refund the government's not giving you any money they're just giving you your money back

that you overpaid so I I I don't know why but when I was younger in my early

20s I was like yeah I got you know it was almost like yeah like and the

government puts it that way that too they treat it like it's a gift to you um because that's how they want you to feel

in truth they're over there earning interest on your money and every bit that you overpay and

so as an employee you set your deductions you set all that up with your

employer on how much you want pull from your check every week if you're getting a huge refund uh you might want to

reconsider you know whether or not you want that much taken out and readjust to

me it was uh after I figured it all out it was better

to still owe money at the end of the year even if it was just a little bit

then for me to get a big refund I didn't want I I got to where I didn't want a big refund even working by the hour I

figured that out after a couple of years and I was like shoot I'd rather have all

my money as much money as I can possibly have right now and at the end of the year if I owe a thousand bucks I owe a

thousand bucks um so plan accordingly the the best advice I can give you is

get an accountant you know get an accountant talk about your business talk about how

you uh I I went three probably three years in without an accountant I just I

had a sister that did taxes and I didn't have an accountant get an accountant

make sure you're uh you know communicating with them and you're

turning in your documents your receipts and your your expenses and things like

this note which job it's on you know try to have a pseudo p&l at the very least

um but working with an accountant on your your taxes is the best practice and I thoroughly thoroughly encourage it and

don't take anything that I said um as as

gospel that's just where you found your the best success for you right you found your stride with that yeah and um I

think um early on when we had uh let's say before we

had an actual accountant try to do everything ourselves through the um turbo tag Turbo Tax and and

holy like the estimating the taxes and all that you know Turbo

Tax that's all it is is recommendations right I don't think there's any there was nothing exact there was no because

it can't do projections for you right it only can base everything off of the previous year um and we've been wrong on

both sides positive and negative um and let me add to that too the taxes the insurance too like you're a small

business but you do have a couple employees um I think we've been hit with a pretty large insurance bill um after

the turn of the or after the renewal as well um because we didn't plan ahead for that we didn't plan accordingly for that

either or didn't pay enough um so so that's a little off track but I just

want to throw that in thereo no it's it's perfectly on track actually I mean insurance is one of the biggest uh

expenses you have as a business and we're talking about what a what the pros

and cons are of being a subcontractor so oh yeah yeah insurance is right there

with with taxes um insurance

is particularly um it's important that you

understand the the rules in your area for insurance and that you consider if

you're going to hire a guy pay him cash and do this whole $199 exempt he's

exempt I'm exempt they're exempt you you are flirting with some

danger I'm going to 100% agree with that um so um I I would

say make sure that talk talk to an accountant and um they'll help you with

insurance as well and understanding they're not insurance people but they'll certainly help you understand some of

the consequences of not paying it also uh the deductions that come along with

paying it so it's not you know it's a it's a business expense so you know talk

to your accountant but in most cases that's going to be reducing your taxable

income and I I think what people just need to realize is that insurance is something that you're going to have to

provide and you're never going to get away from it like yeah it's it's nice to

want to cut cost and everything but the deeper you go into everything like all

right say you you do start off as you know working for someone then you're like I want to get my own jobs and I

want to work for contractors and stuff like that and then guess what now you need this insurance guess what your

limits go up and now you need to provide um you you need to provide them on the

insurance right and it's additionally insured and it just goes on and on and then it's an umbrella insurance and then

like I of segregation and everything goes along with it yeah it's

like you're you're never going to get away from it it's it's it's something that you just have to embrace and if you

embrace it early on you're going to be far better off um I mean everything is just it's an

like just like everything it's an additional cost I don't think we've ever worked for

a company that didn't require like the bare minimum I we're talking about insurance to be

clear we're talking about liability insurance health insurance and all that is a whole different kind

of ball of wax but if you want health insurance it's another cost you need to

be thinking about when you're biding your work yes the insurance we're referring

to is liability insurance so that if you uh you know throw your kicker through a

window on accident that that $20,000 window is now covered by your liability

insurance ins and it will be $20,000 guys it will be and you are not

personally going to have to cover that um

but the insurance that you need is going to depend on the type of work you're

doing uh like Jake says it's expensive all the insurances add up real quick

there's no doubt about it uh at the bare minimum you're going to have to have liability insurance if you're working by

yourself for a company or even for a homeowner you definitely want that I

mean if you just think about any number of things that can go wrong on a job or

you don't put your car your van in park and rolls back and smashes well that's

going to be covered and this is where Insurance gets complicated that's probably covered on your vehicle

insurance but if a piece of equipment falls out of it and then rolls down and

smashes the car then your liability insurance is probably the uh coverage so

Li insurance is just that it's to cover your butt on the things that may happen so you do have to have

it um I see some comments about going through wife's insurances that's more

than likely uh in reference to health insurance costs and not on liability

insurance cost liability is just that the liability that you're covering the

risk of being on a job site doing work that's what that covers work comp

covers injuries on that job site so if you don't have health insurance you darn

sure should have work comp on yourself if you do have health insurance then it

might make sense to exempt yourself from work comp insurance so a lot of this stuff is really

um there's some there's a lot of times overlap and you're double paying for

some things uh and that's okay but you know it's also very important to

understand what is re absolutely required on a job is liability and work comp uh you as a if you're an individual

installer and you don't have anybody working with you you don't have to have work comp you can exempt yourself I

think that's silly if you don't have health insurance though if you get a major accident you cut your finger off

on a job site then work and you're covered on your own work comp insurance

then you're covered unless you're one of those people that get hurt and pull a ladder over you and say it was the

electrician's fault then and then go that route but don't don't try to do anything dumb like that yeah uh you

know good a good point here make sure that your tools are covered

um that's content like the contents in trans I think they call it uh equipment

in transit each yeah equipment in transit has uh different terms for it but that's a good point Thank you Jake

for bringing that up appreciate the comment um making sure your tools are

covered or equipment in transit materials in transit if you're picking

up materials from uh Florida core for a homeowner and you get an accident on the

way there or your St s break and you

disperse uh all the materials onto the highway you need uh materials and

Transit coverage either on your auto policy or on your liability policy again

getting with a good insurance company we're working with um at go career working with Federated hopefully uh

we're talking to State Farm we're talking to a bunch of different fir uh I name them because they're all the major

names and trying to work out some packages for any go carera um uh

installer members to have access to professionals who can guide you in this

manner um but definitely you need to make sure you're talking to a pro on it

yeah and it's it all depends on the insurance agency right because we used to work with a local agency and they

were I mean they still are great I still use them for my home insurance I'm pretty sure you do to I've been with them since I was 18 years old we just

switched over to Federated not too long ago and it just they get more in depth when they when they you know do their

site visits here go through the warehouse make sure that everything is

uh is covered and they they get more in depth on the in transit stuff what's covered in the warehouse what's covered

under this policy what's covered under this policy oh your machines are in the warehouse but they're still covered

under this this blanket over here so you don't have to worry about it over here and it's just you know getting someone

that knows exactly what what is going on yeah so kind of closing this out

um I would say that you know making sure that you check all the you know

requirements of your area for insurance all the requirements in your area for taxes and then plan accordingly get an

accountant and get a a uh uh insurance guy that's the I I I don't even know if

it's a con for being a subcontractor it's just one of the things you need to be cognizant of the only con I can see

in being a subcontractor is probably the biggest con is the companies who have hourly

installers are always going to keep those guys busy first and you will be second so um I think that's probably the

the biggest con of all is or the biggest downfall of all is the fact that when

the work not there you're probably going to be the first installer to not be

working especially in an area that may have some hourly now if you're down in

an area that it's just Subs it's just you versus another set of subs and so

just make sure your quality is up there your communication you're you you're performing at a high level and you're

going to stay busy uh quick question came across what's go Carrera go Carrera

is a a network of installers uh you can sign up at goar.com

and the purpose of that is a you can find new work on go Carrera through uh

member companies and uh bid work there set your pricing um it's

also um it's also a great platform comment

come up Subs versus Subs here um anyway so go career also work working to

provide a lot of other uh tools for the installation Community from insurance

opportunities to uh get better in insurance rates um we have some

trainings coming down the pipe on some some Financial Training on how to run a

business uh you can sign up as you see here on the screen at go career.com

and join the Brotherhood the digital Brotherhood of installers where we're working to elevate our trade we're

working to elevate the installer uh me being an installer most of my life uh

it's been a platform that I've wanted to build and um have a huge benefit to the

installer the first purpose is and really our Mantra is what's good for the installers good for the industry so you

can find work on there you can bid work uh it's a great platform for um you know

we're going to be adding some communication features where we can communicate back and forth but if you're

doing project over the go career network with one of the go career member companies there's a lot of tools in

there that helps you protect yourself helps you with communication and

documents um you know keeps everything simplified in one space right that that's what a lot of um so we we talk

about the cons and and the pros and cons and I think one of the cons is is that a

lot of people get into the subcontractor space and not knowing how to organize everything and keep the business as

business we talk about bank accounts insurance and then just talk about paperwork in general how do you keep

everything organized and go Carrera helps you streamline that by keeping it per project you know these pictures are

automatically in that project you want to see them go back to that project look them up and Paul's being very modest

about about his about this platform you guys he's just trying like if this was around when I was younger and we were

starting out as Subs it probably would have been a little bit easier to find

work outside of my area and be and and feel comfortable going and traveling to to those other areas and that's where

the subcontractor a pro about it if you're on the network you can find work

somewhere if you don't have work in your area now you have access to this full Network um and as long as you fit the

criteria you'll have you could you could have a project available for you if you don't mind Trel and I think one of the

the good things about is you were here a couple weeks ago right and we started talking about you know employees on

there as well like you can you can be a subcontractor but still have your own employees and still keep track of them

and their projects that way too so it's uh almost on both sides right you're

subcontractor still have employees and keeping track of everything Allin one platform if you're a sub and you got

employees you can add them to your team share the project documents with you

with them the installation instructions and whoever gave you that job whoever's

work order it is that produced it you can chat with them live uh it just helps

a lot with your job site communication and covering covering yourself on change orders if you get a change order you can

or you have additional work on a job you need to do you can submit a change order right through the platform within I'm

talking two or three clicks and you've submitted a change order so it just

helps with protction of the subcontractor to not have uh verbal

communication okays or yeah go ahead and do that kind of thing and then not get

paid for it it just documents all that so it's a good platform we're working

real hard to add more work to it that's part of our Focus here in 2024 to add

more opportunities uh I talked to a guy that's on the network that wants really

wants more work on Across the Nation because he wants to travel and we've

talked about this too he wants to do a trip like travel and cover these work

orders um I think it would be freaking fantastic and cool to do that myself you

imagine going to Yellowstone or something and just picking up jobs on the way and three four weeks you're

working doing a little bit of job here do a little job there um we do have some success stories where guys have been in

one area the job got pushed for a couple days they picked up a job in that area covered their their couple days of

downtime earned a couple Grand went to the job that they were originally on didn't lose any time any of that I want

to go too [Laughter] Christopher so with that uh I hope we've

kind of you know at least given a high level of like the pros and cons of of

being a subcontractor there's not a lot of cons if you run run your uh

subcontracting business as a business um where I have seen the most failures is

when guys treat their subcontracting business like a job and they don't pay

any attention to the taxes they don't pay any attention to the insurance and proper coverage and they don't spend

their uh time as the business owner in recruiting and training new installers

to help their business grow you are a people business your people are made up

of installers of other other trades people and you want to be able to hire

these uh qualified uh you know starting people that are coming into our industry

and then train them up and then you can handle more work and know that they that's exactly how you guys have started

Su you know your success path right that's how I started my success path was hiring other uh installers paying them

as either employees or fully paying them as a subcontractor no$ 1099 like oh you

don't need insurance I'll pay you as a 1099 nope if I paid anybody as a1099

they are going to be um if if I paid anybody as a1099 they were going to be a

full sub they were going to give me insurance and if they had people working for them they were gonna have to uh have

uh uh work comp insurance all that kind of stuff so you know just run your stuff

that everybody asks of you like if you're if you're submitting that you paid out that much this much money to so and so then they're going to ask for

those documents anyway okay do you have their their information where are their documents um it's a trickle so so I'm

going to answer Chris's question real quick I think uh to answer your question

all you got to do is sign up for for an account and then go on the map to see if there's anything local to you if not um

I I'm sure you can reach out to what is it support goo.com and ask to be put

into contact if anyone is in your area so that way at least you have some contacts in the area yeah if you sign up

Christopher and then uh you can explore the map and see if there's any work in your area uh that doesn't mean there's

not a company it just simply means that maybe that company has all their work uh

covered at the moment um but you can explore work in that area or any area uh

that you please I know that there's some work orders that have been published in down in the south east there's been more

here over the last 48 hours even so it's growing and we're going to continue to bring them what we want to do is bring

you the opportunity the the work order is going to have an amount on it buy the

item you bid it the way you negotiate it the way that you feel is best suited for

you and if you have a strong profile the best thing I can tell you guys to be successful on go careera is have a

strong profile what that means is you

you want to get trainings that are going to increase your Hammer rating and bolster your experience if you're both

experienced and well educated in flooring you're going to have a good profile you're going to have a strong

Hammer rating you're going to qualify for a lot of work if you don't every opportunity that you get on the network

do a great job because then you can get kudos which will earn you even more work so we're working on there's a lot of

deals there's also a deals page on there for everybody's uh information that you

can go in and get discounts off of tools and stuff and we're going to really bolster that this year so um I'm going

to close this out we're trying to keep our uh new version here this year a

little bit shorter uh and as concise as possible so thank you for everybody

who's commented and um everybody who's um you know uh chimed in today we really

appreciate it guys any um closing thoughts on success for Subs because I I

almost think it's more of that than than the um go ahead I think um what

people thank you we've been saying that for years

yeah but I I think what what people need to understand is that uh they they only

look at the dollar signs that come in as a subcontractor and they don't look at the expenses right and that's a huge

deal of what we talked about today is yeah you get more more money but you also have to pay more money out and I

mean in some cases you know there's years where people say you know you're always meant to make money but there's

there's a couple years where no we did not make any money that year because the expenses outweighed you know the revenue

and that that's when you look at things as a as a from a business perspective and say what can I do in order to cut

cost somewhere make money but still be productive and it it is it's a business

that you have to run it's not just I'm going to go get as much work as

possible you got to cut cost you got to get better be smarter be more efficient find people that work harder than you

there's a lot of things to do right um yeah well I mean you're in a free market economy at that point and that's what if

you work for a company that's what they're doing finding ways to get Co expenses down uh you know make more

money get more Revenue do it if efficiently all these things

um just like J says it's an investment right yes and it it's that's what you have to look at it like any money that's

coming in like even now I mean we're what 13 14 years deep almost and we're

still constantly reinvesting because you know people think oh you guys are making all this money it's like no we're

constantly bringing it in and it's going out because we have to do that gotta re man got got to recharge man every every

every moving is is part of your battery for the business and you got to look at it like that got to keep everything recharged and work in order um I would

say for it for for my find my closing is um grind just grind

like in the back of your head if you're competitive man just just know that somebody out there is willing to work

harder than you you gonna let them win just grind yeah you gotta work hard for

sure that's a great point and uh you know speaking of Investments I know that wasn't necessarily the uh topic but you

know the third part to this is if you can put 10% of your money back and

invest it I don't care how simple you get uh talk to a financial adviser but

if you just over the last 30 years invested in the S&P 500 an index very

easy to do on your cash app it's like you're up you're up and to the right

significantly today versus 30 years ago so you know talk to a financial advisor

and reinvest your money as well invest it back into your company invest it back into yourself invest it back into your

employees and you guys will be better companies for it we'll all be stronger as an industry together and um I hope we

play a small part in uh part in helping you guys do that here on the Huddle so

with that I'm going to sign us out um happy New Year guys I hope everybody's

got a uh a great year planned and uh let's knock it out of the park this year

sounds good we'll see you guys next week thanks for joining us again thank you everybody thanks for joining if you caught us on any of the socials please

give us a like And subscribe I need to get better at at uh at yeah Shilling our

our Channel now comment H tell us something

appreciate all the comments during here thank you to everybody in the audience and we'll see you next

week