By Peter Bush. We all know there are differences in the way each of us runs his business, but I'm not sure we could easily identify what type of business is best or most appropriate for ourselves. The question I've wrestled with is, Do I want a practice or an enterprise?
Eventually, I chose to make my remodeling business a practice. A practice implies a unique knowledge that's developed for the purpose of serving a specific clientele. It also implies that the person running the practice is what the clients are, in essence, buying. Practitioners include doctors, lawyers, accountants, dentists, and yes, contractors.
The alternative to a practice is an enterprise. Big businesses and franchises, which rely on many people to deliver their product or service, are an example.
Why it matters
How does being a practice vs. an enterprise affect your business? Take growth potential. You can only do so much yourself. I started out by myself and over the years added people until I had seven employees. At that point I was rarely working on jobsites. As a consequence, my wages went from billable to non-billable. As overhead went up, I gradually raised my margins, so that overall job prices came in higher. But if I increased margins too much, then I wouldn't get the jobs. And if I did get the jobs that would in turn increase my volume, it meant resigning myself to an altogether different role in my business, one I was increasingly uncomfortable with.
Being a practice rather than an enterprise also has a big effect on client expectations. While I was reducing my hours in the field I instituted a lead carpenter system. We had situations where change orders were generated that I didn't know about, and it cost us money. Withdrawing from the field distanced me from the product, the service, and the relationships. If you're only popping in for an hour or two a week, you're not there to hold the client's hand through the process.
But what I missed most was the creation of the product. For me, the actual work is a reward. All those factors led me to my decision to go the practice route.
Love or money?
All businesses measure performance in bottom line profits. When it comes to profitability, the earning potential of a practice is limited to the principal's ability to dispatch his workload. If you're going to be a one-man show, your volume is limited to what one man can do. The profit potential of the enterprise, on the other hand, is contingent on available staff. If you sub work out, your volume is limited only by what you can sell. I know I earn less by being so personally involved in my business. If I ran an enterprise, I would just sub out more work, hire more supervisors, and grow accordingly.
So what are the advantages of being a practice? Getting back to the parts of the job I missed was the main one for me.
More time isn't one of the advantages, though I have learned valuable time management skills. I try not to work more than 50 to 55 hours per week. Running a practice is a multi-disciplinary job. Along with working in the field, I try to make time for sales calls, estimates, financial reviews, and education. Time management becomes critically important when one person has to do multiple tasks.
Is there less stress? For me, yes. I look at stress as a state of mind. If you're in a place you want to be, and you feel as though you have some control, then stress is nil. I'm comfortable with my choice of how I run my business. I no longer strive to be something I'm not. I recognize my abilities and preferences and chart my course accordingly. Understanding the distinctions between a practice and an enterprise has helped me stay in tune with the systems I create. I'm now back to two employees and loving it. --Peter Bush, CGR, CGB, is president and owner of Bush Builders, Sevierville, Tenn.