November, 2006
Feature
Inspection News and Views from the American Society of Home Inspectors



The BUSINESS of Being an Inspector

BRIAN HANNIGAN

(or how do I make money when I just want to crawl under houses?)
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Who are you?
You know, no matter how many buildings you crawl under, you cannot hide from the fact that you are more than an inspector. You are a businessperson. Everyone stand up and repeat after me “Hi. My name is ______ and I’m a (take a deep breath) BUSINESS OWNER.”  There. It is out in the open. Recognizing the fact is empowering! You own a business. The service that your company provides is an inspection, which is only one part of the bigger business picture.

Yet, the majority of business owners in this industry focus on just this one part of the business: the technical aspects of the inspection. They go to schools to learn how to inspect; they go to conferences to learn how to inspect; they spend time on message boards picking up tips, techniques and advice on how to inspect; and they hope against hope that the business will simply run itself and be profitable.

Don’t get me wrong; I strongly agree that you have to be well-educated and proficient in the service you provide because you will want to perform that service to the best of your ability; however, there is so much more to running a successful and profitable business than just being good at providing your service.

What you need to know

Before you can use your knowledge of inspecting, you have to put your marketing skills to work. You need to get out there to promote and advertise your business so that your potential clients can find you. You need to give them a compelling reason to call you. Have you put as much time and effort into learning this side of your business as you have put into learning the service you perform? Taking marketing classes and seminars could be helpful to your business, especially when the market is slow. Education and knowledge give your business a better chance to succeed. As a business professional, marketing is just another skill you need to have, and it is every bit as important as the knowledge of performing your inspection service. You can’t perform the service if you are not getting the calls.

What is your “mission statement”?
A business professional needs a clear understanding of the goals and objectives for the business, a clear “mission statement.” Is this business intended to be your livelihood—to produce income that will take care of you, your family and your future—or are you just hoping to go out and perform some inspections and get paid? For many, maybe even you, the latter is true. Most inspectors give 100 percent to become great inspectors, but put little or no effort into becoming great businesspeople.

The business is there to provide for you, your family and your family’s future. I don’t think anyone wants to take on all the liabilities and responsibilities of performing an inspection with nothing in return, but many do. In order for your business to provide for you, your business needs to be run professionally and profitably. In order to be profitable, you need to excel in knowing how to price your services. If you do not have a firm grasp on how to price your services and how to do it well, you may be
gambling with your family’s future.

Methods of pricing
Providers of a service can charge for their services in a variety of ways, such as a fixed amount for an entire project, an hourly fee or a sales commission. No matter how you bill clients, you first need to figure out how much to charge per hour—even if you charge a fixed fee for the whole project. You can’t determine how much your fixed fee should be until you know, roughly, how many hours the job will take and what you need to earn per hour to make it worth your while.

Business schools teach a standard formula for determining an hourly rate: Add your labor and overhead costs, and the profit you want the company to earn; then divide the total by your hours worked. This is the minimum you must charge to pay your expenses, pay yourself a salary and earn a profit. It’s important to use a reasonable amount of total hours worked in this formula, including both billable and office, so you still have quality of life.

How to figure out your fees
To determine how much your labor is worth, pick a figure for your annual salary. This salary must be enough to cover your personal life/expenses. Take into consideration things such as mortgage or rent, food, savings accounts, children’s education, vacation funds, family medical expenses, etc. Next, compute your annual overhead. Overhead includes all the costs you incur to do business. Most importantly, apart from income and self-employment taxes, overhead includes the cost of your fringe benefits such as medical insurance, disability insurance and a retirement fund.

Overlooking important considerations
Those three items (medical insurance, disability insurance and retirement fund) are probably the three most important and necessary expenses you will have as a business owner; however, they are often the three most overlooked considerations.

Without medical insurance, one accident or illness could deplete you and your family of every dollar you have.

If you have medical insurance, but do not have disability insurance, you may be in just as much trouble.

The majority of business professionals who perform inspections are sole proprietors. If they get injured or even develop an illness that prevents them from working, there will be no income and no way to pay the bills and keep the business alive until they can get back to work.

A retirement fund of some sort (IRA, SEP, etc.) is also necessary and needs to be included when pricing your services. We may all hate to admit it, but there will come a day when we either won’t want to work or can’t work, and we will need to have a substantial retirement account to survive.

If you are currently pricing your services just to cover your costs from day to day, but are not protecting yourself or looking out for your future, then “Yes” may be the answer to the question, “Are you really an inspector and not a business professional?” If so, it’s time to take control of your business and your future. 

Reward yourself for your expertise

You’re entitled to earn a profit over and above your labor and overhead expenses. Your salary does not count as profit; it’s one of the costs of doing business. Profit is the reward you get for taking the risks involved in being in business for yourself. It also provides money to expand and develop your business. Profit is usually expressed as a percentage of total costs. There is no standard profit percentage, but an eight to 15 percent profit is a common goal.

Finally, you need to determine how many hours you’ll work and get paid for during the year. You’ll probably spend at least 35 to 50 percent of your time on tasks that you can’t bill to clients such as office work, driving, marketing and education. This means if you still want that two-week vacation, some holidays and two days off a week, you’ll likely have only 950 to 1,250 hours for which you can get paid each year. Even those hours could vary greatly from person to person.

You may discover that your ideal hourly rate is higher than what other inspectors in your area are charging. If you are experienced, educated, highly skilled and performing work of exceptional quality, don’t be afraid to ask for more than others with lesser skills. 

“Low-balling” your fees won’t necessarily get you more business, and most likely will drive you out of business. You need to be fair to your clients, but you also need to be fair to yourself by pricing your services correctly and taking into account ALL of your expenses including medical, disability and retirement. Anything less and you are cheating yourself. Over time, you should be able to find a fee structure that enables you to get enough work, while adequately compensating yourself for your services and the liability you incur every day in business.

All of this sounds overwhelming, and, frankly, depressing.  But there is a simple solution to the confusion of setting fees and making a profit for your business. Taking control of your business is in your hands. Inspect your business first!