A discriminative study of methods of organizing and operating a plumbing and heating business

253 Pages·012.029 MB·English

by  Griffin, Harvey E

A DISCRIMINATIVE STUDY OP METHODS OP ORGANIZING
AND OPERATING A PLUMBING AND HEATING BUSINESS
A Thesis
Presented to
the Faculty of the College of Commerce
and Business Administration
The University of Southern California
In Partial Fulfillment
of the Requirements for the Degree
Master of Business Administration
by
Harvey E. Griffin
August 1950
UMI Number: EP43299
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This thesis, written by
under the guidance of h%3.... Faculty Committee,
and approved by all its members, has been
presented to and accepted by the Council on
Graduate Study and Research in partial fulfill­
ment of the requirements for the degree of
ines s...A.^inis.tratio.n....
Dnte AURUSt 1950
Faculty Committee
Chairman
d\-€-X'
J
TABLE OP CONTENTS
CHAPTER PAGE
I. THE PROBLEM AND DEFINITIONS OP TERMS USED . . . 1
The pr o b l e m ..................... 1
Statement of the problem................... 1
Importance of the s t u d y ................... 2
Definitions of terms......................... 3
Small business.............................. 3
Plumbing and heating contractor........... 3
Plumbing and heating business............. ij.
Lack of previous study.......... I4.
Sources of material......................... ij.
Organization of the remainder of the thesis . 5
II. PERSONAL QUALIFICATIONS ....................... 7
Outline of summary and conclusions........... 7
Technical competence ....................... 10
Business ability ........................... 11
Partnerships for diversification of skills . 13
Personality and success................... llj.
Reasons for failure....................... l6
Types of beginners......................... 20
III. THE FORM OF ORGANIZATION....................... 23
Outline of summary and conclusions........... 23
Individual proprietorship................... 25
CHAPTER PAGE
Advantages.................................. 25
Disadvantages.......... 27
Partnership.................................. 29
Advantages.................................. 29
Disadvantages .............................. 31
The corporation . *................ 33
Advantages......................... 33
Disadvantages .............................. 3^
Limited partnership......................... 36
Advantages.................................. 3&
Disadvantages..................... .. 3 8
Comparison of the forms of organization in the
light of federal income t a x e s ............. 39
Amount of anticipated earnings............. Ij.3
Income from outside sources.......... lj.5
Amount of salary paid to stockholder-
employees................................ Ij_7
Retention of earnings in the business . . • I4.9
Penalty for unreasonable accumulation of
earnings.......... .. . . ............. 5>0
Tax on corporate liquidation............... 50
Payroll taxes on owners ................... 5l
Capital gains and losses ................... 53
Switching the form of organization........... 53
iv
CHAPTER PAGE
Partnership to corporation................. 53
Corporation to partnership................. 55
Combination of business f o r m s ............. 57
IV. HEATING AND PLUMBING RETAILING................. 59
Outline of summary and conclusions........... 59
The showroom.............. - . . . 6l
Advantages of a showroom................... 62
Disadvantages of a showroom............... 6J4-
Use of the wholesalers display room . . . . 68
Handling additional lines ................... 69
Additional line categories ................. 69
Factors to consider................ J1
Selling goods through window displays . . . . 77
The sign . ................................ 78
Make windows build sales................... 78
One idea at a time......................... 80
Store name inside window................... 80
Prices on goods in w i n d o w ................. 8l
Kind of window displays.............. 81
Single article displays ................... 82
Display of special articles . . . . . . . . 82
11 LineH displays.......... 82
Displays of related articles ............... 83
Displays of service facilities............. 83
V
CHAPTER PACE
V. SELECTING A PROFITABLE LOCATION......................8I4.
Outline of summary and conclusions . . . . . . . 814.
Selecting the t o w n ............................. 85
General economic conditions . . . . . ........ 86
The size of the community and its tributary
population.....................................87
Buying power of the community....................89
Competition.......................................90
The town as a place to live......................91
Selecting the district within a t o w n ............. 92
Nature of business determines location . . . . 92
External conditions ............................ 93
Market conditions .............‘............... 93
Outlying shopping centers . . . '................. 94
Selecting the exact s i t e ..........................95
Competition.......................................96
Traffic..........................................101
Transportation ................................ 102
Location in the block...........................103
Leasing..........................................lOlj.
History of the site......................... . 107
VI. FINANCIAL CONSIDERATIONS ......................... 108
Outline of summary and conclusions.............. 108
Capital requirements ............................ 110
vi
CHAPTER PAGE
Fixed vs. working capital................ Ill
Capital requirements v a r y ................... 112
Factors to consider......................... 11$
Operating ratios ............................. Il6
Sources of capital............................. 120
Financing by friends and relatives.......... 12lj.
Financing through partnership or in­
corporation ................................ 125
Financing by commercial banks .............. 125
Relations with the banker . ............... 130
Trade financing............................. 133
Miscellaneous sources of funds.............. 13li-
Financial management........... -............. 135
Insurance . . . . . 136
Credit management......................... 138
Cash planning....................... li^.6
Record keeping ......................... 151
VII. FIXED AND VARIABLE COST CONTROL.......... . . 154-
Outline of summary and conclusions............ 154
The variable principle...................... . 157
Stand-by costs............................... 159
Variable costs ............................... l6l
The break even chart........................... 162
Construction of the break-even chart . . . . 163
vii
CHAPTER PAGE
Value of the break-even chart............. 167
Distribution of overhead to j o b s .......... 168
Contribution to overhead................. 169
VIII. ESTIMATES, BIDS, AND CONTRACTS. . . . . . . . 17lf
Outline of summary and conclusions........ 17^
Estimating............................. 175
Methods of payment ....................... 176
Small repair jobs......................... 176
Large time-and-material j o b s ............. 177
Estimating remodeling j o b s ............... 178
Estimating new jobs....................... 178
Use of estimate s h e e t s ................... 180
Estimating labor cost..................... 181
B i d s ........................................ 182
Oral and written bids..................... 183
Clauses on specifications ................. I83
Contracts.................................... 18 ij.
Guiding principles....................... I8I4.
Contract forms . . . ................... 18
Mechanic* s lien............................ 186
IX. ' BUILDING THE BUSINESS......................... 189
Outline of summary and conclusions........ 189
Advertising.................................. 190
Local newspaper advertising............... 192
viii
CHAPTER PAGE
Other advertising m e d i a .........................19lj-
Customer prospect file . .........................195
Salesmanship........................................199
X. CONCLUSIONS AND RECOMMENDATIONS............... 201
BIBLIOGRAPHY.............................................. 203
APPENDICES................................................ 209