tolled es Structuring your installed sales division

By Roy Burleson

TIHERE are numerous issues deal- ers must address before launching an installed sales program. Thorough consideration should be given to legal, taxes and insurance ramifications.

This article will not provide professional advice. Rather, it will briefly outline a few issues that shouldn't be overlooked by ownership, management and your professional advisors before launching or expanding an installed sales program.

One of the first issues dealers wrestle with is corporatc structure. Should the installed sales program be a separate identity or integrated into their existing business as a division or department? Many factors will come into play when making this decision. While every business is different and state laws vary, here are a few items to ponder and discuss with your tax, insurance and legal professionals:

Liability: A separate corPoration may help shield the primary business and its owners from possible liabilities incurred by an installation incident.

Staffing. Personnel issues are verY likely to create your biggest challenge once the program is launched. Finding the right person to run an installed sales business has been a challenge for many dealers that offer installed sales. Offering stock, ownership or profit sharing has helped some dealers with their staffing requirements.

If you feel you will experience high turnover during start-up, you might be able to reduce costs by structuring the installed identity so benefit packages aren't as costly. Because of the unstable nature of construction workers, a separate corporation could save money until installers prove themselves. You might be able to structure the program so the installed employ- ees are not "benefit" vested as quickly as core business employees.

Should your installers be emPloYees or subcontractors? If the product doesn't require a high level of skill to install, give consideration to using employees. If you are planning to offer insulation and after-paint products or other easy-to-install products, gorng with in-house employees is probably your best bet, especially if you have manufacturer suPPort and installation training assistance.

On the other hand, if you need installers with years of experience, you might want to consider starting with sub-contractors. Framing, roofing and siding would fall into this category. Complex installations require contractors with experiences that in-house installers may not possess. Using qualified sub-contractors as installers allows dealers to sell products and services that they might not otherwise be able to offer.

Service quality is another factor to take into consideration. Installed sales are value-added services. Since your service quality is important, utilizing employees is usually the best option. Control and profitability are usually enhanced when the dealer employs installers. On the other hand, many dealers avoid the initial expense of hiring installers by utilizing subcontractors until sales justify the expense.

Some products require installers to be licensed. Until the dealer becomes licensed to install those particular products, sub-contractors could be used to launch the program. Then sit back and watch your installation crews. Many installers would probably benefit by working for a company like yours, which provides you with a recruiting opportunity. And you have already witnessed the installer's attitude and skill level, which is a hugh recruiting benefit.

Workers Compensation Insurance. In some states, a separate corporation might be able to preserve a dealer's favorable modifier in the event of an installation accident. The separate identity might be able to stand-alone as its own business when obtaining workers comPensalion insurance. Some worker compensation funds limit the amount of installed sales labor to a small percentage of the dcaler's total payroll.

Sales Tax. When a dealer transfers product through a separate business or division, your state's laws might allow the tax to be levied at the internal transfer level. If not, the tax will be assessed at the customer's purchase price. This internal transfer could result in eliminating a tax on Your installed sales margin. This could be significant because most margins on installation services typically are in the range of 35Va to 45Vo. In addition, any tax savings enjoyed could helP you be more price competitive. Be sure to discuss this with your tax professional.

A growing number of builders are looking to their suppliers for installation solutions. The "installed" opportunity is real and growing every day.

All across the country, installed sales program are adding revenue and profits beyond the dealer's core business. To help insure a successful launch or program expansion. take a breath and look around before diving in.

- Roy Burleson is director o.f Builder Solutions for Guardian Builtling Products, Greer, S.C. Contact him ttt (248) 760-5791 o r royburle son@ bp. guardian. c om.