1. Establishing a business (suggestion: for easier reading: narrow your page margins to narrow the text for newspaper like readability)

Business risks:

    All business carries risk. Be it not earning enough inspection fees, or incurring too many expenses or a catastrophic unexpected liability that reduces or prevents making a reasonable profit. The inspection business risks and unexpected liabilities are typically, 1) not being able to generate and collect enough inspection fees, (i.e. revenue), to generate a profit, 2) unexpected liabilities or unanticipated expenses such as claims and lawsuits for professional negligence, physical injury, and/or property damage.  3) personal injury that prevents you from earning a living. 

    Physical injuries, property damage, and lawsuits do occur.  You can be sued, even without making an error or being at fault. You may be a party to a bigger lawsuit or you could be the only defendant. Claims and lawsuits cost time and money. You need to be knowledgeable and proficient in lowering and minimizing all risks. Legal bills and claim settlements can be catastrophic. Be knowledgeable, accurate and thorough in the performing your inspection services. To minimize errors and omissions, practice, Safety First, Safety Always, and carry insurance.

Who is likely to sue you - 

    If your customer does not feel you met your obligations in performing your services for them, they may sue. The more positive their feelings for you, the less likely they will be inclined to sue you. Clients who have not met you or have not gone on the inspection with you, are more likely to sue you.  If your customer was cheated by any party to the real estate transaction they may become disgruntled.  Disgruntled customers may sue you as well as all parties to the real estate transaction. Their attorney may be seeking "deep pockets" to mine for enough money to satisfy the attorney and client. Dishonest people may also sue in an attempt to financially gain from you and your insurance company.   Remember, even criminals and crazy people buy houses and need an inspection.

Ways to lower risk -

    Hire an (insured) attorney - knowledgeable in business and real estate transactions to help guide you in creating your business, and meet government regulations.  The attorney will help you create your inspection agreement and report. To help limit your liability, your attorney needs to understand the entire inspection process and how you interface with your clients.

    Hire an accountant to help you create your book keeping system and for working with your attorney to establish the type of business structure that is most advantageous to you, (corporation, partnership, sole proprietor).

    Insurance can reduce risk. Typically an inspector would carry several different types of insurance to protect the clients, property owners, and ultimately the inspector. Note that all insurance has limitations and you may not be covered under certain conditions. Inspectors usually also need life, healthcare, vehicle, business interruption, and disability insurance.

    Professional Liability Insurance which is commonly referred to as Errors and Omission Insurance, (E & O) is carried for protection against professional errors. 

    General Liability Insurance is carried for injury and damage risks associated with visiting a property; Actions such as people tripping over your equipment, or your burning down the property.

    Employee Bonding Insurance is carried on company employees in the event they become thieves.

    Worker Compensation Insurance is carried for employees in the event of personal injury at work.

Be vigilant for potential liability situations. remember: Safety first, safety always. Protect yourself and others.

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Type of business structure and business:

Many steps must be performed to create a business. You need to establish if you will create a sole proprietorship, a partnership, or a corporation. You, or your partnership or corporation may also select buying into an inspection franchise to jump start your inspection business.

Sole Proprietor -

    The main advantage to a sole proprietor is it is simple and does not require any legal action to start. You start immediately unless you need a  licenses to operate in your state.  Your money and the business money are one and the same.

    The main disadvantage to a sole proprietor is that you bear unlimited liability for you and your company. You are also more limited in what you can expense against your business revenue, so your profits are artificially higher and you therefore may pay more in income taxes.

Partnership -

    The main advantage to a partnership are that two or more people pool their money and skills, and decide how to proportionally share profits, losses, risks and time devoted to the business. Synergy exists.

    The main disadvantage are each partner takes full responsibility for all liabilities and you will need to get along with all your partners. Bickering, monetary and power struggles destroy partnerships. Also when things change, such as a partner's death, divorce, etc., the business will need to be dissolved and a new partnership agreement established.

Corporation -

    There are several forms of corporations. Each has unique advantages and disadvantages.  Consult you attorney and accountant.

    The main advantages of corporations are that you limit your liability to the assets of the company since the corporation is viewed as a separate entity, almost as a person onto itself. Corporations can also more fully expense certain costs, such as health care, that a partnership or sole proprietor cannot. Owning shares in the corporation allows easy transfer of ownership and avoid dissolving the business.  The business can potentially survive long after you are gone. Your accountant and attorney can help you in your decision and establishment.

    The main disadvantages to a corporation is that you have more legal restrictions that must be followed. You must keep separate bank accounts and you cannot commingle your money with that of the corporation. Taxes on profits can be higher with certain corporations, though most corporations are structured to only break even and pay no taxes on profits.  Failure to follow the regulations may result in the corporation being nullified and you are no longer are protected from liability. You become personally liable for all the corporation debts and obligations.  

Franchise -

    There are many home inspection franchises available. You still have to determine and establish yourself as a corporation, partnership or sole proprietor. The main advantage of paying and joining a franchise is that you may get significant training, continuing education, marketing and other support and expertise you otherwise may not have.  These advantages may result in greater profit but after paying franchise fees. 

Buying an existing inspection firm -

    There are always inspectors retiring or going out of business and may be willing to sell their business and expertise. Again, you still have to determine and establish yourself as a corporation, partnership or sole proprietor. The main advantage of buying is that you may get significant training, continuing education, marketing and other support and expertise you otherwise may not have.  These advantages may result in greater profit but after paying for the firm or the business. 

    The disadvantages are you will be on your own after your agreed buyout. You have no guarentee that you will be as successful as the previous owner as personality is a big attribute to the success of the firm. Buying an existing firm requires more cost, effort, and support of your attorney and accountants.

Other services inspectors can provide -

Inspectors can also do the following services if legal in their State:  Commercial building inspections, seller's home inspections, septic system inspection, water testing, radon testing, new construction inspections, ( plan, foundation, rough finish, final walk-through, pre-warranty expiration and other phase inspections). Though some consider this a conflict of interest, inspectors could also identify and bid on repair work and remodeling on their clients inspected property.  Real estate agents take a dim view of this practice as the inspector could "kill" the sale or take advantage of their client. Inspectors can also sway inspection clients to repair services and contractors that provide a kick back or finder's fee to the inspector. Many believe this is unethical.  Inspector can also sell warranties to home buyers, but real estate agents do this also and would not like the competition.

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Licensing:

Over the past decade more than half the States now require State home inspector licensing.  You will need to get licensed if required. Contact the State and determine their requirements such as education, fees, etc.. If your state does not required licensing; congratulations, you are now a home inspector, (No one in their right mind would hire you yet unless you are a good con-man). 

Many home inspectors also hold licenses in other related occupations such as plumber, electrician, builder, etc. It is always advantageous to have additional licenses, (or certifications), to promote your expertise and stand out and above your competition.

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What is home inspection:

Home inspection is a profession in the real estate "industry".  Inspectors are utilized by the public to report on the condition of a property. In lieu of any State licensing requirements, the inspector determines his or her own scope of what is and what is not inspected at an inspection. Furthermore, the inspector decides on what standards to use in assessing the conditions of a property.  The typical inspector usually uses the Standards of Practice of one of the larger inspector professional organizations such as ASHI or NAHI. Or you/they may strike out on your own or follow that of a franchisor or a major source of inspection referrals. Most standards are subjective to the opinions of the inspector. This is why two inspections of the same property will have differing results.

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Start-up costs:

    Safety first, Safety always - Do not quit your day job. The inspection profession is not easy and it is difficult to become lucrative in the first few years of operation.

    You need some basic equipment, a reliable vehicle, communication equipment, some inspection equipment, business and marketing plan and materials, lots of time, insurance.

    You will not be an immediate success. Have additional resources to live off. It can take years.  Some costs:

    Tools $1,000+ per year, Vehicle costs $4.000+ per year, Business insurance $6,000+  per year, Other insurances $10,000+ per year, Advertising $2,000+ per year, Communication $2,000+ per year. Office equipment related $2,000+ per year, Miscellaneous $5,000+ per year

    Many inspectors start their business under capitalized and lacking many of the insurance essentials.  They place their client in a harmful position. The client cannot collect from indigent inspectors for legitimate claims. i.e. you can't squeeze blood out of a rock!

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Book keeping/accounting

    Have your accountant help you create your accounting system. Your basic bookkeeping system is based on the w2ork of a monk in the middle-ages. The book keeping equation that the monk created is now referred to as double entry accounting: 

    Assets = Equity  (conceptually the total value (in dollars) of all the tangible things owned by the company must equal the total value (in dollars), given to the company by  owners and non-owners.  The listing of these items is called the Balance Sheet which is a snap shot in time of the value of the business. The Balance Sheet is one of the major financial reports periodically prepared to monitor the business.)

    Assets are all the tangible things owned by the inspection firm that have value such as Current Assets which are things easy to spend or trade in the short term such as cash on hand, cash in bank accounts and the value of the yet to be received inspection fees for work performed as well as other values still owed the firm, (called Accounts Receivable)., Long Term Assets are items such as vehicles, tools and other equipment that are not meant to be spent or traded for current assts in the short term which is usually less than one year. 

    Equity is made up of two parts, 1) what is owed others such as banks giving the inspection firm a loan, suppliers and credit card companies, lawsuit claim payments awaiting payment by the inspection firm for goods, services, and settlements rendered. These are all called Liabilities.  The second part 2) is called Owners Equity which is the residual owned by the owners of the inspection firm, depending on the type of business structure, be it sole proprietor,  partnership, or the inspection corporation's share holders. 

    Another report the monk created was the Profit and Loss Statement where the dollar amount of Revenue less the dollar amount of Expenses equals Profit or Loss,  (R-E=P or L)

Revenue are the value of the sales, known as inspection fees in the inspection business. These are the fees in dollars earned in a given time period.

Expenses are the value of goods or services spent or used up by the inspection firm to produce the Revenue.

If the dollar amount of revenue exceeds the dollar amount of expense then a profit was made. If expenses exceed revenue, then a loss has occurred in that time period.

Your accountant will help you further create the system. Ledgers and Journals are lists and records that help list and record the accounting transactions and create the Balance Sheet and the Profit and Loss Statement..  Your accounting system records in parallel to your actual business activity.  You must keep both up to remain successful in business in the long term. 

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Employees:

Love them or hate them. We need them to make more money.  Most inspection firms do not have employees, but have inspectors who are typically owners or they use sub-contractors. If you have employees then you need to let them know what is expected from them and what you will provide. Business risk is to be controlled. Contracts need to define and detail everyone's duties and obligations. 

Compensation through life cycle of employment, training, taxes, non-compete clauses

Marketing and advertising duties. business cards, 

Insurance and risk mitigation, 

claims

professional association and continuing education

other policies

clothing, equipment,

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Marketing plan:

As a new inspection firm you have no clients. You need to generate business so you must market and advertise. Many how-to books are available to help you create a marketing plan and implement it. You will continually be analyzing your plan and adjusting it. A great man ssid 

First you need to name your company.  The name should meet the needs and expectations of those who refer you as well as meet your needs. Always have a good story to relate about how the company or company name was established. 

Second you need to develop a communication system so that clients and potential clients can reach you. Land lines, cell phones and the internet are prime methods.  Easy phone numbers help. Make yourself readily accessible through phone, e-mail, texting, etc..

Have various sales pitches you can make when called to do so.  Listen to potential clients and then sell them on why they should hire your services.

The majority of inspectors get their inspections through referrals from real estate agents and their brokers. Once you build a clientele and  reputation, repeat and client referrals may become a larger portion of your business. Another source is the seller of the home you are inspecting. If they like what you did they may call you for their new home. Everyone you meet are potential sources for referrals. Pass out your business card liberally everywhere and also at inspections. Have a short sales pitch to make a sale at any time. 

Give presentations at real estate offices to generate referrals. Give them information they can use even if they do not use your services. Do not keep selling you business. The presentation needs to be about them, for them and only subtly sell your services.

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Advertising:

Before, during and after the sale. Telephone, newspaper, church bulletins, radio, television, and internet allow advertising options.  Real estate offices may also accept your advertising in their brochures or may allow you to place your brochure stand or business cards in their office public areas. 

Past clients and current real estate agents can be periodically contacted to help develop new business and business leads.

Client relationship:

The inspector create a system and procedure to sell potential clients on using his/her services, schedule the services, perform the services, follow-up on the services and continue to remain in contact.

The entire process helps maintain the quality and order in client relationships. Client information, inspection location information, time, date, emergency contingencies, etc. are to be routinely obtained and recorded to best marketing advantage.

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Equipment:

Inspection tools and equipment, followed by office equipment, reports and forms

The basic inspection tools and equipment:

Additional desirable inspection tools and equipment:

Protective tools and equipment:

Emergency tools and equipment:

Marketing tools and equipment:

Office equipment, reports and forms

 

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