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View Full Version : Multi division companies: Those who use annual business budgets


BrendonTW
01-18-2012, 12:20 AM
And more specifically, for those who use budgets and have more than one division in their company;

We do lawn maintenance, pest control, irrigation, and landscape design/build.

I currently have only two "divisions" - Maintenance and Landscaping.

For data and reports sake, I plan to eventually break these off into four divisions - Maintenance, Landscaping, Irrigation, and pest control.

My question for now is this - How do those of you who budget for multi-division companies budget separately for these divisions? Even more specifically, payroll. All of our maintenance sales are on 12 month contracts, so I like to have an annual averaged budget for this. For landscape design/build and irrigation however, these vary big time from year to year on the dollar amount and time of year incurred.

I want to basically have two overhead per hour costs - One that I use to bid on maintenance services which includes my annually averaged budget for payroll expenses, and one without the payroll expenses added in which will be used to calculate the required dollars per hour to recover overhead for landscape installs. Actual labor costs will be charged to landscape install jobs rather than budgeted for in a year, since one year we might to $200K in landscape installs, and one year we may do 50k. It is not practical to budget for these figures in an annual budget.

Most of my overhead costs are the same for both divisions because I rent most of my equipment. (Excluding mowers, etc...)

Should I expense ALL of my payroll (maintenance payroll and landscape payroll) to my payroll expense account? Or should I expense the maintenance to the payroll expense and the landscaping to the cost of goods sold? It is important for me to have easily interpreted data for reports so that I can see where my expenses are and such - as I'm sure most of you understand.

I do currently have two separate accounts for materials per division. Materials used in the landscaping division are debited to my "Cost of goods sold" account. Materials used in maintenance (fertilizer, chemicals, seed, etc..) are debited to my "supplies" account.


I guess I don't really have a distinct question. I'm just looking for thoughts as to how to do this most accurately and properly.

Efficiency
01-18-2012, 06:24 AM
1) Break all your expenses into one of 4 categories:
a - direct fixed costs, ex equipment payments
b- direct variable costs, ex labor costs
c- indirect fixed costs, ex rent/office support salary
d- indirect variable costs, ex postage

2) Allocate each cost (in %) to the division as best as you can trace it
ex - maintenance requires 75% of your facility, it gets 75% of your rent expense allocation

3) Sum each of those categories for each division to get your total fixed and variable costs per division.

4) divide your fixed costs for each division by a baseline number of labor hours sold (worst case scenario even) to get your fixed cost per hour, per division.

Those are your fixed costs per hour. If you defined your variable costs correctly, they will be the same per hour no matter the quantity of labor you sell.

If you do so little in installs, you may consider not breaking that out into its own division yet.

BrendonTW
01-18-2012, 09:19 AM
I was pleased when I saw that "efficiency" had replied to my thread - lol! Thank you for the help. I'm wondering - doesn't it affect my rate per hour quite a bit if I have a 3 man crew and hire another guy half way through the year? Do I just recalculate at that point? What if I have a temporary worker? Always been a little confused about this.
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Efficiency
01-18-2012, 11:20 AM
glad there is some value in what I have to share.

Here is the way selling more labor works:
* if your variable costs remain the same and you dont have to increase your fixed costs (ex adding a man to a mowing crew with sufficient equipment) your per hour costs actually go down. For sake of discussion your fixed costs per day are $3. With 2 men, that is $1.5 per man day. Add a 3rd guy to the mix and it now only costs you $1.0 per man day. That is the beauty of classifying your costs this way; you can clearly see the value in growing the volume of labor hours.