Average overhead costs?

[allstar]

I would like to know,especially from some of you guys who have been doing this awhile,what kind of profit to expect in this type of business.For example,for every $100 of production what kind of pre-tax profits are some of you making?Thanks.

[LawnLad]

If you want the most comprehensive study which answers your question in multiple ways - buy the ALCA Cost Operating Study. It's worth the money.

Typical for the industry might only be 5%. A high profit firm is around 15% to 25%.

[CSRA Landscaping]

The smaller you are, the higher your percentage of profit will be. One guy gets to keep all the money, two guys and now you're paying a significant amount out, etc. Ask five different companies and you'll get five different answers. I think ours is about 15% or so, starting in November. Three guys, counting me. Four if you count the part-time, commissioned salesman. That percentage will go up, though, as new accounts come on and notes on things start going away, and as new notes come on, it will go down, etc, etc.

[DFW Area Landscaper]

Well, I can tell you this. It's my first year. I started in January with zero customers. Today is October 10th and I don't expect to gross a whole lot more. The bermuda has already stopped growing for the most part. Especially the tiff bermuda.

Gross sales: $29,894
Net Income: $11,472

I've also got about $2,000 in accounts receivable that is questionable. If you back that out, I've only made about $9,500 this year. Honestly, I think I'll collect 3/4 of that, but if it's past due, it's past due, so you can't call it good til it's cleared the bank.

Mowing and edging represents about $15,900 of that gross sales figure and my cost of goods sold for mower fuel, oil, filters, line and blades is $300 for the year.

Some of my larger operating expenses are as follows:

Landscaper supplies (things like plant materials, pavestones, mulch, fertilizers & herbicides): $4,308
Advertising: $2,870
Auto Expenses: $2,110
Labor: $2,810
Sales Tax: $1,850
Storage: $1,190
Cell Phone: $1,443

Those are the bigger line item expenses for business this year.

And those numbers don't reflect an ounce of depreciation on my equipment. Won't really know what my depreciation costs for my equipment are until I've been in business for several years.

I've already decided to give this business one more full year. Several people I've spoken with have said the same thing: It just explodes in year two.

We'll see. Right now, I'm not exactly impressed with the 'easy money' in the landscaping business.

Later,
DFW Area Landscaper

[Team Gopher]

Here are some posts that I found that look into the costs of doing business.

Realistic Income...where do I plan.... (http://www.lawnsite.com/showthread.php?s=&threadid=47723)

No $ in cutting lawns (http://www.lawnsite.com/showthread.php?s=&threadid=52433)

What do you get per man per hour (http://www.lawnsite.com/showthread.php?s=&threadid=49996)

[allstar]

Thanks for the information,especially to you DFW for the breakdown on your expenses.I've never heard ANYONE say that landscaping work is 'easy money'. Jim

[allstar]

Thanks for the information,especially to you DFW for the breakdown on your expenses.I've never heard ANYONE say that landscaping work is 'easy money'. Jim

[allstar]

Thanks for the information,especially to you DFW for the breakdown on your expenses.I've never heard ANYONE say that landscaping work is 'easy money'. Jim

[Green in Idaho]

Overhead is usually a very vague term.

Some peeps profess it is everything other than direct materials sold, includine tractors, mowers, and trailers.

Some will be a little more detailed and identify overhead as those expenses 'shared by many departments or revenue streams' such as a salesman selling landscaping and mowing services, or a secretary answering the phone for everyone.

Some will pick it apart a little more, and use hybrid definitions.

For example, is maintenance of a mower overhead? or is it an direct cost of goods sold? Or is it a variable overhead? Same expense but there are different philosopies on how to treat it and what it is.

It means different things in a manufacturing business than it does in a service business, and when one discusses a landscape business one usually thinks of a service business. But there's a lot of similarities to a manufacturing biz too i.e. work-in-process, materials, inventory, etc. What about a nursery using their own materials in landscaping and the same equipment in both functions?

"Overhead" is often defined those expenses required to provide a work space (office, shop or factory), such as rent, heat, and utilities. But when the business is mobile that changes things a bit. Does "truck fuel" then become overhead due to it providing the means for the business to operate just like heating fuel provides a warm office?

Another perspective is "overhead" includes those specific expenses incured even if you are not producing work. What expenses will you HAVE to pay in Decemeber even if you do NO work? That description is often also referred to as the "indirect expenses". Meanwhile direct expenses are the items going into the product/service.

So with that confusion in mind when one asks, "What is your overhead?" it needs some clarification....

A) Mowing contractor A may be including everything since she doesn't accept there is sale of a product and it is 100% service, so all expenses are overhead. A large percentage.

B) At the same time contractor B separates his expenses into direct and indirect and states his overhead as only the indirect expenses. A medium percentage.

C) Contractor C uses the office space defination and separates expenses into fixed overhead and variable overhead so he states his overhead as fixed expenses to provide an office space. A small percentage.

*****************
MOST important thing is to understand YOUR numbers, where they come from, how you got them and what they mean.

I recommend grouping expenses together on an income statement (P&L) so that the manager can instantly see the overhead costs to know the impact on the profit, and also know the direct costs to be able to determine a gross profit in order to apply that profit to the fixed costs. (something like a break-even analysis).

This is contrary to the typical Quickbooks income statement which alphabetizes expenses. THAT does nothing useful.

Group em and then understand them.- Hopefully!

:dizzy: :dizzy: ;) :(

*********************
Example for a small operator.
Disclaimer: may not be the absolute answer but it helps some grasp "the picture". And no it is not tax based:


View 1)

Revenue
Cost of Goods Sold
Fixed (indirect)overhead
Variable (indirect)overhead
Fixed Direct Costs
Variable Direct Costs

_______________________
Earnings b4 owners comp, depr, & taxes
Depreciation (non-cash expense/s)
Owner's Salary
Taxes
Net Profit

View 2)

Revenue
COGS
Fixed (indirect) overhead
Fixed Direct Costs
Variable (indirect) overhead
Variable Direct
_______________________

ditto

***************
Some Possible Accounts

5000 Series- COGS
5100 Purchases-Material
5200 Direct Labor
5500 Subcontract Labor
5900 Inventory Adjustments

6000 Series-FIXED EXPENSES
6100 Utilities-Flat Rate
6200 Salaries
6300 Interest Expense
6400 Insurance
6500 Marketing Expenses/Dues
6600 Vehicles & Equipment F. Expenses 6700 Mortgage & Asset Payments
6800 Depreciation Expense F.
6900 Amortization

7000 Series- DIRECT VARIABLE EXPENSES
7100 Wages
7200 Payroll Taxes
7300 Bad Debt
7400 Fuel Expense
7500 Production Supplies
7600 Vehicles & Equipment V. Expenses 7700 Equipment Rental
7800 Depreciation Expense V.
7900

8000 Series-INDIRECT VARIABLE EXPENSES
8100 Office Supplies
8200 Sales Staff
8300 Entertainment Expense
8400 Phone Expense
8500 Travel & Lodging
8600 Advertising -Variable
8700 Repairs & Maintenance
8800 Interest Expense
8900 Professional Services

9000 Series-Other Income

************
What cha think about that???