Originally Posted by Bryan27
Overhead is all the things you have to pay the same amount regardless of how much work you do. Things like truck and equipment payments (even if they are paid for already, their value should be figured into overhead for estimating), rent, insurance, etc. Stuff you own already, estimate its useful lifespan and divide that into its cost of replacement.
Figure your yearly cost for all these things, example:
Truck note $6000/year
Hand helds $500/year
Total $19,700 per year in overhead, that's what you need to take in per year regardless of if you even do one job.
Now divide that by the number of days you will work per year, plan for getting rained out, etc. Say 200 working days per year. $19,700/200 days = $98.50 per day in overhead. Divide daily overhead by the number of billable hours you have per day, plan on working 8 hours? $98.50/8 hours = $12.32 overhead per billable hours. Now when you go give an estimate, add your hourly overhead, variable costs, company profit and your pay rate/percentage and multiply that by the number of hours you will take to do the job.
Since overhead per hour is based on your own estimations of number of billable hours you can get in per year, you need to be pretty darn realistic and accurate with that number. Overhead without the sales to support it will eat a business alive. Know your numbers and make a BUSINESS decision when you are taking on more overhead.
WOW great info everybody I really appreciate it. I am currently enrolled in an entrepreneurial bootcamp class and also am taking some marketing, accounting, and business management classes to help prepare me. But yes i know that no amount of schooling will completely prepare me for the real thing. So I will prepare the best I can and deal with issues as they come(because I know they will) and be better for it. Another question how are you guys tracking all expenses? Just through your business accounts or just tracking recieipts, quickbooks, a simple excel spreadsheet, old school handwriting everything down? Just curious as to what works for you guys best.