Average overhead costs?

Discussion in 'Business Operations' started by allstar, Oct 9, 2003.

  1. allstar

    allstar LawnSite Senior Member
    Posts: 282

    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.
     
  2. LawnLad

    LawnLad LawnSite Senior Member
    Posts: 738

    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%.
     
  3. CSRA Landscaping

    CSRA Landscaping LawnSite Bronze Member
    Posts: 1,232

    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.
     
  4. DFW Area Landscaper

    DFW Area Landscaper LawnSite Silver Member
    from DFW, TX
    Posts: 2,116

    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
     
  5. Team Gopher

    Team Gopher LawnSite Platinum Member
    from -
    Posts: 4,041

  6. allstar

    allstar LawnSite Senior Member
    Posts: 282

    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
     
  7. allstar

    allstar LawnSite Senior Member
    Posts: 282

    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
     
  8. allstar

    allstar LawnSite Senior Member
    Posts: 282

    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
     
  9. Green in Idaho

    Green in Idaho LawnSite Senior Member
    from Idaho
    Posts: 833

    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???
     

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