Crunching Your Numbers!!

Discussion in 'Business Operations' started by Johnny, Dec 4, 2003.

  1. Johnny

    Johnny LawnSite Member
    Posts: 102

    I am a numbers man. I can study P&L statements for hours. I am a firm believer that to be successful you MUST know your numbers. And, I have found that everyone looks at numbers differently. So, here are a few questions...

    #1. What is your biggest expense? (one right answer)

    #2. What is your formula for "net revenue"?

    #3. What is your formula for "gross profit"?

    #4. What does the term "sales adjustments" mean to you?

    #5. What don't you include in "direct operating expenses"?

    #6. What does the term "income before the bird" mean?

    I'm just wanting to talk numbers here and see how everyone looks at their numbers.
  2. Johnny

    Johnny LawnSite Member
    Posts: 102

    I was hoping to have some responses before I posted my info!!
  3. kootoomootoo

    kootoomootoo LawnSite Platinum Member
    Posts: 4,369

    #1. What is your biggest expense? (one right answer)

    ME! not including WIFE of course
  4. J Hisch

    J Hisch LawnSite Senior Member
    Posts: 952

    My numbers, what's in the bank at the end of the year. Accountants handle all others. Let them tell me what was profitable and what wasnt. That's what we pay them for right?
  5. MacLawnCo

    MacLawnCo LawnSite Bronze Member
    Posts: 1,847

    What happens when you want to know how you are doing mid year? It would suck to perform a service all season, only to hear at the end of the year from your accountant that the specific service lost you money. Sure this work can be fun, but why do it if it will cost you profit?

    Johnny, im a tad disapointed that this thread has not taken off since im a numbers man myself, but i assume that most guys here take the above they do not truely know.
  6. Johnny

    Johnny LawnSite Member
    Posts: 102

    Koozmootoo...good answer...PAYROLL is almost everyone's biggest expense and the answer to question #1.

    Now what expenses are included in your payroll?

    This is how I breakdown payroll...


    Owner/Operator (This would be my salary)
    Management (Crew leaders - hourly or salary)
    Utility (basic hourly employees - hourly)
    Office (answer phones - hourly)
    Subcontracting (the sale is included in revenue and I pay them)

    Subtotal (I use this number to measure productivity)

    Bonus (any bonus given)
    Management Fees (another way for me to pay myself)
    Social Security (tax man)
    Unemployment (tax man)
    Group Health (This is a payroll expense to me)
    Dental (same as above)
    Employee Meals (yes, this is a payroll expense)
    Miscellaneous (accountant, attorney)

    Total Payroll

    Each line has a $$$ value and % of net revenue (which we will talk about later), for individual month and year to date. Obviously the $$ value is important, hell you have to have enough money in the bank to cover it.

    Where I gather the most information and base a lot of decisions on are the %'s. Example...A new crew is put together and you have made the investment in the equipment. Sales are going to increase. What I want is my payroll % (of net revenue) to stay the same. A standard has been set. I use my Subtotal to measure productivity. There are an endless amount a ways to look at these numbers. are pay your accountant to take care of these numbers. But your accountant only produces these numbers, he is'nt making sound business decisions for you. I am not going to allow a $70 a month employee to run my company. He/she can organize the numbers for me so I can use them as a management tool.

    This is just how I see it...everyone has to customize their P&L statement to suit individual needs. But if you don't use them as a tool to manage your company, your cheating yourself. It does not matter if your a solo operation or have 50 employees. You could be making more money and you don't even know it.

    Someone help me out here!!
  7. DanaMac

    DanaMac LawnSite Fanatic
    Posts: 13,156

    Most people have started their own business in this industry because it is a service they can perform well, not because they want to be number crunchers or work in an office. Nor do they want to be accountants. Myself included, although I am learning from my mistakes, accomplishments, and a wife with an economics degree. I think a lot of the small businesses are not the most profitable or the most efficient, but the owners still make a living, and have some freedom, and get to make all the decisions.
  8. Johnny

    Johnny LawnSite Member
    Posts: 102


    The goal of this thread was to start a conversation on financial reports and how each business owner uses them as a management tool. Not to debate the issue. I want to learn and I need to learn as much or more than every member of this forum. But at the same time I feel I can share what little knowledge I do have with everyone. I DO NOT feel that my way is the right way or the only way. Since I have not seen much conversation on this issue, I thought I would start the conversation.

    You have misunderstood what I have been trying to say. I am not asking anyone to be an accountant, sit in an office, etc. I am simply asking for advise on how others view their financial statements. It may be a yearly statement. I prefer monthly statements that include year to date totals and last years monthly totals and last years year to date. Your accountant produces financial statements for you and you observe them and draw conclusions from them and make decisions based on them. This is not a time consuming task. And this is how I look at them.

    This could be a very good thread, with participation.

    Thank you,
  9. TRex

    TRex LawnSite Senior Member
    from DFW ,TX
    Posts: 487

    Here is something that may help in figuring the cost of running equipment alone. I would give the source but I can't. It is not so much of a financial statement as it is a part of one. It will help in finding the real numbers.

    This should help a lot when trying to figure out what it’s actually costing you to run a piece of a equipment on your jobsite. I have heard from more than a few people that it took this method for them to figure out that they really were not making as much as they thought they were (or would like to be) off of some jobs once they figured they’re costs.

    This is definitely the extreme scenario. I don’t think everyone needs to get this crazy, but I will just to show you how detailed you can actually get. This is the only way to go for a piece of equipment that is new to your fleet, or that you don’t have prior experience with. For most, you have the experience to know what it costs you per year to maintain them, but if you don’t, it’s not too hard to get a rough figure. It takes some time, and a lot of research, but with all the resources available on the net it moves along pretty smoothly.

    The figures I’m using our pretty rough. As most of you know I’ve been (and will be) overseas for a while, so it’s hard to keep track of a lot of the prices back stateside. Just bear with the numbers and use this only as an example to help you figure your own equipment.

    The piece of equipment I’ll be using for an example is an Echo model PB-650 Backpack Blower. I used Echo because they have an excellent website where you can go in and get parts manuals and operators manuals for most of their equipment made to date, and like I said, the net is basically the only resource available to me for info on American spec equipment and pricing.

    I’ll be using 600 hours as the time of death of this machine. I know, I know, I know…you’ve had yours for 10 years and it has over 50,000 hours on it. That’s fine. I’m still going to use a 600-hour life for this machine for a good reason. I went by the Echo service and maintenance recommendations in their operator’s manual to figure out part of this equation. I noticed that its all very minor scheduled maintenance UNTIL the 600 hour mark. At that time, they recommend that you replace the fuel strainer/filter, all the fuel lines, the spark arrestor, and rebuild or replace the carb. Now, that may be worth the money, but if you figure it until then, you’ll have paid yourself back for the machine by the time you hit 600 hours on it. That means your costs go down some for that piece of equipment because it now only costs you whatever maintenance is needed to keep it going. This means more profit without raising prices! Another good point that can make for a whole new discussion is you really have to think when it comes time to decide about keeping a machine in the field or not. Is it really worth it? Sometimes it definitely is, sometimes it really isn’t. If its costing you the same amount per hour to run as it was when it had under 600 hours on it, you should keep it for parts or sell it and get yourself a new piece. Like I said, that’s a whole different story, so that’s all I’ll say on that.

    Now…. Lets get down to business. Its very simple (because I did all the leg work! J) so there should be no problems following me so far.

    Take the price of the machine, including tax if any and start there. Lets say $450.00.

    Next, you have to figure out how much you probably will end up spending on maintenance over the 600-hour life of the machine. I went by the service chart in the back of the manual to start with. I came up with 2 Air Filter Changes and 2 spark plug changes. I also figured in for a little time to mess around with the machine and to replace a lost or cracked fuel cap, and a little bit more just to be safe. Let’s say you estimate maintenance costs on the blower at $50.00

    Fuel. Some people just include fuel into their general overhead and don’t track it. Some people know where every last drop goes. It’s up to you. I’m going to add it, just to show you how far you can take this. It holds 69 ounces of mixed fuel per tank, and it takes about 1.5 hours to burn up a tank of fuel. So that means you’ll need about 400 tanks of fuel. And at $1.75 a gallon (including oil) you’ll need about $378.00 worth of fuel for the first 600 hours of run time.

    Now, like I said before, I’m not going to sit here and argue with anyone about the price of maintenance or gas/oil mix, etc. It’s just a rough idea to help “paint the big picture”. Lets see how it looks so far.

    $450.00 Equipment Cost
    $ 50.00 Maintenance Costs
    $378.00 Fuel Cost
    $878.00 Overall Cost for blower over a 600-hour life span

    Take the $878.00 and divide it by 600 (life span in hours) and you get an hourly cost of $1.47 to run this blower. You can get even crazier if you wanted to and go to minutes. It costs about $0.03 a minute to have your blower running.
  10. TRex

    TRex LawnSite Senior Member
    from DFW ,TX
    Posts: 487

    Her is a nother link that might help others in finding the cost of operation . These posts were to help the people who do not know what Johnny is talking about. Please use them and if this offeneds you Johnny Please Let Me Know. I am just trying to help because it seems not to many people even know how much it cost to operate.

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