help with business cost formula

Discussion in 'Business Operations' started by Billie Bob's LLC, Apr 1, 2009.

  1. Billie Bob's LLC

    Billie Bob's LLC LawnSite Member
    Posts: 136

    i need advise for everything that i would need to factor in and exactly how to do it to make sure i get the most accurate numbers. im perplexed at the whole ordeal and the past 2 1/2 years i've just bid it by $1 per minute and almost all of my resi accounts are more. i just want to know how much money its costing me so i can see where my prices could be lowered too if i decide to go there. thanks.

    my only equip payments are 120.00 a month. insurance cost me about a 1000 a year. my only mower is 34 gravely walkbehind. just not sure. any idea would be great. thanks. if you need more info please just ask.
     
  2. starry night

    starry night LawnSite Silver Member
    Posts: 2,544

    Hire an accountant. And I'm not being a wise guy. They could help you.
     
  3. Billie Bob's LLC

    Billie Bob's LLC LawnSite Member
    Posts: 136

    what should i ask? funny thing is my partners dad is a cpa. he owns his own accounting firm.
     
  4. starry night

    starry night LawnSite Silver Member
    Posts: 2,544

    The CPA will have a list of expenses to include.
     
  5. LB1234

    LB1234 LawnSite Gold Member
    Posts: 3,210

    have you tracked your expenses/income for the past 2.5 years? If so, you can easily track/project what those numbers are going to be for the upcoming years.
     
  6. Fvstringpicker

    Fvstringpicker LawnSite Fanatic
    Posts: 7,592

    You probably need to recap your expenses and hours worked for several months. Look at your service as an annual project (12 months). Your goal is to recapture all your cost and produce a desired income. You'll have a mix of fixed cost that remain the same regardless of activity (insurance) and variable cost which increase as activity increases (fuel) Separate the two types on paper. Now bang the hours worked against the total variable cost to calculate your variable cost per hour. This is an extremely important number because is provides your contribution margin. Example, if you charge $60/hr and your variable cost rate is $25 your contribution margin is $35/hr which turns out to be the most per hour profit you will make after covering all fixed cost. (under the present conditions). Variable cost are directly proportional to volume. I'd consider major equipment a variable cost calculated separately. Similar to figuring depreciation, but divide its estimated replacement cost by estimated service hours. Your goal here is to recapture enough cost to replace the equipment when it used up. At any rate, add this number to your variable rate.
    Now for dealing with fixed cost. The per hour rate decreases as volume increases. (i.e., if your fixed cost for the year is $5,000 and you work 1 hour, your fixed cost rate is $5,000/hr. If you work 1,000 hrs, your fixed cost rate is $5.00/hr) So you'll have to project the annual hours you think you'll work to get this figure.
     
  7. JDUtah

    JDUtah LawnSite Silver Member
    from UT
    Posts: 2,636

    2.5 years of data, and you are asking this question?
     
  8. Billie Bob's LLC

    Billie Bob's LLC LawnSite Member
    Posts: 136

    yes 2.5 years later im asking this questions. back then i was in highschool making money. i found a passion and it kept growing. now im trying to run a business. i didnt keep the "data" back then only the past year or so and even then plenty of mistakes were made. thanks everyone for the tips, i appreciate it.

    billy
     

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