Figuring overhead

Discussion in 'Starting a Lawn Care Business' started by Blade Runners LLC, Aug 27, 2013.

  1. Green Acres

    Green Acres LawnSite Senior Member
    Messages: 316

    How would you figure overhead on a new company? Say your wanting to start doing fertilization and weed control. Your overhead needs to be spread out per customer or per sqft etc. But if your just starting and have no customers yet but have the equipment, insurance, licenses etc. Where do you start to figure overhead?
  2. JCLawn and more

    JCLawn and more LawnSite Fanatic
    from MI
    Messages: 5,281

    Try to read what I said in my post on the last page and see if it makes sense because I kind of accounted for it. You need to run your business now like you would in 5 years or else your going to up everyones prices and they won't be happy.
  3. Green Acres

    Green Acres LawnSite Senior Member
    Messages: 316

    I understand what your saying. I'm thinking in 5 years from now I should atleast have 300 spray customers and would just take my overhead and split up over them. I would figure most lawn would be 8k sqft average. I would appreciate any feedback and if I'm in the right mind set. Thanks
  4. JCLawn and more

    JCLawn and more LawnSite Fanatic
    from MI
    Messages: 5,281

    Ya your spray would factor into so much a sq ft and your equipment would go into a hourly rate.
  5. larryinalabama

    larryinalabama LawnSite Fanatic
    Messages: 19,648

    Im a DEBT FREE SOLO OPERATOR, expenses vary but generally my expenses are about 33% or 1/3 of income.

    Then the gooberment gets another 40% in income taxes which would happen if you had a regular job.

    Hope that helps
  6. Vanderhoff Landscaping

    Vanderhoff Landscaping LawnSite Senior Member
    Messages: 396

    So actual net pay for yourself would be roughly 10-15%?
  7. herler

    herler LawnSite Fanatic
    Messages: 5,139

    You have no customers means you have no overhead because a business without customers isn't a business.
  8. M&L

    M&L LawnSite Member
    Messages: 245

    A third off the top seems high to me for a solo guy without debt. I have to ask, Out of that, what is your single biggest expense?
  9. foreplease

    foreplease LawnSite Silver Member
    Messages: 2,062

    Welcome Blade Runners, LLC. That is a doozie of a first question! Interestingly, the answers are among the first things you need to know and understand in order to build a lasting profitable business with fairly predictable (and repeatable) results. How quickly and how well you are able to scale (grow) your business will depend on sales as well as accurate expense forecasting - and the discipline to follow your plan. The more thoroughly you plan, the easier it will be to follow.

    There will be expenses you did not anticipate. Try to not ignore or forget any you should have known about. 32vid and Bryan provided good basic lists. To those you need to add something for advertising. The less experience you have the more you will tend to underestimate the annual amount you will spend on advertising IMO. Telephone service is another cost. Administrative costs - let's start with the time it takes you or someone to do all the things to find and invoice work that customers do not expect to see on their invoices - need to be figured in at some wage. Otherwise, after mowing and trimming for 7-8 hours several days a week you will find yourself coming in early and staying late to visit customers, prepare estimates, and send out invoices. Keep in mind people are not going to begin to call simply because you got some equipment and filled out papers at the courthouse

    Employees, when you get to the point of needing any, are a huge cost that needs to be anticipated, covered with dollars of sales, and justifiable everyday. It is important to do this legally: withholding and later remitting payroll taxes; paying your part of their FICA; paying for workman's compensation insurance, unemployment taxes. Eventually some of your people will deserve and expect paid time off, which is a cost - one you cannot invoice, obviously, since they are not working during those hours. At some point you may need to provide health insurance (don't forget your own whether it is deductible for taxes or not). Overtime: you will have to pay time-and-a-half for hours worked above 40. You will continually ask yourself if it is better to do that or add more employees, or work more hours yourself. For rough planning purposes, you can assume employee fringe benefits, which are costs to you, will amount to between 23% and 30% of the hourly wage or salary you pay them.

    In structuring your fees, think in terms of fixed versus variable costs. Ask yourself which costs you will have whether or not your next estimate turns into a job. Those are fixed costs. Costs you incur only because of the job you are currently doing are variable costs. JC had some good points about determining profitability and planning for it. What you are essentially trying to do is exceed your break even costs by as much as possible with, I'll say it, as little work as possible. Knowing this, every job you take absolutely needs to make a margin able contribution to your overhead.

    Now here is the kicker many people do not take into account: if you are clearing 20% on your average mowing job the two ways you make identical progress toward your annual break even point are
    1) increase sales by $100
    2) reduce annual expenses by $20

    Which is easier? Which is more important? They are both important. Neither is easy.
  10. clydebusa

    clydebusa Inactive
    Messages: 1,660

    Take some business classes.

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