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Overhead -- Beating a dead horse

Discussion in 'Business Operations' started by Evan, Dec 28, 2001.

  1. Evan

    Evan LawnSite Member
    Messages: 6


    Not really covered in my original post, so I started a new thread, but when calculating the profit you want to make are you guys calculating that in as an expense?

    So if I want to make a profit of 50,000 per year divided by the total hours of production a year = $25 an hour for an expense?

  2. turfman99

    turfman99 LawnSite Member
    Messages: 212


    Excellent point... couple of different ways to do it.

    If you have all your costs accounted for divided by the total number of hours you have or are buying, that gives you a cost per hour. You can then determine what profit you want to add on to the hourly cost to come up wiht your total hourly charge.

    Here's where it can get sticky... You need to make sure you are billing EVERY hour you have or buy from your employees. If you do not bill EVERY hour, then your profit margin will drop, sometimes to the point of no profit or loss depending on how many hours you actually are billing. This is where knowing on site production costs accuratlety and what your labor efficency rate is so you add on and recover your support hours. That process will help you bill EVERY hour.

    The way you say about adding it in as an expense is a very good idea. You just need to make sure you protect every hour, so you do realize the profit. This illustrates the importance of control and accounting for every minute, every second of every hour,because each minute and second contains NET PROFIT. Wasted minutes and seconds that are not billed and you are reducing NET PROFIT, and moving yourself closer to a loss situation, because the time loss becomes expotential with every wasted minute and hour.

    Your headed the right direction.
  3. Kent Lawns

    Kent Lawns LawnSite Senior Member
    from Midwest
    Messages: 870

    Excellent concept, just use the correct terminology.

    Calling profit an expense is incorrect.

    Protecting profit as an unnegotiable allocation of money is a certainly a good concept.

    Too many guys in this business do work for a little less and just fugure "I'll just make a little less profit". And that is just drinking salt water.
  4. HBFOXJr

    HBFOXJr LawnSite Bronze Member
    Messages: 1,712

    This is direction I took this year as opposed to adding a percentage to the job. I figured that if I knew how many hours I was billing per year, adding x$/hr for profit would be a good way of tracking and goal setting. I was pretty pleased but must refine job costing and estimating a little further to gain accuracy. I think the QuickBooks Pro and QExpress software from LM will help in that.

    You can also vary the profit per hour for different tasks, especially those involving materials and establish a minimum profit per hour that you will accept for anything.

    For me the minimum is a living good wage even if I don't sell dime one of materials. WE are such a labor driven business, I almost like to treat the materials as gravy or cover some labor calculation mistakes.
  5. turfman99

    turfman99 LawnSite Member
    Messages: 212


    Right on !!.... This is exactly the concept that will yield you good profits.

    We do markup our materials, but we do not track that or budget it as part of gross revenue's. If we need to cut costs on the job, for some reason, it comes off the margin of the materials down to the cost level, and then thats it... bottom dollar right there with you minimum net profit built in to the labor.

    If not, then it finds its way to the bottom line as additional, unplanned net profit, or covers SMALL labor mistakes.

    There are a lot more ways to refine this concept and make sure it is executed, but were getting into propritiary managment systems that I can not expound any more on.

    Your headed the RIGHT direction here to guaranteeing your self net profits on a consistant, sustainable basis.
  6. SprinklerGuy

    SprinklerGuy LawnSite Bronze Member
    Messages: 1,778

    Hb, we do a similiar thing. When I am bidding jobs I know exactly which crew/tech will do the job. I know exactly what money in labor that crew/tech needs to bring in per hour in order to meet the goals set for revenue on a per day basis. The bid is usually done without any markup on parts, just the labor which is set up within my system to cover everything, parts are gravy. If the job is an easy one there will be no markup, more difficult or more of a SURE THING, markup the parts a little.

    I think knowing your costs is HUGE. I used to think I knew them, but now I see that I didn't. I'm sure in 1 more years' time I will say the same thing. The longer you are working ON your business the more you know. This was my first full year of doing so and I love it. I do miss the technical side a little but crunching the numbers is way more fulfilling.

    this year my goal is to break up the chart of accounts a little better : construction 'vs' repairs. I am having a brain cramp on that a little though. I don't think it will be difficult for me to allocate the payroll hours because I can work off of the time sheets, but how am I going to allocate materials. That may be difficult as I do not enter each invoice separately. Pay them all with CC and then write one check per month. (frequent flier miles of course!) Because of this it will be difficult to do within my accounting program. Although the accountant says it will be easy to set up a payable account much like the other payable accounts.

    oooops I'm rambling!

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