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What is your profit margin?

Discussion in 'Business Operations' started by wolfpacklawn, Dec 9, 2001.

  1. Kent Lawns

    Kent Lawns LawnSite Senior Member
    from Midwest
    Messages: 870

    I'm puzzled by all the folks say they give their bank a different finacial statement than their tax returns.

    I just cannot believe a banker would do any significant business whith you without the last 3 years personal and business returns.
  2. turfman99

    turfman99 LawnSite Member
    Messages: 212

    Kent Lawns:

    I think you are seeing a lot of people jesting here. If you don't use computerized accounting it's a little easier to manipulate the numbers. Most companies are using computerized accounting programs as well as tax preperation softwares. it's very hard and a lot of work to fudge the numbers.

    The references I made to it was a tounge in cheeck reference to the late 70's and 80's when that type of thing was the name of the game and a lot of companies were VERY leveraged and having huge amounts of debt was commonplace and book cooking was common place.

    Most companies have very different relationships with banks and the tpes of funding vehicles out there are a lot different now as is the financial management that is used by landscape companies now.

    Your right, even with minimal credit risk and exposure a lot of banks will want a financial statement at least at year end. A lot may not want that unless you are deliquent on a note or are very leveraged, chronically late pay or other trouble indicators.
  3. HBFOXJr

    HBFOXJr LawnSite Bronze Member
    Messages: 1,712

    I didn't say to put the vehicle costs in with the labor but as a direct cost. Production labor, production equipment, production material and subcontractors are the 4 items that make up direct costs.

    If all production equipment expenses are kept separate from non-production costing is very easy. And since hours is what we are selling, properly caluculating payroll is job number one.

    In my payroll system production hours or all field billable hours are tracked. That is not difficult as we use coded hours from the time card for that. If the guys have a rainy day and are in the shop or are doing non-production work that gets a different code. Result is we always know how many field hours we sell.

    To find our real hourly wage costs, we just divide gross pay by billable hours as recorded in payroll. Those same billable hours can be divided into overhead or production equipment costs to get the hourly rate for them.

    I only do hourly or daily equipment job costing for occasionally used equipment of significant value like a $3K aerator, front end loader or trencher/backhoe. The other stuff like trucks and trailers used everyday are put in the pot and averaged across the hours.

    It all gets easy when hours are tracked by use category like billable (production) and non production. Then you must have the costs in the right places.
  4. John Allin

    John Allin LawnSite Bronze Member
    Messages: 1,488

    Some business's do accrued financials for the bank and cash financials for tax purposes. When that happens, the two can be dramatically different for the same year. Banks and financial types like accrued financials over cash as it gives a truer picture of the company's position. However cash financials for tax purposes are also accurate as far as the IRS is concerned..... thus, under that particular set of circumstances you would have two sets of legal books for the same year.

    Probably doesn't happen often, but I know it does happen.

    As for a third set ??...... mum's the word....
  5. bruces

    bruces LawnSite Senior Member
    Messages: 648

    As a CPA, I can tell you that the practice of cash for tax purposes and accrual for financial and banking purposes is very common. Like John says, they can be drastically different.

    And, like he says, both are perfectly legitimate. The accrual basis statements are really necessary for an accurate picture of your business performance. If you have uncollected receivables or unpaid bills at the date of the financial statement of any significance, then accrual is really the only accurate method.

    The cash basis may reflect where you are for tax purposes, but not really performance wise.

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