If a company does about 2 mill in sales a year, 6 employees, doing general contracting renovation work. How much money should be left over annually for the owner including salary and company profit?
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More information on how the $2M is generated would be helpful.
Besideslabor what other costs must be taken into consideration?
Is the cost of building materials includedin the gross revenue
figure?
Do you have a rent or own a shop?
Do you lease or own vehicles for your business?
What tools do own/maintain?
Insurance costs,workers comp, etc. Obviously these are regional variables but part of the calculation.
I took home about 130K and the company had about 10% profit on top of that. I am active in the company working full time, we rent a shop, have about 30K in tools, equipment, computers etc., own about 4 trucks, pay all insurance, workers comp etc. Don't have any personal invested capital, retained earnings obviously stay in the business, no debt to speak of, started with nothing 10 years ago.
So from the other posts I should be shooting for about 15% profit. Is that what you guys think?
gib... i think you're doing just fineMike Smith Rhode Island : Design / Build / Repair / Restore
Sounds like you and your company made about $330k last year, which is more than 15%.
Sounds like you're doing fine.
Ozlander
As Paul said, a lot depends on what type of operation we're talking about here, but a good profit goal for a company of that size would be in the 8-10% range ($160-200k). That's after all overhead, owner's salaries, etc., are paid.
Bob
Stop and adjust your thinking before you go any further.
profit and especially ownere salary are not something that is "left over" it is planned rfor as a first item cost line.
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Hi to all!
I am a new poster here, so I hope that this is done properly.
Ditto what Piffin said.
There will always be the "unforseen", but that should be included in the "contingency" line. I have learned that through putting together hastily prepared quotes and bids.
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Edited 2/18/2007 11:24 am ET by 24/7
I don't think there is any amount that "should" be available to pay the owner. That's viewing ownership in terms simiklar to working for wages. An owner gets an opportunity, that a salaried worker does not. That's the opportunity for profit. Only you can decide whether the opportunity is sufficient.
In my business, I have about a 95% confidence that I will earn $X. This is substantially less than I could earn working for someone else, but it is enough to maintain my lifestyle. I am 90% confident of earning $Y, 75% confident of $Z, and there is a 5% chance of $X+Y+Z. There is no "should" there are only varying levels of probability, based on how hard I work, waht kind of work comes in, and how well I identify and seize the opportunities. I a constantly comjparing these porbabilities to the probabiliy that I could go out get a job working for someone else and make a lot more money. As long as I am making close to as much working for myself as I could elsewhere, I am willing to keep doing it so that I get the chance to earn even more (plus the various benefits of self-employment).
Compare what you earn from your own business to what you'd earn using your skills working for someone else, and decide whether the risks and benefits of ownership are sufficient to justify that differential. Then remember that EVERY business can run alittle better, a little more profitable.
How much would you pay someone whose job description included:
sitting on his azz all day
driving to and from the coffee shop
BSing with clients
pizzing of subs and workers
absolutely no clue
doing as little paper work as possible
fishing and golf
?
I don't feel safe in this world no more
I don't want to die in a nuclear war
I want to sail away to a distant shore and make like an ape man
hey, you been spying on me again ?Mike Smith Rhode Island : Design / Build / Repair / Restore
snicker snicker...I don't feel safe in this world no more I don't want to die in a nuclear war I want to sail away to a distant shore and make like an ape man
Kinks.
Actually I sould be usint this, for this thread:
Cheap is small and not too steepBut best of all cheap is cheapCircumstance has forced my handTo be a cut price person in a low budget landTimes are hard but well all surviveI just got to learn to economizeIm on a low budgetIm on a low budgetIm not cheap, you understandIm just a cut price person in a low budget landExcuse my shoes they dont quite fitTheyre a special offer and they hurt me a bitEven my trousers are giving me painThey were reduced in a sale so I shouldnt complainThey squeeze me so tight so I cant take no moreTheyre size 28 but I take 34Im on a low budgetWhat did you sayIm on a low budgetI thought you said thatIm on a low budgetIm a cut price person in a low budget landIm shopping at woolworth and low discount storesIm dropping my standards so that I can buy more[quality costs, but quality wastes,So Im giving up all of my expensive tastes.Caviar and champagne are definite nos,Im acquiring a taste for brown ale and cod roes ]Low budget sure keeps me on my toesI count every penny and I watch where it goesWere all on our uppers were all going skintI used to smoke cigars but now I suck polo mintsIm on a low budgetWhat did you sayYea Im on a low budgetI thought you said thatIm on a low budgetIm a cut price person in a low budget landIm on a low budgetLow budgetLow budgetArt takes time, time is moneyMoneys scarce and that aint funnyMillionaires are things of the pastWere in a low budget film where nothing can lastMoneys rare theres none to be foundSo dont think Im tight if I dont buy a roundIm on a low budgetWhat did you sayYes Im on a low budgetI thought you said thatIm on a low budgetIm a cut price person in a low budget landIm on a low budgetSay it againLow budgetOne more timeLow budget[i look like a tramp, but dont write me off,Ill have you all know, I was once a toughAt least my hair is all mine, my teeth are my own,But everything else is on permanent loan.Once all my clothes were made by hand,Now Im a cut price person in a low budget land.Im on a low budgetIll have you all knowWere on a low budgetIm on a low budget]I don't feel safe in this world no more I don't want to die in a nuclear war I want to sail away to a distant shore and make like an ape man
I'd pay him nothing, but you just described an ex-boss to the letter.
The salary for the owner will depend on what the owner wants, part of that will depend on if the owner is an active manager of the business, or involved in several other ventures.
On top of that, one would expect a 15% roic, return on invested capital, as a minimum. For every dollar the owner has invested in equipment, tools, vehicles, and retained earnings, the owner should be able to count on at least 15 percent return.
In some businesses, the capital is fairly small, but in others, there's a lot of equipment. Still, 15% seems like a typical number most owners shoot for.
Enough so that they are making an income at the level they want.
Gib,
I look at it this way- you are fulfilling two roles as of now. 1) An active worker in the company. Maybe you're the CEO, or maybe the PM, or head of sales, whatever you call it is fine. How much would you make if you took your skills and started working for someone else? 2) As the owner of a company, you are taking on a certain amount of risk. You don't have the security that your employees have so you should profit from that risk.
Since we don't know what you do or where you are, salary ranges are almost worthless. In my area, I would think the salary would be between $60k and maybe $85k, with reasonable benefits. As far as profit, 8-10% is good to shoot for.
BTW- be careful with the numbers that others throw around regarding profit. Since it seems that there is no standard in the construction industry what is COGS, overhead, and net profit, you will get answers all over the map if you ask "what should I make". As I said, your salary as an active member in the organization should be comparable to the market in your area, and the net profit should be free and clear of current obligations.
Jon Blakemore
RappahannockINC.com Fredericksburg, VA
Half what you want to earn and twice what they want to pay. And no, I'm not laughing. Jim
Sales has nothing to do with anything.
20-25% return on investment or current company value seems reasonable.
Plus a wage or salary for doing the work you do. If you are only working 20 hours/week to run your company, you should expect less pay than if you were working 40 hours/week. (A lot of owners simply supply capital and then hire management.)
So if I understand, if I have x amount of retained earnings/invested capital (equity), that's the return I should be concerned about.