I am looking at my year-end income statement and wondering percentage wise how it compares to others in the remodeling field. We are a two man crew, and we do mostly kitchen, baths, and additions.
My expenses breakdown like this:
Materials 23.5%
Wages (for the guy that works with me) 22.5%
Insurance, both liability, and workmen’s comp 4%
Tools 2.5%
telephone, truck maintenance 2%
advertising 1.5%
a bunch of other small stuff 3%
My net income (my salary) 40%
Other things: My truck is paid off, and my office is the kitchen table. I get health insurance through my wife’s job. I do not provide health insurance for my employee, nor do I have a 401k that I contribute to. This income statement was for my first year of business.
Replies
You're at 13% overhead. I can't touch that.
Jim,
Are those percentages of Revenue or of Total Expenses? If of Revenue, that means you have no income to give back to your business so it can grow.
Other potential issues I see;
You may want to consider putting your WC insurance in the Labor Cost category so you will have a truer figure.
Speaking of WC, if your employee works as a roofer on those additions and you aren't reporting that to your carrier, it may bite you later.
You're not charging enough. Your business is only earning a GROSS income of around $50-$65/ field manhour. That's counting materials.
My business uses a labor only rate of $60- $75/hour. I add material and material MU to that for an estimate.
SamT
"You're not charging enough."
"My business uses a labor only rate of $60- $75/hour. I add material and material MU to that for an estimate."
so U guys live in the same region ... with the same market ... same competitiors ... in the same neighborhood ... in the same house ... with the same life/financial priorities?
Interresting.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
Jeff,
Of course ya gottas make sum assumptions. . . . like; he's paying at most $50/hr and he's earning at least $30K. He's billing 1000 - 2000 crew hours
Range of Revenue = $450K - $75K ([2Khrs x $50/hr / 22.5%] or [$30k / 40%])
He probably paying/costs ~$20 for ~1600hrs =~ $177K revenue =~ $71K Income.
Doesn't sound too bad. . . until ya makes the assumption that he wants his business to be around a while, grow, afford callbacks and warrentees, and keep his employee turnover low while it does all that.
10% net for business health = $7K$2/hr Emp Bene's = $32001.5% revenue for Warrantee = $12K15% his net for Taxes = $11K
$71K - $33K = $38K, but he has 'office work' so maybe he's working 2K hrs/yr which would be $19/hr take home if he was keeping his business healthy.
In the Ballpark. His take home = $20 - $30 hr
SamT
Maybe we should ask the author? Then none of us would be guessing, before we offer him advice. Just a thought.
I say I have to agree with you.
Then Sam comes and says it depends on what we want out of life. I kinda disagree with that unless I misunderstood it . But then Sonny taught us more on this subject than any other man I know which I also disagreed with at the time . So whatta I know? No disrespect to Sam.
Then I read this ; This user has not entered any profile information.
Right now I dont know if he lives in NY or here. I also dont know if he owns his vehicles or not or what he paid for it . Does his wife work and does he have kids?
Then I have to agree with David in that it seems low but an incredible first year the author has had.
Then Sam says we need to keep those percentages but some of us cant as you stress. Sam has a valid point although the reality sucks.
Story of real life. ;
I got called out of MC Donalds the other morning to help a friend in a bind with a house sale. He had it sold but it was not ready . I pulled on the job and made it possible. Then I found out the numbers he was working with and the pro here got some new lessons from him.
3bed 2 ba ,1100 sg ft with carport , condition VERY POOR. Selling price with nominal repairs , 75,000 sold and appraised @ 100 percent loan , nothing down goverment first time home buyers.House is 35 yrs old and still has a bad roof. That went down so thats a given. I was utterly shocked.
Gosh which deal to tell ya about????????
4 yrs ago I bought a 3bed 2ba at auction on the court house steps for 46,000. It appraised at 56,500. The house was 5 yrs old at the time ! It has a garage.
Carpet , tile , paint and some minor repairs later I got almost 1 percent of rent which is standard . 550.00 per month. This house is 1100 sg ft too so its a match but in exellent condition and still considered late model.
I now learn that this house is worth at least 75,000 and would more than lead the market at that price so its probably worth 80,000 at least. Im still getting 550 per month.
I tried 600 on a simalar residence and it remained un rented for 2 months so I probably wont ever get the loss back. In my estimation its still worth 550 but I should be getting at leat 750 per month now . No way will that happen so with the difference I may need to cash out on a bunch of properties and call it a day. Its been a good run .
The point being that they are only worth a set amount as rentals and that seems to be it . Reality strikes which agrees with your statement . With gas and heating prices being what they are at the moment with the wages never being increased makes the selling business tough other than the goverment doing it in first time buyers sales.
Tim
I'm coming at this in a swirl of ignorance
things are hazy now that I have the help of accountant
but I think the insurance on that cube van can be deducted ( in "insurance" column or along w/ "material" expenses ) and you can take the mileage / or actual cost
somehow I don't think the insurance on the cube van is part of vehicle cost - thinking majority of that insurance is liabilitysign in please professional
Exactly how did you figure out what he makes per hour using only percentages?I am always looking to learn something new.Stu
MA,
He gave us the number of employees. He gave that employees wages as a percentage. It's a given that that employee earned at least min wage and, at the high end, $50/hr. probably around $20/hr. It is accepted that there are up to 2K hrs in a year. A 1 man operation probably won't be able to bill all 2K hrs. Usually can bill around 50%- 80%.
Then, I applied the scientifically valid mathematical theorm of SWAG to the problem.
SamT
" Your business is only earning a GROSS income of around $50-$65/ field manhour. That's counting materials."
I don't think you have enough information to make that statement. Not one dollar amount was offered only percentages. YOu had to be making a pretty large assumption or your ESP is pretty good. LOL!
You must have a retirement plan. Set up what's called a SEP (Simplified Employee Pension) and contribute 10% of wages to it. That'll mean 6.5% of your net. And it needs to be paid monthly like every other bill - without fail. It's the only way you're gonna get of of this stuff.
As Sam says, you're not charging enough.
I absolutely fail to see how you guys know he isn't charging enough. In a sole proprietorship all net profit flows thru as owner's pay. I'd have to know his gross for the year to start making any judgements about it, as well as where he lives and what quality work he does.
David,
Take a look at his labor. If he's paying his hand $50/hr, I take back my previous post.
You did remind me that those numbers are probably off his taxes and not a P&L.
SamT
The point is, is that figure $25, $35, $55 or $300. You / we don't know, and yet you say "his not charging enough. Hmm?
just drives me nuts that anytime anyone posts anything about their prices ...
someone has to say they aren't charging enough.
all those in the know seem to forget that what ever the higest that the local market will bear IS the highest that the local market will bear!
charge too much and you are now officially broke.
Plus ... all areas ... and I mean all ... are different.
and overhead ... honest overhead ... is a big factor.
currently ... my "office" ... in in my home. And I bought our current home for $30K.
That's pretty low overhead for home and office space compared to 90% of the rest of the developed world! As it is ... I bump my living expenses up by sending the kid thru the worlds most expensive daycare ... so I still gotta hit the top end of the local market "bearing" ...
But ... no one ... knows ... what anyone else "needs" to make/charge.
I was talking rates once with Mr Smith ... my area ... nice fixer-upper can be snagged every now and then for $30K ... his area ... similar house ... add another zero.
I'm thinking our charge out rates may vary and both still be "profitable"?
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
Jeff,
You're right. There's businessmen and there's guys that just want to work for themselves, and sometimes I forget that people want different things.
SamT
Sam,
There's businessmen and there's guys that just want to work for themselves, and sometimes I forget that people want different things.
That is an interesting comment. I think a lot of self-employeds would find life easier if they understood more about how a businessman runs a business.
And some businessmen perhaps would find life better if they were not so caught up in volume , profit, and income. Gotta find the balance.
Bowz
"Gotta find the balance."Somewhere near 90% of new remodeling 'businesses' bite the dust. given that fact and the number of complaints from HOs countrywide about home improvement specialists who cut and run or leave tehm with crappy work that never gets corrected, I'd say the ballance needs to swing further towards paying attention to business. Good contractors just do it so it is not a big thing and they aren't 'caught up in it'. Just something that needs to be done like shoveling snow after a storm or taking a shower after a dirty days work.Fpr balance, think about how many contractor's lifes are turned upside down when their wives divorce them because they forget they are married to a woman and not to a job - because they feel they have to work 90 hours a week to make ends meet. Good business planning can save marriages and provide stable lives for children.
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Piffin,
I'm not sure if you are saying we disagree or not. I thought my first paragraph said the same thing you just said.
My second paragraph about balance is a personal observation of at least 4 individuals that self-destructed (construction related business, marriage, and kids) in the process of going after the big bucks.
Bowz
Not disagreeing so much as carrying the thought further. Your comments focused on failed families because of too mych emphasis on the bucks while mine focused on failed familes because the bucks were too few due to not figuring how to run the business right and having to compensate by working more hours
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yer right ....
I never grew up playing "business man" ...
not a title at the top of my list.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
Exactly! Gee 40% net . . . ah . . . that is $300/hour . . . How'd I get that? Well 40% of the gizmo factor gives you $300, right? LOL!
For his first year in business he probably did alright. He had enough work to need a helper, and he has insurance. He may be working a bit informally since there is no legal or accounting cost shown (I have both, every year), and he doesn't have as much of a tool budget (or problem) as I do. He is not using subs. which is the single biggest thing that stands out to me.
For 2005 my COGS are roughly 25% subs, 35% labor, 35% materials, and 5% other. If I learned anything this year it's that I'm going to take that 25% subs and increase it as much as I can. Overhead was about 22% of gross.
Another thing I learned: mileage is becoming a huge expense. For the last 4 months of 2005 it was 48.5 cents per mile, and for 2006 it's 44.5 cents. Jobs close to home and close to town are looking real good. I may start factoring in distance to the job into my estimating spreadsheet somehow. Let's see... distance from home + distance from town, divide by two, multiply by the number of days working on that site, multiply by two to factor in the ride home, multiply by something else to factor in days with multiple trips, take total mileage and multiply by 44.5 cents, add that to the price.
The IRS comes up with that mileage figure based on total cost of a vehicle and pretty much assumes the vehicle is newish. I don't know if they assume a 3 year depreciation rate or five. But the point is that if you drive your truck into the ground you will not pay anything close to the IRS figure in actual out of pocket expenses. If you don't upgrade your truck it is like the IRS is writing you a check!
I kinda get my cake and eat it too. I personally own the truck and pay for fuel, etc. My business pays me the IRS rate per mile used in business. So, the business wrote checks for about $2k this year... fortunately they were to me. If I was reimbursing an employee at that rate, I'd be pizzed.
I have done contract work over the years and either billed the client at the IRS rate or deducted on taxes. Drove a 18 year old Honda worth about $1200. It did not cost me anywhere close to 40 cents a mile to operate it. Now, drive a new $30,000 vehicle and the cost of "consumming" the vehicle is high. If you figure you will drive it 150,000 mile and scrap it, each mile is 20 cents against the IRS rate. That is a real COST! Still leaves 20+ cents for fuel and maintainence.
Very true. My truck was $17K including taxes, which is 11.3 per mile if I put 150K business miles on it. It gets 15 MPG, which at $2.50 per gallon is .16 per mile, total so far of .27 per mile. If I figure on maybe $7K worth of oil, tires and maintenance during that period, or 4.6 cents, I'm at maybe .32 total.
I'm putting less than 10K miles per year on it, so it's not even clear to me that gasoline will be viable before the truck is used up. I wonder what the IRS reimbursement will be for riding a bicycle with tool boxes and a rack on it?
Do you guys recognize that you can deduct either the standard mileage rate, or deqal with it on a basis of actual costs? Take my two ton cube van that I drive a few hundred miles a year. ( rolling toolbox) Just the insurance probably costs me more than fifty cents a mile!Work trucks almost always cost more per mile than the generally allowed IRS rate, and I believe that for many taxpayers, when you have two or more vehicles in servioe, actual cost method is required.
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I might be taking an easy way out, but the mileage rate makes a lot of sense to me. The truck is my personal vehicle, and it gets a lot of personal use. It also gets a lot of business use. To do actual cost I'd have to (a) keep track of every cost, and (b) pro-rate all of them based on the miles for each type of use. My accountant advised me that the mileage rate thing was audit-proof in the event that any auditors come checking, and it sure is easy! Maybe I could deduct another hundred or two, but the simplicity and easy explanation are worth something to me. My business is a corp. so it's a formal transaction.
if all you want is percentages, I'll do that ~ equals "about"
Matls ~ 20%
Wages ~5-6%
Ins ~ 1-2% (w/c is about 2% as well)
Tools & Equip ~ 8-9%
phones 1 1/2%
vehicles, fuel, maintenance ~4%
advertising 0
misc, office supplies, professional fees all about 1%
subs ~ 25%
edit: I should say on wages, I'd had an employee only about 2 1/2 months when the year closed out.
"A bore is a man who, when you ask him how he is, tells you." -Bert Taylor
Edited 1/14/2006 1:05 am by RW
I'm not going to comment on your nnumbers, but I am impressed that you have them together before the middle of January.
I hate paper, and I suspect it's the cause of the death of many small businesses. That you've actually got more than a shoebox full of receipts at this point is impressive.
I'd guess you're on the way to success.
You're way more organized than I ever was :(
Joe H
First of all I would like to thank all of you that replied to my post. One gentleman also posted his numbers and they were pretty close to mine.
My numbers were based on total revenue. Your input has me thinking that I need to increase my hourly rates, and start paying into a retirement fund.
http://www.markupandprofit.com
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
hard to compare with it broike down likee that.
Your salary should be a labour item - you work on the jobs right? And the profit is a separate after costs item. Worst thing you can do in terms of analysing the info is to combine them.
Telephone and truck maint should NOT be combined and you seem to have NO other vehicle costs, like fuel or dpreciation. Do you walk your tools to the job? With increased energy costs, I notice that line on mine! Yours is noticable by absence.
Then too, your insurance cost seems rediculously low.
As the size of the company grows, some OH percentage are likely to increase, and some to decreas. For instance, my auto insurance as a percentage of gross is going down, even though I have twice as many vehicles in service, while the WC is going up, both due to rate increases and adding hired help while I exempt myself from coverage.
And if you have a rented shop/office, that cost is likely to remain static up to a certain level, so as the gross increases, the percentage for office costs will look lower
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