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#156985 - 08/01/05 06:16 PM Overhead Costs for Resi Service Business
dougwells Offline

Member

Registered: 05/03/03
Posts: 1228
Loc: kamloops BC Canada
I would like to start this thread with this quoting from Active 1
posted 12-08-2004 09:19 PM
--------------------------------------------------------------------------------
Like others said it's less stressful day to day if you have less bills and money in the bank.
Something Else to consider- Once you take the leap to be full time by yourself it will make a difference on your ability to obtain a loan or at least at a good rate until you have a steady few good years.

If you a serious you might start the business paperwork now. That way on paper once you are full time you would have been in business for a few years. That can help you with suppliers, insurance, loan officers, and even customers by being able to say we didn't just open yesterday. This can give you time to set up your office and establish a paperwork system. If you ever do come across some big work your set up to go.

When you figure you hourly rate don't count on booking 1 hour for every hour worked. With drive time, material pick up, bidding, paperwork, returning phone calls, no work, etc. Depends also on the type of work you do.

Think of a number you need for yourself for maybe working 60 hours a week.

Say your salary is $60,000
Overhead bills $30,000 (old truck & at home office)
Total overhead $90,000
6 hour billable days is about 1500 hours a year
Your at $61 an hour
add 1% warranty, 10% profit, 15% tax and you have $70 an hour.

If you want to be like some EC, have 0 profit and make $40000 for yourself your at $48 an hour.

I'm not saying what to charge just play with the numbers and don't kid yourself with not having any overhead.

Tom


If anybody feels like going forward for the future please add this this thread as how to figure overhead costs , Time & Materials actuals for calculation Flat rate (up front pricing)Sheets please post them here
How much to add for warranty call backs etc

Thanks

[This message has been edited by dougwells (edited 08-01-2005).]

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Business, Office, Estimating, Legal:
#156986 - 08/01/05 07:50 PM Re: Overhead Costs for Resi Service Business
sierra electrician Offline
Member

Registered: 02/12/05
Posts: 220
Loc: North Fork, CA USA
Doug, where are you going with this? This is a very rough draft for a busisness plan. very rough..

Rob

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#156987 - 08/01/05 08:47 PM Re: Overhead Costs for Resi Service Business
dougwells Offline

Member

Registered: 05/03/03
Posts: 1228
Loc: kamloops BC Canada
I am not really trying to have a Business plan but it could look like that i suppose.
What i am trying to do is change the way i market my services.

What I am trying to do is strictly to set up as a Service Electrical company and not have to do new home construction.


I can not survive at the 65.00 per hour and think i will be OK when i retire. Service work does not pay at 65.00 per hour for 1/2 day jobs etc. At 65.00 per hour the telco,govt insurance company,bonding company code publishers hydro, gas dispensing stations, mechanics , bookkeeping and accountant,all get theres first.Haven't needed a lawyer yet though,.

By the time I look for any for myself theres not much left over for vacation quality time with family, retirement,etc.

I have a good idea what a profit and loss statement is but haven't really figured out how to analyze the information.

I am sure i miss things to add to my overhead also.

I really want to know what my actual costs are.
Hope others need to know this too.




[This message has been edited by dougwells (edited 08-01-2005).]

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#156988 - 08/02/05 08:32 PM Re: Overhead Costs for Resi Service Business
skingusmc Offline
Member

Registered: 05/27/04
Posts: 116
Loc: Simi Valley, CA USA
I'm not sure just where I got this from, but it made me stop and think about just what overhead was and how to account for it and profit. (we don't need no stinken profit! grin). Anyway, just food for thought:

OVERHEAD AND PROFIT

The total amount of expenses from your income and expense statement compromises the overhead for the business. A proper amount must be added to each job to cover this expense of doing business. Otherwise, the contractor will not obtain the profit he had figured for the job, or, if the profit margin is too thin, he will have done the work at a loss. The importance to the contractor of knowing his overhead should be obvious.

Examples of expenses (overhead) include (but are not limited to) the following:

Salaries (even if self-employed you still have to act like you are paying yourself)
Advertising
Auto & Truck – Gas & Oil
Auto & Truck – Repairs & Maintenance (tune ups, repairs, tires, etc.)
Contributions
Depreciation
Dues & Subscriptions
Insurance - (General business, liability, medical, dental, disability, LTC, etc.)
Interest
Legal, accounting, & bookkeeping
Miscellaneous
Office Expenses - (fax, postage & delivery, stationary & paperwork, printer, pens/pencils/markers/etc., files and folders, forms, computers, software, etc.)
Payroll Taxes & Insurance (other than direct labor payroll)
Sales Tax
Tools & Equipment
Taxes & Licenses – General
Telephone – Office & Cell
Utilities (electric, water, gas, trash, etc.)
Rent – Office, office equipment, furniture, etc.
Tools and equipment
Bad debt
Marketing and advertising

The logical source from which to obtain the amount and percentage of overhead is the income and expense statement. Therefore, if a contractor has not had an accurate income and expense statement prepared at the end of a period and established his true overhead to apply during the next period, he is bidding completely in the dark. If he is not applying enough to cover his overhead on each job during the period, the error will be multiplied by the number of jobs installed and the statement at the end of the next period will most likely show a net loss. Also, if this contractor does not have and income and expense statement prepared more often than once a year, he may (and many have) find himself in serious financial trouble, or bankrupt, at the end of the year. You should prepare and use your financial statements at least quarterly and monthly if possible.

The most accurate method for determining an overhead percentage is to arrive at this percentage in terms of the selling price.

The following example shows how to arrive at the correct overhead percentage:

Assume a contractor’s income and expense statement for the year showed sales to have been $15,000 and overhead expenses as $3,750. The overhead percentage of sales for that year is computed by dividing the dollar amount of overhead ($3,750) by the dollar amount of sales ($15,000). In this case overhead would be 25% of sales ($3,750 ÷ $15,000 = 25%).

The following steps would be followed to arrive at the correct selling price for a job, once the overhead percentage has been established:

This contractor wants to bid on a job on which he has established his total direct cost (direct labor, direct labor burden, material used, etc.) to be $1,000. He knows his overhead percentage is 25% and he wants to make a 5% net profit on this job. First, add the overhead and profit percentages:

Overhead 25%
Profit 5%
Total 30%

Next, subtract this total (30%) from 100%, which represents the selling price. The remainder of 70% is the percentage which the total direct costs for the job are of the selling price.

Then, divide the total direct coast ($1,000 by .70 (70%) and the correct selling price will be $1,428.57 ($1,000 ÷ .70 = $1,428.57).

If you were to just add 30% to the direct coast, you would come up with $1,300which is $128.57 less than you should actually charge.

As you can see, if you do not accurately account for your overhead and profit, you will short change yourself a great deal over the course of a year.
_________________________
Thanks
Steve

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#156989 - 08/29/05 01:50 PM Re: Overhead Costs for Resi Service Business
lbrewer Offline
Junior Member

Registered: 08/29/05
Posts: 3
Loc: St. Louis, MO, USA
Good post Doug. This is no way to establish your pricing strategy though. Think about it what is your biggest expense bar none? Labor! If you can control this, you can ensure profit. Your pricing stratehgy should be centered around this and should work in conjunction with other systems in your business...your company appearance, your phone answering system, your dispatching, etc. The list goes on and on. I would not advice establishing an abitrary price based on these numbers. What if you find that your overhead has changed to 85% of your business? Then you are up the creek as they say.

Besides...only 5% profit. This is absolutely unacceptable in the service world. You won't do anythign but earn a wage and eventually close up at those margins!

Landon

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#156990 - 08/29/05 05:46 PM Re: Overhead Costs for Resi Service Business
dougwells Offline

Member

Registered: 05/03/03
Posts: 1228
Loc: kamloops BC Canada
Thanks for bring this back. I am just curious what my overhead is. I was thinking 65.00 per hour ATM but was talking to someone last week and he figures more like 85.00 This is getting worked on as i type this. I understand the service Business isnt based on my overhead as this would leave very little profit. my idea of a profit is much more than 5-50 percent

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