I was wondering what the average overhead is for a small shop. I am owner/operator into my second business year with 3 employees. I also work in the field. I have figured it takes about a $1,000 dollars a week to run my company, this includes 2 yellow page ads, two trucks, a car(more personal than business)a lead agency, others such as gas and ect. Does this sound like too much overhead for this size of a shop. I have recently improved my company by paying the guy's taxes and workman's comp insurance. I am starting to come to the conclusion that running a business is not cheap, I have long realized this just more than ever now. I have implemented flat rate pricing but still am questioning my estimating practices. Doing away with by the opening price and figuring jobs on how long will it take, material, and percentage profit desired. Also factored by schedule and location of the job. What is a good percentage to shoot for? I am constantly trying to improve my company and would greatly appreciate any insights or advice.
Jesus may have been a capenter,but God was an electrician.Genesis1:3
I would like to suggest two "quick and dirty" checks to make on your bids. While these methods are far from perfect - so simple, there are many things that might throw them off - I find them a useful check. If my quote differs by much, I will look closer at the job, and try to determine 'why?'.
Ball-park check #1: Triple the cost of the materials. This ought to be about your price. Can be thrown off by the use of specified products, or jobs that have little in the way of materials.
Ball-Park check #2: Triple the base pay of the guy who will do the work. For example, if it will take your $20/hr guy an hour ... 3x 20= $60. Your price ought to be more than this figure. This method is useful in deciding whether to rent equipment to speed up a job.
Bot, Do you not have any accounting going on? Your overhead can be gathered from your books or software or your accountant. It includes EVERYTHING it takes to run your business. Rent, building & vehicle insurance, loan payments, fuel, average repair costs, tool expenses, vacation/sick time expenses, retirement benefits, permits, advertising, telephone & utilities, office supplies, accountant fees, legal fees, permits, licensing, computer & software expense and anything else you might spend. I suspece you really need at least six months to a year of data to get a decent idea of what you are spending on a monthly average.
The other thing is labor burden which includes work comp, liability ins, fed & state unemployment expenses and possibly health insurance benefits. These costs are a % of each dollar you pay your help.
Until you get an idea where you're at, you cannot be competitive with maximum profit. You are shooting in the dark with a WAG! You bids will have too much profit or too little. Your competition may have more overhead but if he knows what he can get away with he may cut his profit a bit to keep his men busy til a better job comes along. I've lost a $20,000 bid by as little as $50!
Too little profit and you close shop or work your but off for nothing. Too much profit and you will likely have too much free time on your hands, which your men will not like and will look for a job elsewhere if they aren't getting their time in.
If you want to do this and enjoy it you've got to do your homework. It will be much more enjoyable when you're making money and staying busy! Good luck.
Teester, since I work in the field I have long neglected this chore. I have been using quicken and have taken averages from the past 6 months and year. Part of the hard part is that my accounts payable come close if not equal to my accounts receivable. I know being a new company that this is inevitable as we need tools and other things established companies have paid for long ago. I hope to start putting a gap between the two and have been told it takes around 3 years. This system has worked fine for me, but I want to do better. We have been able to pay our bills and even invest a decent amount back into the company. Now that I have more overhead I want to make sure I am making a profit, especially since I work alot. I know pipe and wire all day long and I am now learning the business end of it. I have basically tried to break it down to what it cost per day and try to base jobs on this number.
Jesus may have been a capenter,but God was an electrician.Genesis1:3
He is going to have trouble finding his cost, I notice he said "my accounts payable come close if not equal to my accounts receivable. I know being a new company that this is inevitable as we need tools" He is mixing assets with operating accounts.
It sounds like he needs a basic accounting course, so he can better budget, and track his real operating costs, he may enter the wrong information, in the cost calculator, if he has his expenses lumped together, same with employee burdens and actual employee costs.
I consult and train contractors as well as having been an electrical contractor myself. The one thing I can tell from both personal experience and observation is that there is no average overhead percentage for a small shop. Now your overhead my cause you to be to high for particular types of work.
I don’t know your background as far as education or early family life but the thing I know is that I was never taught about money or business. You learn it through experience, unless you’re extremely fortunate and have had educators, parents or a mentor that guided you through the early years of your business.
A word of advice when contemplating overhead, I try to think about it on a yearly basis, not weekly. In my opinion looking at things weekly narrows your thinking and causes decisions to be made due to temporary surges and spikes. This week’s cash flow is great, costs are down and this has been true for 5 weeks; let’s go buy the corvette we have always wanted. Two weeks after the car is purchased a pile of invoices from those good five weeks come in and you’re in trouble. First do you have a written business plan for your firm? A business plan in your head is an idea, not a plan. Second calculate out what your yearly anticipated expenses are likely to be. As you get more years under your belt this becomes easier, it is never easy, but it will be easier because you have had increased experience. Now and this is just as hard calculate what your anticipated yearly sales for the firm are going to be for the same period (I told you this may not be easy). Divide the sales by the expenses and you have your anticipated overhead percentages.
Do you think your sales will reach the goal that you set? I doubt it. Do you think your expenses will exceed what you anticipated? Probably! For these reasons you need to check both sales and costs 3 to 4 times a year so that you can adjust your overhead accordingly.
Over the years I and many other firms that I have been associated with have used this method successfully.
Another sticking point with me is to know what your labor burden is for both estimating purposes and tracking purposes. The better you get at this the clearer the path will be for you in the future.