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Discussion Starter · #1 ·
We are a small and fairly new renovation business. It consists of myself, a full time worker but not an employee and several subs for painting, flooring, carpentry etc.

My question has been. How do we handle our finances and keep things divided from our personal expenses and daily living and keep our business, cost of business, tools, vehicles, insurances...etc all in their own category??

We don't have an accountant and just recently started using quick books to help with receipts and tracking things but my wife does our taxes and I do the work and the money comes and goes and our business and reputation has grown. We are doing bigger volume and higher paying jobs but the money is steadily just coming and going and not really staying for long I might add and it seems like there is a leak somewhere ..and I believe it's our way of handling the "paper work " side of things that is keeping us from REALLY growing or being able to save up or invest in the business or even outside the business.

Does anyone relate?
Has any one been there done that and what did you do to break through and move forward??

Advice? Recommendations? Questions?

Thanks in advance!
 

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I have been going through the same thing myself. I don't think there is any magic pill.

For starters you need to separate your financial business life from your personal life NOW. Get a separate business checking account and credit/debit card. Enter all of your business income / expenses into Quickbooks.

You might want to look into the local SBA to see if they offer help for starting a business.
 

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GC
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You have to figure out your numbers and include that in your pricing.

Labor, materials, overhead, profit.

There are a lot of posts in this forum on this topic. I'm just starting my business and have learned quite a bit by reading them.

Make sure you get a COMPLETE picture of your overhead. Every single expense it takes to keep the doors open that is not directly billable.

Because my business is new, my overhead expenses are not nailed down airtight yet. I'm starting with 10% and will adjust from there. Also starting with 10% profit.

Labor = billable hours x hourly rate
Materials = price of goods and consumables + tax
Overhead % = 10% = 0.1
Profit % = 10% = 0.1

So, here is how I find the overhead and profit amount in each estimate.

Overhead $ = (overhead% / (1-(overhead%+profit%)) x (L+M)

Profit $ = (profit% / (1-(overhead%+profit%)) x (L+M)

Total estimate =M+L+O$+P$

Now, I don't show the client the O$ or P$ as separate line items. I add them to L$ and have it labeled "Labor & Overhead".

Example; say I estimate a job and figure out it will take $6,000 materials and $4000 labor. I want 10% for profit and 10% for overhead.

M=6000
L=4000
O=10%
P=10%

O$= (0.1/(1-(0.1+0.1))x(6000+4000)
=(0. 1/(1-.2))x10000
=0.1/.8 x 10000
=.125 x 10000
=1250

Do the same thing for Profit$

P$=(P%/(1-(P%+OH%)) x (M+L)
=1250

Add it up

Materials = $6000
Labor & Overhead (and profit) = $6500

Total = $12500

This is more complicated than just multiplying M+L by 1.25, but it will allow me to easily adjust my P% and OH% in the future.

Hopefully the more experienced guys will share and point out anywhere my methodology may be wrong.
 

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Discussion Starter · #4 ·
Thanks so much for the replies so far!
Definitely need to get my overhead and costs down tight to a solid pattern or equation as my quotes do differ and although I do have an "average" i also just adjust my quotes based on distance and what I feel like my customer is going to be like if I must be honest. But how do you factor in tough customer vs an easy going customer in a quote? Should I also have a " particular " customer added cost?
Lol surely i'm not the only one to deal with those customers although we try to avoid them altogether they sometimes catch you off guard mid project!
 

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Discussion Starter · #5 ·
Drawing the line between personal and business and using separate accounts has been our toughest hurdle I would say.
We do have a business account and a personal account but we haven't been able to keep things separate for long periods and end up just using one more than the other.
Also because we haven't quite figured out my own salary weekly or however. We sort of just use what is available after finishing a job and sometimes in between. It's really not we'll structured or organized and it's embarrassing to admit but this is why I'm looking for help and advice. I want to be more professional in that area and set myself up for success and not burn out or failure soon after
 

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Goin' Down in Flames....
Highwayman
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One comment on overhead.

Percentage can cost you your business if you are not very careful.

There are two types of OH. Fixed and variable.

Fixed would be your truck payment, insurance, office rent.

Variable would be fuel, incidental supplies, (blades, sharpies, tape, etc), office hours, vehicle maintenance, etc.

Your fixed overhead will remain the same whether you do 20k a year, or 200k year.

Your variable will be roughly job dependent.

If you figure your OH percentage based on a projected yearly sales volume, and you come short of that, you fail to recover funds for fixed OH.

If you base your variable on the same, and take on jobs with different parameters during the year, you’ll fail to recover enough to cover the variable overhead.
 

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Discussion Starter · #7 ·
One comment on overhead.

Percentage can cost you your business if you are not very careful.

There are two types of OH. Fixed and variable.

Fixed would be your truck payment, insurance, office rent.

Variable would be fuel, incidental supplies, (blades, sharpies, tape, etc), office hours, vehicle maintenance, etc.

Your fixed overhead will remain the same whether you do 20k a year, or 200k year.

Your variable will be roughly job dependent.

If you figure your OH percentage based on a projected yearly sales volume, and you come short of that, you fail to recover funds for fixed OH.

If you base your variable on the same, and take on jobs with different parameters during the year, you’ll fail to recover enough to cover the variable overhead.
That's a great point!
I'll definitely take that into consideration on everything.
Thank you for your input on this
 

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Keep an eye on your local community college for const. bus. mgt, const. estimating, starting a business, courses and similar.

I went at night for a couple of years.
 

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What worries me the most about your statements is the mixing of business and personal accounts. You have to have the discipline to have a business account separate from every day life. All sorts of tax problems and liabilities if you don’t. Move money from business to personal to pay yourself and you can loan money back to the business when desperate times happen, but keep records of all transactions. Your tax auditor will appreciate it.


Sent from my iPhone using Tapatalk
 

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We are a small and fairly new renovation business. It consists of myself, a full time worker but not an employee and several subs for painting, flooring, carpentry etc.

My question has been. How do we handle our finances and keep things divided from our personal expenses and daily living and keep our business, cost of business, tools, vehicles, insurances...etc all in their own category??

We don't have an accountant and just recently started using quick books to help with receipts and tracking things but my wife does our taxes and I do the work and the money comes and goes and our business and reputation has grown. We are doing bigger volume and higher paying jobs but the money is steadily just coming and going and not really staying for long I might add and it seems like there is a leak somewhere ..and I believe it's our way of handling the "paper work " side of things that is keeping us from REALLY growing or being able to save up or invest in the business or even outside the business.

Does anyone relate?
Has any one been there done that and what did you do to break through and move forward??

Advice? Recommendations? Questions?

Thanks in advance!
One thing I wish I did at the beginning is figure out my exact costs for everything related to my personal life per year. It’s easy to forget to do this.

Then figure out what number you want to see in the bank at the end of the year after you’ve paid all the above bills.

Obviously that number should not by south of 100k at a minimum or else, why are we doing this.

So say your bills are 50k and you want 100k at year’s end...well now divide that number by .6 to give you plenty of cushion for taxes and unforeseen crap.

150k / .6 = 250k
Divide that per month and you get a smidge over 20k per month.

That’s your magic number. 20k per month.

Now what’s your overheard for the month? If it’s just you and company bills, maybe 5k?

So if you sell one job a month that costs 25k to complete then you need to sell it for 50k.

If these numbers seem unattainable then you probably need to pull yourself out of the field and focus on sales full time. Your labor hours can only generate so much. Let somebody else do the work.

You gotta hit that 25k number. How you gonna get there? For us, each project manager makes 75k/year, but they generate a bonus 20k/month for the biz.

Only bid based on margin. Try marking up all costs 100% as a start.
 

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Discussion Starter · #11 ·
One thing I wish I did at the beginning is figure out my exact costs for everything related to my personal life per year. It’s easy to forget to do this.

Then figure out what number you want to see in the bank at the end of the year after you’ve paid all the above bills.

Obviously that number should not by south of 100k at a minimum or else, why are we doing this.

So say your bills are 50k and you want 100k at year’s end...well now divide that number by .6 to give you plenty of cushion for taxes and unforeseen crap.

150k / .6 = 250k
Divide that per month and you get a smidge over 20k per month.

That’s your magic number. 20k per month.

Now what’s your overheard for the month? If it’s just you and company bills, maybe 5k?

So if you sell one job a month that costs 25k to complete then you need to sell it for 50k.

If these numbers seem unattainable then you probably need to pull yourself out of the field and focus on sales full time. Your labor hours can only generate so much. Let somebody else do the work.

You gotta hit that 25k number. How you gonna get there? For us, each project manager makes 75k/year, but they generate a bonus 20k/month for the biz.

Only bid based on margin. Try marking up all costs 100% as a start.
Awesome advice brother!
Thanks so much.
We'll definitely out this into action.
 

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Most of my career has been as Estimator, including several years in renovations and I also do bookkeeping part time.

Use as much technology as posible. There are tons of apps to keep things organized.

In regards of quickbooks. I do recomend to get a companion app. Everytime you get a receipt. Take a picture of it. There are several ways to load it on quickbooks with companion apps.

Quickbooks recently acquired Tsheets. Get your guys to clock in "per job" and switch when nessesary. You need to know how many man hours each job is taking.


Separate you expenses per project and keep track of it. Some apps out there, your foreman not only has to clock himself and crew members in/out but he also has to mention how much material of the items important to you he used that day. This is key as if you budgetted 300 studs. How come we used 600?

Dont wait to grow more to get organized.

In another note. Renovations is the most challenging estimating I have done in my career as there are too many unknowns.
 

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I can second what everyone said. I’ve been doing this for 20 years and at the end of the year when my accountant tells me we made $50K profit, I’m like where? But you spend your profit along the way. They call it owner draws. Give yourself a salary. Maybe it’s $75/hr on every job wheather you work on that job or not. Pay yourself and use that for personal expenses. On items such as gas, company pays that right? That was for a job right?.
I also recommend building a spreadsheet for helping to properly estimate a job.
How many hours at what rate?
What are mtls going to cost (get real time quote, limber changes daily)
Put in a way to charge more to travel
Ditto for a PIA job or customer
Once you figure out your fixed overhead and you can figure out about how many jobs you will do per year, put in a number that covers those dollars
So, variable, check
Fixed, check
Finishing job under estimated time, check
Now add a percentage or daily or however for profit. Your salary already calc in labor. Profit is $ you stick in the bank for tools, better truck etc...
Oh and by the way, raise your prices! Go as high as you think your customer base will tolerate. In this climate, people will pay

Hope this helps. Good luck


Sent from my iPhone using Tapatalk
 

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Kowboy
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Your "full time worker but not an employee" is frightening. You'd better check into who is a subcontractor and who isn't. Unless paying taxes and getting hit with a worker's compensation fraud charge appeals to you.
 

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I would not say the full time woker is something frightening.

What is really frightening is having no bookkeeper and/or accountant.

Most people assume because they are not making as much money as they think, somebody is stealing. Its just human nature.

Not sure how he keeps control of personal/company taxes, employ deductions, etc. Neither knows how something can be used as company expenses or shareholder loan (personal expenses).

Another common mistake is smaller companies keep bad control of the payments they receive. For instance, you issue Invoice A. Receive a payment for it and deposit it right away in the owner personal bank account without relating on the system the payment to the invoice. In other words, the invoice is still outstanding on the system even though is paid.


Another mistake is the owner does not have separate bank accounts and credit cards for the business. The owner keeps using his personal accounts to pay and receive payments for the business.

The reason to have these separate is that anytime money flows from or to the personal account, you know is shareholder loan related transaction (credit or debit depending on what is it).

Without pointing fingers, I highly recommend to get a bookkeeper/accountant.
 

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Highwayman
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I’ve been doing this for 20 years and at the end of the year when my accountant tells me we made $50K profit, I’m like where? But you spend your profit along the way. They call it owner draws.
You are badly mistaken, and this is why many contractors go out of business.

PROFIT IS NOT YOUR SALARY. Repeat this to yourself as many times as is necessary until you understand it.

Your pay for working on and/managing a project is just like labor for a lead or laborer.

Profit goes into the company. Not your pocket.

Profit goes for business expansion. Surviving slowdowns. Warranty work. Call backs. Accidents. Equipment failures. Capital reserves. Bonuses.

I recommend David Gerstel’s two books to anyone embarking on this career
 

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Not trying to make a debate on this but some business are more profitable than others.

The very profitable ones, an owner can use the profit for business expansion. Surviving slowdowns. Warranty work. Call backs. Accidents. Equipment failures. Capital reserves. Bonuses Etc.

On these, where is legal an owner can even hire himself as employee and get two tax slips. One for his income as employeee and another for his company profits. In some places there are benefits on doing this.

However, a bunch of people outthere are just barely surviving. Very common with a self employed person who hires couples guys too. A guy getting a profit of $50k/year is a good sample of that.
 

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You’re not understanding the underlying concept.
You are likely correct but to understand the concept, the owner has to know the difference beween company and owners expenses which is the undelaying problem.

If an owner is told by the accountant he did X amount in profit and he asks the accountant where is it? and he is told it went to owner's draws, he for sure does not understand the difference between the 2.
 

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In regards of quickbooks. I do recomend to get a companion app. Everytime you get a receipt. Take a picture of it. There are several ways to load it on quickbooks with companion apps.
Quickbooks online you can snap a picture of the recipe and it will automatically upload and Categorize it

No need for an app


David
 
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