Figuring out how to add overhead for part time/start up company
If this is already on here I apologize but I can't find it, although it's very possible that I'm just not looking for the right keywords.
Okay, I know that each company will have different numbers for each job. I am trying to get a business up and running. For the fall/winter I plan on just doing a little part time work (this is a deck business, not too many people want to sit outside in the cold) just to get my name out there and get my feet in the water. This spring I plan to quit my job and go full time. I'm sure I will not have enough business (at first) when I go full time to put in a full 40 hr week (of swinging a hammer, not including paper work etc.).
Now I know how much I'll charge for labor, what my overhead cost will be, and what I want for profit. My question is if my overhead is "x" amount of money a year, month, week, etc. do you just add in the overhead as if I worked full time, without changing anything, and just take the loss, or do I compensate for lack of business? I'm afraid if I, say double, my charge for overhead to make up for lack of business I will bid myself out of the water. I also don't think it's the customers fault that I don't have a full schedule.
Another thing I was thinking was maybe I am breaking my overhead down too far. Instead of breaking it down to a day or hour (depending on job) maybe do a week. If I could build 2 average decks a week, and only get one just have my overhead for the week covered by that job. As I type that I guess it's basically still having the customer reimbursing for my lack of business. :blink: I guess that's why I'm asking you guys.
Thanks for the help guy:thumbsup:. And if something doesn't make since please ask, I had trouble figuring out how to word some things.
Okay, I know that each company will have different numbers for each job. I am trying to get a business up and running. For the fall/winter I plan on just doing a little part time work (this is a deck business, not too many people want to sit outside in the cold) just to get my name out there and get my feet in the water. This spring I plan to quit my job and go full time. I'm sure I will not have enough business (at first) when I go full time to put in a full 40 hr week (of swinging a hammer, not including paper work etc.).
Now I know how much I'll charge for labor, what my overhead cost will be, and what I want for profit. My question is if my overhead is "x" amount of money a year, month, week, etc. do you just add in the overhead as if I worked full time, without changing anything, and just take the loss, or do I compensate for lack of business? I'm afraid if I, say double, my charge for overhead to make up for lack of business I will bid myself out of the water. I also don't think it's the customers fault that I don't have a full schedule.
Another thing I was thinking was maybe I am breaking my overhead down too far. Instead of breaking it down to a day or hour (depending on job) maybe do a week. If I could build 2 average decks a week, and only get one just have my overhead for the week covered by that job. As I type that I guess it's basically still having the customer reimbursing for my lack of business. :blink: I guess that's why I'm asking you guys.
Thanks for the help guy:thumbsup:. And if something doesn't make since please ask, I had trouble figuring out how to word some things.
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How much overhead can you have when your not doing jobs. This is key to my success. I don't have a fancy office, so if I don't have work I don't have a lot of overhead.
There are certain things I have to have all the time. Like my vehicles and my bookkeeper. But that's pretty much it for my business. Now I have personnel bills that don't stop because I stop working, those are the ones that are costly. I wake up on the first of every month and owe about $7000.00. Mortgage, kids college and all the other chit it takes to survive.
There are certain things I have to have all the time. Like my vehicles and my bookkeeper. But that's pretty much it for my business. Now I have personnel bills that don't stop because I stop working, those are the ones that are costly. I wake up on the first of every month and owe about $7000.00. Mortgage, kids college and all the other chit it takes to survive.
DeckingOutKC said:
I don't have much. I am paying my truck off before I start, but I plan to still use that payment in my overhead so when I buy a new one my bids don't increase. I will only have things like marketing, auto, my income, and all the insurances associated with a business.
Do you add your personal expenses on top of your salary to your overhead?
Oh Boy.... The old overhead/profit/costing issue.
Way I see it, you are asking two different, but seemingly related questions.
One is an accounting issue of how to allocate overhead costs. In your case, as a startup, would be to estimate accurately your OH costs, and allocate them to your estimated jobs on probably either a revenue or time basis of each expected job.
Yes, viewed in this manner, I guess it could be argued you are charging your customers for your downtime...but that is really irrelevent and only an accounting concept.
From a business perspective, which should be your major concern, you want as much "contribution to OH and profit"(rev minus labor/materials) as the market and your services will bear.... ie get the best price you can.
That should be your focus.
Assuming you want to remain an ongoing business, it will help you to know if you are at least covering your OH costs in your (contribution to OH/profit" estimate. Because if you are not, you will not have long term survival/prospects.
But as a start-up, with low volume, you may encounter instances where you are not covering your OH allocation on a job (why... you can't get a better price at the time or as a start-up). It can still be beneficial to take the job.... you will be loosing less money than not taking the job. (This is a short run start-up consideration only)
For instance, let's say you have 5K annual estimated OH... and you estimate that you are going to have only 2 5K cost/value (reflecting normal OH allowances of competitors) jobs during start-up.
If you were to allocate 2,500 to each 5K job, you'd price at a minimum 7,500 per job (for break even). Assuming the jobs are 5K value, you are not going to be competive with a 50% premium. You will not get either job and loose your OH of 5K that year. If you take/get the jobs at say 6K (below your allocated OH per job estimate) you would have 1k contibution per eash job and only loose 3K that first year.
This is the concept of a start-up with out sufficient revenue/volume to cover it's OH.... think numerous internet ventures (Facebook) that have not made money in their first years.... they can't pass their full OH costs thru to their advertiser (in this case) on their start-up limited volumes.
This is mostly conceptual to your instance, but I think important to understand. In your case 1) your OH should be kept to a minimum and realistically you should be able to cover it even on low volume... but by the same token, don't expect you can price a year's worth of your F350 depreciation into your several/limited deck jobs that you estimate you might have the first year.
Bottom line, know your OH (and other costs), and whether you will be profitable in the long run, BUT price as high as you competitively can
to contribute to your "OH and profit" as a start-up.
Best
Way I see it, you are asking two different, but seemingly related questions.
One is an accounting issue of how to allocate overhead costs. In your case, as a startup, would be to estimate accurately your OH costs, and allocate them to your estimated jobs on probably either a revenue or time basis of each expected job.
Yes, viewed in this manner, I guess it could be argued you are charging your customers for your downtime...but that is really irrelevent and only an accounting concept.
From a business perspective, which should be your major concern, you want as much "contribution to OH and profit"(rev minus labor/materials) as the market and your services will bear.... ie get the best price you can.
That should be your focus.
Assuming you want to remain an ongoing business, it will help you to know if you are at least covering your OH costs in your (contribution to OH/profit" estimate. Because if you are not, you will not have long term survival/prospects.
But as a start-up, with low volume, you may encounter instances where you are not covering your OH allocation on a job (why... you can't get a better price at the time or as a start-up). It can still be beneficial to take the job.... you will be loosing less money than not taking the job. (This is a short run start-up consideration only)
For instance, let's say you have 5K annual estimated OH... and you estimate that you are going to have only 2 5K cost/value (reflecting normal OH allowances of competitors) jobs during start-up.
If you were to allocate 2,500 to each 5K job, you'd price at a minimum 7,500 per job (for break even). Assuming the jobs are 5K value, you are not going to be competive with a 50% premium. You will not get either job and loose your OH of 5K that year. If you take/get the jobs at say 6K (below your allocated OH per job estimate) you would have 1k contibution per eash job and only loose 3K that first year.
This is the concept of a start-up with out sufficient revenue/volume to cover it's OH.... think numerous internet ventures (Facebook) that have not made money in their first years.... they can't pass their full OH costs thru to their advertiser (in this case) on their start-up limited volumes.
This is mostly conceptual to your instance, but I think important to understand. In your case 1) your OH should be kept to a minimum and realistically you should be able to cover it even on low volume... but by the same token, don't expect you can price a year's worth of your F350 depreciation into your several/limited deck jobs that you estimate you might have the first year.
Bottom line, know your OH (and other costs), and whether you will be profitable in the long run, BUT price as high as you competitively can
to contribute to your "OH and profit" as a start-up.
Best
The only thing I add to my company is things I can legally write off as an expense. But I pay my insurances at the beginning of every year, vehicles and GL. My overhead is very low. I pay a bookkeeper a lawyer on occasion and my accountant. My father was a contractor and always preached that you pay your professionals very well, they will keep you out of trouble and save you money.
DeckingOutKC said:
Very Wise
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