[Grumpy]

....................

 

[Mike Finley]

You have expenses of $175,000 or almost $15,000 a month right out of the shoot? That sounds ridiculous to me, but I guess it all depends on what you are counting as an expense. Overhead to me is just insurance, rent, phones, vehicles, advertising, accounting, ect... Taking out all salaries and commissions how much are your expenses?

 

[Mike Finley]

I don't really know what your point is in all this. Budgets are wonderful to lie to banks to when you are looking for loans, but I have never kept to one, nor would I want to. They are a nice out line, but in every business I have been involved in we never approached staying within 50% of the projected budget (projected income or expenses budget) ideally things are so fluid that you react and adjust continually.

If you point is that you need to make $866 a day to break even, I don't agree or see the point other than a excercise to entertain yourself, that's just a projection, things will change dramatically as you go through your year. Since as you stated expenses can be anything to anybody it is meaningless except to yourself. I was involved with one company where we did 1.5 million in sales in a year, since every dollar of income was distributed to the partners you could say we had 100% expenses which would mean we needed $4100 a day in sales to stay afloat, however that wasn't true at all, not in the least. Taking a yearly number and dividing by work days just gives you a number, but it is virtually meaningless information to try and run your business off of.

So if the whole point is "What does this mean to me? Well if a roof job is one day I need to charge: labor+material+$886 JUST to break even!", no it doesn't mean that at all. It only means at the end of the year you better do X amount of gross sales if you are going to spend x amount of dollars on expenses. Whether you make 886 on monday, tuesday, weds ect.. or 8860 at the end of 10 days its all the same. BUT it is only relevant to your projections and nothing else.

 

[Mike Finley]

I Concentrate on one thing - make the phone ring off the hook and the rest takes care of itself. You can budget and project all you want, but if you are good, you will blow your budget out of the water so it just becomes an excercise.

My rates aren't based upon how good or bad a job I do at managing my expenses, they are based upon what the market will bear, how well I attract the type of customer I want and how well I do at selling my services to be the most profitable. No two of my customers will ever end up paying the exact same amount for similar work. (I'm not a Wal-mart selling bags of Doritos) If I get a break on an expense I don't pass it on to my customer to save them money, it goes in my pocket or gets spent to bring in more customers.

A Pair of levi's jeans and a pair of Guess jeans have the same amount of material but one costs the consumer $30, the other $130.

I know what a budget is, I have dealt with them all my life. What I said is I don't know what your point in all this is. Coming up with a daily nut is not valuable in any way.

Tell me what you are going to do tomorrow when you go do an estimate with regard to that $866 figure? - Nothing will be the answer.

 

[Mike Finley]

Grumpy, you aren't doing anything wrong, that is not what I am saying, however you are fixating and getting caught up in a microscopic theory of my reply instead of understanding the big concept. I have never operated on what would be considered traditional business methods in anything I have done. When I was young just like yourself I read and learned all that I could just like you are doing, then I met real sucessfull businessmen and quickly learned that there were many ways to reach a goal, I also found that being successful once didn't guarantee anybody would be where they were 5 years later, in fact the only guys I ever knew who were consistantly successful were the guys who knew nothing about business (in the traditional book sense) but they were great marketers, advertisers, salesman or self-promoters, with those skills they could be dumped into a pile of crap and within a short time come out rich.

You have to know your numbers in order to determine your business model, but a projected budget means nothing. Don't confuse a projected budget and everything else you have said in your last post, because they have nothing to do with one another.

The best thing you said was:

By your logic, I don't need to make 866 on each and every job, assuming most jobs are one day, all I have to do is give one customer a job for cost and then charge the next customer $1734 to break even.

which is exactly correct(except you would want to charge more than 1734, because you need to make some money). Your daily nut is meaningless each day. It is based on a projection, everything in that projection, individually is a projection. Figure out what your costs are and where your profit margin is and sell the hell out of your product and the rest will take care of itself.

Long ago we had a budget based on sales of $20,000 in January, we ended up doing $95,000 in January, stupid ass budget was shot within the 1st 30 days of the year.

Saving for upcoming expenses is a huge part of budgeting.

That's how suckers do business. Keeping a big cash reserve is the secret and reacting proactively to your market and taking advantage of it whenever you can is a guarantee for wads of cash in your pocket.

No two of your customers will pay the same for similiar work? That's interesting. If I have two houses next to each other built at the same time, by the same builder and they are identicle these customers are getting the same price, assuming the customers have the work done before I have any price increases from my suppliers or give my crews a raise.

Tha's why you will probably never see me build two houses next to each other. I told you before I don't have any desire to work as a sub to a GC, not because I dislike the terms of a contract, but because I like being as close to the customer as I can, which results in being able to control my profits. :Thumbs:

 

[Mike Finley]

... and I will adjust my magic number accordingly to reflect a new minimum

You just proved that your projected Magic Number is meaningless. Continually changing it means it doesn't mean anything. Your example, you reduce it down now, so what about all those jobs you passed up eariler because they didn't meet your magic number of the time? Suddenly they are now profitable based on your magic number of November 9th, 2004, but they weren't 2 month ago?

It is based on a projection, the projection is based on individual items that are projected...

Oy!

Too much fun for me, I gotta go excercise the dog.

 

[Craig]

Grumpy

I'm new to the forum, and maybe out of line, but I understand from your original post that your budget is driving your pricing. If that's the case, I question whether your pricing should be based on what you would like your business to be next year, as opposed to a reasonable projection of your actual expense.

I can understand using a reasonable projection of your actual expenses to establish a minimum pricing level, but it seems like you are establishing your pricing level based on what your expenses will be if your business grows as you hope. My concern is that pricing based on expectations of substantial growth may result in rates that can't be sustained by the market.

 

[Teetorbilt]

Grumpy, your system is in actual use. It is how our govt works. Everybody prepares a budget for approval of how many funds they will get for the next year. You can also see how well it works.
When I started my first business my concerns were that I can last XX long before I really need to start looking for another job. I have XX tools, what can I do with them? How much money am I going to commit to this enterprise? ($1,500). What can I do to get the word out. I picked up jobs by word of mouth and pounded the pavement anytime I wasn't working. I talked to everybody and anybody, I pulled a lot of work out of my barber. Bartenders are untapped sources too. I was a little awkward the first month while I was sorting things out but by month 2 I was clearing more than I had made in my last job and I had DEDUCTIONS! Every month I'd buy a needed tool or two and add to my financial cushion, never taking out anymore than was absolutely required to live. I ate lots of chicken and vegetables, good news, my chloresterol was always below 150.
In 2 yrs. I had a 2K sq ft shop, 2 trucks, 3 employees and wasn't eating nearly as much chicken. That was 16 yrs. ago.
Basic plan = hard work, playing close to the vest, determination and making more than you're spending. Oops, forgot. NEVER borrow money or you will find yourself working for the bank. Do it yourself and you get to keep everything!
Mike touched on this. Perceived Value. This is the value that the customer attaches to the job. It is not relative to costs, it is what the customer perceives to be the value of the job. This is out and out sales. You have to convince him that your company is the best one for the job regardless of the cost to them.
Simple!
Classic perceived values:Cars; 4X4, down here we say it gets you 50 yds. farther away from where you should have stopped.
0-60 in .... You're usually behind a line of traffic anyway.
285 HP. Yea, at 6,000 RPM, that's useful. By the way you can only legally go 70 in most places.
Buy American, they depreciate the quickest.
Drive your SUV up a cliff in the morning and to the theatre at night, nowhere near as classy as a Rolls or Ferrari at the theatre.
Next class. I'm going on almost 2 mos. with very little in the way of jobs or income. A month of hurricanes and now everybody is waiting on insurance checks before they make a move. None of my ins. has come through to date. My guys have been paid and helped throughout the debacle. Plug that into your forecast and see what comes out. BTW nobody here saw it coming. I can and will overcome it. How? Don't know but I'm not going to sit around crunching numbers on hunches, I'm going to figure out how to make more money and as long as more comes in than goes out I'll be doing fine.

 

[Teetorbilt]

Grumpy, If you're going to make it without a very early heart attack, you're going to have to slow down.
What Mike and I were saying is that we don't care what the 'overhead' is per se. It is only a reference to profit.
I'm real curious as to who is giving you hard numbers. Former Worldcom or Enron execs? Harvard business professors? New MBA's? There are no hard numbers! As I type this the price of oil could double along with the price of your electricity, shingles and transportation costs. Exaggerated, surely, but to make a point. Nothing is fixed in business, I believe that Mike mentioned 'flux' an excellent term.
Have you seen the movie 'Back to School'? If so, watch it again. Books and real life seldom match.

 

[Teetorbilt]

Mike, I think that he bailed.
Some people, tell them what they don't want to hear......
I know this one. HEE'LL BE BACK!