OVERHEAD

Terry,

For years we struggled with overhead for years, one year we made money, one year we didn't. We marked our costs up 30% for overhead and that total we marked up 20% for "profit". In effect, when the calc's were done, we marked out direct costs up 56%. It didn't always work.

In 1994 we started taking last years financial information, took every expense that was not labor, material or subcontractor, and divided that number by the total labor cost.

This gave us an overhead figure that was represented as a percentage of our labor.

For the next year's estimates, we calculate our overhead by multiplying the estimated labor by that overhead percentage. I can tell you it has run from between 150% and 200% of our labor costs every year.

Ever since adopting this method, our financial year end has mirrored what we anticipated from our job completion reports. Every contractor that I know, who has adopted a time based labor overhead calculation, be it a daily, hourly or labor percent basis, has said their financial bottom line has stabilized.>>>

Man, I'm about 3.5 seconds from chaulking this all up and start lookin for another job @ 55 I feel like I'm starting all over again at the bottom. Everything was wonderful until I purchased this building, sure there were hard times and slim pickin's throughout our first 13 years but it never seemed this hard to run the business. I've always felt fortunate that I work in a field I love and grew up in. I also have tried hard to clean up the unfortunate reputation in our industry. In the last 3 years I have spent thousands of dollars hiring so called companies that were suppose to help me turn this company around and now I'm more confused and broke then I have ever been. Deciding to purchase this building and expand in 2006 was a bad choice, before the ink dried, the economy took a shit and I've been hanging on by the tips of my fingures ever since. One of the main problems is we have alot of family working for us and like me roofing is all they know. I'm stuck between a rock and a hard place any suggestions?>>>

NOW, thats a problem. Our sales are just between 1 -1.5 million, Vaa how did you figure that I need to make 5.1 mill/per yr. to gross 30% profit? Are you saying that I need to sell 5.1 million to make a 30% gross profit, so that I can pay our salesman 1/3 -1/3 and 1/3? That just doesn't seem right, how can your overhead be running the same as mine without a 1/4 of the expenses I have?>>>

...in view of what you just wrote Terry, I think OS might have the answer.>>>

I leave the depreciation factor to my accountant. Vaa, your overhead expenses are running about the same as mine, but I have 10 crewman, 2 full time repairmen, 2 salesman (1 whom is my husband), 2 full time office girls (me being one) and 1 part-time girl to pick up slack and marketing in the office. I'm also running 5 trucks, 1 service van and one lg. box truck....Dam maybe I'm not doing that bad after all!@ Never the less, I am not making any money so I need to decide what I need to cut out to be profitable again. OR, here's a thought I need to figure out how much more we need to sale in order to break-even. Shit see what I mean, this is way to brain boggling for me.>>>

It did, You can't absorb it anymore. I got small, real small. I like it like that!>>>

When I was busiest and distributing tile, my monthly overhead was just under $15,000. When I was going at full capacity, about $90 to $120k, I hardly even noticed it. When things changed and I was doing $40 to 60k per month, it felt like it owned me.>>>

Well, I don't know if it helps, but I found ways to cut my household overhead. A lot!

http://www.contractortalk.com/f11/tough-economic-times-heres-some-help-61653/>>>

Yes you are in the ballpark with a 31% overhead.

The figures don't lie.

I couldn't believe that my real overhead hovered between 25% to 28% but just came to the conclusion that the figures needed to be accounted for, which caused me to increase my prices and that was fine, until the past two seasons, where other contractors are surviving on lower numbers.

So, how can You/I look at reasonable ways to cut our overhead?

Ed

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