# If these were your numbers, what would you think/do?



## MrFindaway (Mar 24, 2016)

Total sales: 154,000

Payroll: 48,600 (32%)

Business expenses including overhead: 78,755 (51%)
(overhead: 41,192, materials and subs: 37,563)

Profit: 26,748 (17%)


IF you looked at your balance sheet and saw these numbers what would be your gut reaction?

This is an exercise in my business class and I am looking for real world input from you guys. Thanks!


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## mako1 (Sep 1, 2013)

I'd be bankrupt.Did'nt they teach you simple math in middle school?
If I was going to college to learn this I would be shamed of myself and want my money back from the school.
Your profit is not your pay.It goes into the company to keep things going.New equipment,emergencies,bank account and so forth for the company.
Business expenses including overhead is a stupid statement .Busines expenses are overhead.At the least it is reduntent.
This includes everything it costs you to run your business which is a very long list.Do you have a janitor that cleans at night? Don't forget him.Do you have an accountant,lawyer,utilities?Do you put gas in your truck?How about ink and paper for you pinter?You get the point.
Profit is a little piece of change that you need to put back into the business to keep it running.When times get slow it's a buffer.When you need new equipment it's there.If you don't get paid for a job or are sued it's there to help out.It helps maintain and grow your business.
You're example shows 100% of your gross going into these things.No wiggle room and I'm hoping that your included in the "payrol" or you have made nothing.I am never included in the "payroll" as what I make is what is left over and according to the above figures I would be broke and out of business.


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## BamBamm5144 (Jul 12, 2008)

What type of exercise?


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## KAP (Feb 19, 2011)

MrFindaway said:


> Total sales: 154,000
> 
> Payroll: 48,600 (32%)
> 
> ...


How many employees for "payroll"? Is it a one-man operation?


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## Dan_Watson (Mar 1, 2008)

mako1 said:


> I'd be bankrupt.Did'nt they teach you simple math in middle school?
> If I was going to college to learn this I would be shamed of myself and want my money back from the school.
> Your profit is not your pay.It goes into the company to keep things going.New equipment,emergencies,bank account and so forth for the company.
> Business expenses including overhead is a stupid statement .Busines expenses are overhead.At the least it is reduntent.
> ...


Definitely not how I would define profit or how we handle it. Profit goes to the owners, what you call profit sounds like working capital, emergency funds and tool/equipment allowances, etc.


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## mako1 (Sep 1, 2013)

You guys ask way to many questions.He's a college student on an assignment.He should know how to give the correct information to receive the answers to his questions ! Should'nt he? Or how far will he make it in his business class or the jungle?


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## Dan_Watson (Mar 1, 2008)

His question brought up an interesting topic. Regardless of who he is or what his intentions are (aside from not abiding by the site rules) its a good conversation.


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## 91782 (Sep 6, 2012)

MrFindaway said:


> Total sales: 154,000
> 
> Payroll: 48,600 (32%)
> 
> ...


*overhead: 41,192* My gut says the business is spending way too much on paper clips and pencils.


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## Bradcon (Sep 9, 2015)

You getting soft on us Dan?


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## mako1 (Sep 1, 2013)

Dan_Watson said:


> Definitely not how I would define profit or how we handle it. Profit goes to the owners, what you call profit sounds like working capital, emergency funds and tool/equipment allowances, etc.


What I call profit goes into the business or a profit margin on each job goes into the company.What is left over after everything is said and done is mine.I can call it whatever I want.Pay salary,labor,bread money!
Just my way of doing it .
Your way of defining it is that the profit goes to the owners?That's cool but what goes back into the business?Nothing?Part of the profit?
When you need to buy a new tool or truck where does that come from?It does not come from Labor,Materials or Overhead ?
Just a matter of semantics as far as I'm concerned.
You say potato I say potatoe or the other way around.


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## Dan_Watson (Mar 1, 2008)

Bradcon said:


> You getting soft on us Dan?


I thought the same thing. :laughing:

I did mention he is probably breaking the rules, but Mako made this interesting with his reply so now I am interested in what others think.


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## Bradcon (Sep 9, 2015)

SmallTownGuy said:


> *overhead: 41,192* My gut says the business is spending way too much on paper clips and pencils.



Just depends what he has in overhead. I have a portion of my pay in overhead. No way of knowing how he is doing with just this information imo.


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## Bigheadnick (Jan 14, 2013)

From what I've been thought, profit should be 15-25% of gross sales. This does not include what you pay yourself. Which should be included in your payroll costs. That 15-25% is also after all overhead is paid. It should be put into a company account to use to expand and build your business as well has provide a safety net for bad jobs, extended down time, unexpected equipment losses etc. now ask me if I've actually put this int practice and well


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## Dan_Watson (Mar 1, 2008)

mako1 said:


> What I call profit goes into the business or a profit margin on each job goes into the company.What is left over after everything is said and done is mine.I can call it whatever I want.Pay salary,labor,bread money!
> Just my way of doing it .
> Your way of defining it is that the profit goes to the owners?That's cool but what goes back into the business?Nothing?Part of the profit?
> When you need to buy a new tool or truck where does that come from?It does not come from Labor,Materials or Overhead ?
> ...


I get it. That is more along the lines of what I think but we also have an idea of how much we will need for all of those other items and that is included in a different way. It really depends on how much in included in that number. If we only had 17% for everything then we wouldn't survive at the rat ewe are going. But we also keep our 'salaries' higher and handle it that way. Higher pay, less profit. Like you said that is just calling it something else.


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## 91782 (Sep 6, 2012)

Bradcon said:


> Just depends what he has in overhead. I have a portion of my pay in overhead. No way of knowing how he is doing with just this information imo.


Well, in that case, you aren't worth that much AND start buying office supplies at Costco.:whistling

:laughing::laughing:


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## mako1 (Sep 1, 2013)

Dan_Watson said:


> His question brought up an interesting topic. Regardless of who he is or what his intentions are (aside from not abiding by the site rules) its a good conversation.


Dan: What I was getting at is that a lot has to do with how large or small of a business you are and you have to classifiy things differently sometimes.
I'm a small business .Sometimes it's just me and a helper.Sometimes I have 3-4 guys so I'm a small business.This works for me.
I have an accountant ..He works in his private business and does a few hours work for me a week.Therefore he is under overhead in place of payroll.when I need an attorney I have one.Why would he be under payroll but needs to be part of my overhead expenses.
I charge a certain percent to each job as a profit margin to go into the company but do not consider this my pay.It goes for things that the business needs.
I get what is left over .Either good or bad and don't really have in any of the above categories.
Just the way I keep track and think of it.Working as a small business it works for me but may not for your business being on a larger scale.
No matter what we name the categories it is still basically the same if we want to stay in business and a basic business model.
I never finished high school and am sure not the sharpest tack in the box but it has worked for me for many years and I don't worry the small chit like who wants to call salary wages ,profit or beer money.
We all have to do basically the same thing to stay in business .A lot do better than I and I am thrilled to death to see it.


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## mako1 (Sep 1, 2013)

Dan:I think we were typing the same replys at the same time.I'm just a bit slower at it.
Have a good one


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## FrankSmith (Feb 21, 2013)

Why are you guys responding to this. A college class put subcontracted work and material under business costs? Those are job costs. I am also pretty sure that college business classed aren't asking for gut reactions.

I would be willing to bet that the "profit" in this "hypothetical" is all this business owner is making in a year and he is feeling the need to make a big boy paycheck so he is looking for help.


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## Spencer (Jul 6, 2005)

I like to put a dividing line in my overhead. I like to differentiate between growth overhead and fixed expense overhead. 

Fixed expense overhead is what will be the same for the most part year to year...cell phone, insurance, shop dumpster, fuel, etc.

Then I look at growth overhead. This can be equipment or tool purchases. Basically things you wouldn't have to purchase if the economy gets tight, but in a normal year it represents dollars towards growth and expansion.

I'm a growing business. My books run down to the wire. If you lump all my tools and equipment purchases into overhead it may look like a business being ran to tight with to much overhead, but when you take a step back and not that all the "growth overhead" could be haulted and converted to profit it presents a different picture.


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## Dan_Watson (Mar 1, 2008)

mako1 said:


> Dan:I think we were typing the same replys at the same time.I'm just a bit slower at it.
> Have a good one


And you gave more information.


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## 91782 (Sep 6, 2012)

Spencer said:


> I'd get yelled at for what I spend on tools...people just don't understand...(sigh) :laughing:


Now be honest - we understand. It's the wife that has an empathy issue.


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## Spencer (Jul 6, 2005)

SmallTownGuy said:


> Now be honest - we understand. It's the wife that has an empathy issue.


Actually in all honesty my wife has never had any issue with any tool I have purchased. We've never had a disagreement in that regard. She trusts me to run our business. On the flip side...I've been ripped into on here many times for things I've bought.


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## MrFindaway (Mar 24, 2016)

I guess I should also ask: Do you guys think 17% profit is reasonable for a small remodelling company? Profit being what the business owner makes. This particular person who gave me these old numbers did not include themselves in payroll. I imagine if they paid themselves what they wanted to be paid then the business would have gone under even sooner than it did.

I appreciate the discussion even though a lot of you are not really contributing, rather just talking to each other. 

Who am I? I am just a student who has worked construction jobs his whole life and hopes to someday own and operate a successful business that employs good people and pays them as much as I can.


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## Bradcon (Sep 9, 2015)

Spencer, mine is setup kind of like yours. But i break out cogs into several categories like subs, dump fees, job materials, employee labor and my labor in the field. Then I have a "owner salary" line item in overhead which is what I play myself to run the company.


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## A&E Exteriors (Aug 14, 2009)

MrFindaway said:


> I guess I should also ask: Do you guys think 17% profit is reasonable for a small remodelling company? Profit being what the business owner makes. This particular person who gave me these old numbers did not include themselves in payroll. I imagine if they paid themselves what they wanted to be paid then the business would have gone under even sooner than it did.
> 
> I appreciate the discussion even though a lot of you are not really contributing, rather just talking to each other.
> 
> Who am I? I am just a student who has worked construction jobs his whole life and hopes to someday own and operate a successful business that employs good people and pays them as much as I can.


But profit is not what the owner makes. Profit is what the business gets paid to grow and invest with. Or disperse in an owner bonus.


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## Spencer (Jul 6, 2005)

MrFindaway said:


> I hear you that it can be dangerous basing business decisions on markup when planning what you are to do or bidding jobs. In the situation I am writing about this has already happened. Would you be okay with it?
> 
> 1. You are the owner and your wage is what is left over.
> 2. Overhead includes everything it took to run the business including maintenance, tool replacement, etc.
> ...


I'm skeptical as to whether this has anything to do with a college paper. If it is you aren't going to get much interest from this place as we all deal with real life situations and don't have much use for exercises in theory. 

If its your husband, brother, buddy, or uncle that has a business that is falling apart and you're trying to get help you might get more interest.


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## 91782 (Sep 6, 2012)

Spencer said:


> Actually in all honesty my wife has never had any issue with any tool I have purchased. We've never had a disagreement in that regard. She trusts me to run our business. On the flip side...I've been ripped into on here many times for things I've bought.


There's the rub: You and only you know how long it will take for that tool to earn its investment back.

I've never considered you to be one to buy something for the bragging rights.:thumbsup:


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## dsconstructs (Jul 20, 2010)

MrFindaway said:


> Would you be satisfied with what you ended up taking home?


No. If what you are calling "profit" is really just what was left as my annual income.....I'd go find a job working for someone else and not have the "headaches" of running a business.


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## Spencer (Jul 6, 2005)

Bradcon said:


> Spencer, mine is setup kind of like yours. But i break out cogs into several categories like subs, dump fees, job materials, employee labor and my labor in the field. Then I have a "owner salary" line item in overhead which is what I play myself to run the company.


I will probably do more of that in time but with my size now its not as necessary.

When I started out I bought a quickbooks pro template specifically made by a contractor/accountant for contractors. It has all the categories you would ever need setup. I leave most of them inactive, but they are there when I need them.


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## jlhaslip (Dec 31, 2009)

Couple of issues that I notice.
First off, the Overheads seem really high for an outfit doing that volume of business.
Secondly, the "Profit" attributable to the Owner seems quite low, considering they have paid more than that to others, but we don't have the particulars on the jobs they are doing.
Thirdly, there is no explanation of the Capitalization of the business, ie: how much do they have invested in tools, Inventory and equipment. This impacts the business in several ways. They might have $100,000 in Equipment tied up and writing off depreciation, which is a non-cash expense resulting in Cash Flow or it could be they only have their tool pouch and a tube of caulking.
We also don't know the market they are dealing in. Are they in downtown New York or some place in the middle of a State were that level of Profit might be a comfortable income for a semi-retired single guy?
On the other hand, if the Payroll expense was paid to the Owner for when he/she was working on the tools, and that profit resulted, they might be okay with the operation being that size.
My thoughts. For what it is worth.


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## Spencer (Jul 6, 2005)

SmallTownGuy said:


> There's the rub: You and only you know how long it will take for that tool to earn its investment back.


Exactly, and in all honesty we as business owners don't always know the direction our business will take. I've purchased tools that have paid for themselves many times over that I didn't think were anything special, I've bought things that I thought were going to be great that collect dust.

I hate waste though.


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## jlhaslip (Dec 31, 2009)

By the way, is the "Thanks" button missing on this Topic for anyone else?

Why is that???


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## Spencer (Jul 6, 2005)

MrFindaway said:


> I guess I should also ask: Do you guys think 17% profit is reasonable for a small remodelling company? Profit being what the business owner makes. This particular person who gave me these old numbers did not include themselves in payroll. I imagine if they paid themselves what they wanted to be paid then the business would have gone under even sooner than it did.
> 
> I appreciate the discussion even though a lot of you are not really contributing, rather just talking to each other.
> 
> Who am I? I am just a student who has worked construction jobs his whole life and hopes to someday own and operate a successful business that employs good people and pays them as much as I can.


17% profit is meaningless in every sense of the word. For one, you're not even defining profit correctly. Salary is not part of profit. Secondly, 17% doesn't mean anything because its just a percentage of who knows what. You've got to forget the percentages and start analyzing real numbers that you can actually pay bills with and live off of.


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## Jaws (Dec 20, 2010)

OP- thats a pretty good month :thumbsup:

Id like to truly net 17% after overhead :thumbsup:

Mako, you remind me of my grandpa, in a good way, not calling you old. :whistling:no: He didnt use words like gross and net profit, overhead. There was money to pay the hands and business bills and put gas in his truck and what was left was his. Or my grandmas :laughing: Worked for 50+ years for him. :thumbsup:

Personally, i do pay myself a salary, always have, as a part of overhead. I say always, but a couple tight times i had to quit taking a check and put personal money in to pay the hands and subs. So same thing just different lingo and calculator.


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## Spencer (Jul 6, 2005)

jlhaslip said:


> By the way, is the "Thanks" button missing on this Topic for anyone else?
> 
> Why is that???


You may be out of thanks if you're using it a lot. I've never ran out personally but others have.

Sometimes if a post appeared at the same time you refreshed the page it takes a minute and you have to refresh before you can thank it.


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## Calidecks (Nov 19, 2011)

I'd certainly be looking less donuts in the mornings with that kind of overhead!


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## Bradcon (Sep 9, 2015)

Spencer said:


> 17% profit is meaningless in every sense of the word. For one, you're not even defining profit correctly. Salary is not part of profit. Secondly, 17% doesn't mean anything because its just a percentage of who knows what. You've got to forget the percentages and start analyzing real numbers that you can actually pay bills with and live off of.



This is exactly correct. If everyone showed their income statements they wouldn't mean crap to anyone else. Maybe I have a lower net income but a higher salary. Maybe you put all your time in job costs and someone else has all their time in overhead salary. Maybe some others just code everything completely different but makes sense to them in some way. 

I still say their is no way of knowing if the op is doing well or not. Too many unknowns in what is included in what categories. I have never came close to 17% as a true net income and I'm assuming neither has the op.


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## MrFindaway (Mar 24, 2016)

Spencer said:


> 17% profit is meaningless in every sense of the word. For one, you're not even defining profit correctly. Salary is not part of profit. Secondly, 17% doesn't mean anything because its just a percentage of who knows what. You've got to forget the percentages and start analyzing real numbers that you can actually pay bills with and live off of.


17% of the total sales


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## GregB (Jan 8, 2016)

You can keep saying it over and over BUT, without more information it is useless.
Is it a Sole Proprietership, where the 17% "Profit" is the income of the owner?
Is it a Corp, where the payroll includes the normal income of the owner?

Is the payroll of the "owner" reasonable?

Are these actual dollars? or Hundreds, Thousands, or even Millions in an actual company?

Something is seriously off here with the Overhead compared to Payroll, just to name one thing.


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## MrFindaway (Mar 24, 2016)

jlhaslip said:


> Couple of issues that I notice.
> First off, the Overheads seem really high for an outfit doing that volume of business.
> Secondly, the "Profit" attributable to the Owner seems quite low, considering they have paid more than that to others, but we don't have the particulars on the jobs they are doing.
> Thirdly, there is no explanation of the Capitalization of the business, ie: how much do they have invested in tools, Inventory and equipment. This impacts the business in several ways. They might have $100,000 in Equipment tied up and writing off depreciation, which is a non-cash expense resulting in Cash Flow or it could be they only have their tool pouch and a tube of caulking.
> ...



Thank you for this very constructive post. I can tell you thought about it and I appreciate that. I don't have all of those details unfortunately. How much he had invested in tools is a mystery to me. I do know that the profit, being what was left over after all expenses, was the owners wage. This is also money that needed to act as working capital for future jobs. This is why he went out of business. His personal expenses were more than what he was making from the business. I am trying to find ways he could have go about improving situation and was hoping y’all could help, but I guess the lack of information on this particular situation doesn't give enough to work with. Regardless I again appreciate all of your responses.


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## Brad Gunn (Aug 18, 2015)

Yeah you got razzed a little, some people were just having their own fun, and quite a few doubted your story and/or motives. 

Usually non-contractors (or people who sound like them) get tossed or ignored. I kept following the thread because some of the smartest people here kept trying to help. Sounds like it's starting to make sense to you.

But let's just compare what you got here - for free -in the last 24 hours to the stuff they give you at school - whatever their tuition costs.:clap:


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## KAP (Feb 19, 2011)

SectorSecurity said:


> What I am seeing here and what I think is a real problem is this school is teaching you that you don't need to have anything in reserve to run a business.
> 
> You have paid everyone what's left is yours. That's just stupid.


One of the main culprits of rob Peter to pay Paul cycles... if you are relying on profit at the end of the job as your pay, instead of including your pay in your calculations for either overhead or labor, and you come up short because of over-runs, whatever, there's only one place for that money to come from.... your pocket... and for some stupid reason, the mortgage company doesn't except that as an excuse and still wants to be paid... 

So it's off to chase the next deposit to cover your bills, and hopefully have enough money to start the next job, and then inch your way to finishing the job...

If there were three things I wish I could convince everyone in the trades to do is to develop capital reserves / emergency fund, and to actually purchase as much of the materials as they can with the initial deposits and develop a price list (which forces you to _really _know your costs)... and then realize that the capital reserves / emergency can keep them from entering the rob Pete to pay Paul cycles altogether... but that requires paying your company the profit it's supposed to get... but even if you end up blowing it and you end up with little to no profit for a job, you'll still have been paid... :thumbsup:

Removes so much friggin' stress from the day to day operation of your business...


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## A&E Exteriors (Aug 14, 2009)

BamBamm5144 said:


> I cannot even find any good siding subs because no one wants to do it.


I hear you, I have to do it retail or I don't make money


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## onmywayup (Aug 18, 2012)

FrankSmith said:


> Why are you guys responding to this. A college class put subcontracted work and material under business costs? Those are job costs. I am also pretty sure that college business classed aren't asking for gut reactions.
> 
> I would be willing to bet that the "profit" in this "hypothetical" is all this business owner is making in a year and he is feeling the need to make a big boy paycheck so he is looking for help.


I had the same thought, right out of the gate 

_____________________
The harder I work, the more luck I seem to have


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## hansol04 (Feb 14, 2008)

Unfortunately it's pretty standard for college business/accounting classes to "group" a whole tonne of expenses together for case studies. You'll have something like:

Revenue......................X
COS...........................(X)
Labour........................(X)
Admin & General OH.......(X)
................................-----
Net income....................X
................................====

And that will be the only details you're given. The info is "useful" in the sense you can analyse gross margins, or see what your fixed/variable costs are, but pretty lacking in terms of giving enough detail for a proper case analysis.



FrankSmith said:


> Why are you guys responding to this. A college class put subcontracted work and material under business costs? Those are job costs. I am also pretty sure that college business classed aren't asking for gut reactions.
> 
> I would be willing to bet that the "profit" in this "hypothetical" is all this business owner is making in a year and he is feeling the need to make a big boy paycheck so he is looking for help.


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## lawndart (Dec 3, 2006)

VinylHanger said:


> That overhead is goofy. How do you have that much on that comparatively small business income.
> 
> On a business that size you could almost run next to no real overhead if you run out of the house. Just the basics, insurance, rigs, office expenses. Hard to rack up that massive amount.
> 
> Sent from my SM-G935V using Tapatalk


Exactly! With those high expenses and low wages, I'd be willing to bet this business owner was paying a bunch of his personal expenses through the business.


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## jlhaslip (Dec 31, 2009)

lawndart said:


> Exactly! With those high expenses and low wages, I'd be willing to bet this business owner was paying a bunch of his personal expenses through the business.


But that would be illegal, maybe. :whistling


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## lawndart (Dec 3, 2006)

KAP said:


> An owners salary can be calculated in as either part of overhead or labor... the important thing is that is accounted for... one of the reasons why your salary should be included in labor, is quarterlies/taxes...
> 
> As to profit, profit (gross) is what you pay your business, after all expenses have been accounted for in a job (including what you've paid yourself) which can fluctuate if you have over-runs, etc. but if you haven't accounted for your salary in the mix before calculating profit, there's only one place for it to come out of... your pocket...
> 
> ...


Excellent post KAP! 

A successful business owner should be paid a very good wage to cover personal expenses and be reinvesting it's net profits towards retirement and business growth.


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## lawndart (Dec 3, 2006)

jlhaslip said:


> But that would be illegal, maybe. :whistling


The taxman will determine that when he comes to collect lol.


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## 91782 (Sep 6, 2012)

FrankSmith said:


> Why are you guys responding to this. A college class put subcontracted work and material under business costs? Those are job costs. I am also pretty sure that college business classed aren't asking for gut reactions.
> 
> I would be willing to bet that the "profit" in this "hypothetical" is all this business owner is making in a year and he is feeling the need to make a big boy paycheck so he is looking for help.


Not a "he". The OP is mama san checking up on papa san and wondering why the eff there's no boolah in the cookie jar, but she can smell liquor on his breath.


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## JBM (Mar 31, 2011)

First of all the gross is low so the net from biz will be low as well. The over head should remain the same, so increase sales and net from biz will grow at a higher curve.


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## Mordekyle (May 20, 2014)

If the "profit" was my wage for the year, I would be happy.

- if I only worked a day or two a week

Or

- it was my first year in business with skewed numbers- overhead was high due to buying some huge ticket item, and the next year would be significantly lower.


Sent from my iPhone using Tapatalk


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