# Overhead percentages



## Jaws (Dec 20, 2010)

JSM_CC said:


> After adding missing direct costs to the equation my new OH% is 28%.



????

What are you including in your overhead? 

28% of what? Project total? Projected revenue? 

What formula are you using?


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## griz (Nov 26, 2009)

BamBamm5144 said:


> Griz, what's your tax rate?



High enough to keep me out of prison....:whistling
and low enough to piss a lot of folks off.....:laughing:



Jaws said:


> Unless Im mistaken, Griz just pays tax on Hennesey and boat gas :thumbsup::whistling:whistling:laughing:


Amen to that....:thumbup::thumbsup::laughing:


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## JSM_CC (Jul 25, 2012)

EthanB said:


> It looks like the OP is tacking some extra numbers in his overhead calculations. It sounds like the 33% is ALL of the taxes he pays. Only the employer portion of the tax burden should be included in the overhead calculation. That is 15.3% for a sole prop, I believe. The rest of that would be your personal(employee) tax burden.
> 
> The IRA might be an issue as well. Are you counting 50% of the IRA up to a certain percentage as the employers contribution or are you taking your total IRA contribution and tacking that on the overhead number as well?
> 
> Even though you're a sole proprietor you should divide the expenses accurately between "the business" and "you". A business in your situation wouldn't pay anything into an employees IRA so I would remove that entirely from the overhead. Are you counting any other benefits as overhead? Vacation pay, etc.?


Thanks for the 15.3%. i wondered about that but wasn't sure. I can remove the IRA contributions. I added medical/health insurance since i can't get workers comp on myself.


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## griz (Nov 26, 2009)

Jaws said:


> ????
> 
> What are you including in your overhead?
> 
> ...


Give us a list of what you are calling overhead.


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## JSM_CC (Jul 25, 2012)

Jaws said:


> ????
> 
> What are you including in your overhead?
> 
> ...


If you read my earlier posts i wrote my formula. Quarterly indirect costs divided by quarterly direct costs.


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## Jaws (Dec 20, 2010)

Im guessing you mean 28% of your gross profit? Not revenue?


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## JSM_CC (Jul 25, 2012)

griz said:


> Give us a list of what you are calling overhead.


Space rent 91/mo.
Licensing/bonding fees
Code/law/trade books
Office supplies
Office utilities 
Office equipment 
Insurances 
Fuel
Marketing
Student loans?
General supplies i.e. Plastic tape trash bags etc.
CPA fees
Office aid tiny salary 
Online invoice program fees
Bank fees
Truck parts/maintenance 
Truck fund
Truck registration
Tool fund
Warranty work savings account
Health insurance 
Taxes at 15.3% now not 33%.
Storage rent


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## griz (Nov 26, 2009)

JSM_CC said:


> Space rent 91/mo.
> Licensing/bonding fees
> Code/law/trade books
> Office supplies
> ...


I would suggest cutting some of your OH until you are more established.

Space rent & office utilities. Work at home for now.

Office equipment-most stuff lasts for awhile, especially if your a one man show...calculators, cell phones, copy/fax last for awhile. 

Student loans are not part of your OH. They are a personal expense.

On line invoice program fees??????

Just some ideas.


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## JSM_CC (Jul 25, 2012)

griz said:


> I would suggest cutting some of your OH until you are more established.
> 
> Space rent & office utilities. Work at home for now.
> 
> ...



Online invoices www.aynax.com


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## JSM_CC (Jul 25, 2012)

Thanks everyone for any advice or input you contributed. I think i can probably lower my OH % down to about 20% now.


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## JSM_CC (Jul 25, 2012)

JSM_CC said:


> Thanks everyone for any advice or input you contributed. I think i can probably lower my OH % down to about 20% now.


So I think 30% O&P is a good target. But is it realistic in this economy?


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## Oconomowoc (Oct 13, 2011)

Remember this.....

Not paying taxes is the same as making money.

Not paying overhead is the same as making money.


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## JSM_CC (Jul 25, 2012)

Oconomowoc said:


> Remember this.....
> 
> Not paying taxes is the same as making money.
> 
> Not paying overhead is the same as making money.


Is that like, "A penny saved is a penny earned"?


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## Oconomowoc (Oct 13, 2011)

JSM_CC said:


> Is that like, "A penny saved is a penny earned"?


Sort of. Lol

I saved about $7,000 this year in fuel by restructuring how I schedule jobs. That was pretty easy and cheap to do, I figured it out while grilling steak on the grill. 

$7,000 isn't so easy to earn. It's sounds like you're a bit confused over overhead. Nothing wrong with that, it's not always easy to get right. Just keep at it and keep trying to reduce it.

I wish I could tell you my overhead in % but I don't keep track of it anymore. I'm kinda past that stage in life. Just remember to keep close tabs on things. 

A truck as an example. I put new brakes on twice a year and new hubs each time. I also put on new tires every year. Well, eventually I learned how to save on tires brakes and hubs. $300 saved 20 times throughout the year is $6,000. Money can easily be wasted and it also kills your competitive advantage. That might sound confusing so I'll explain.....

Most people don't think about it but efficiency is directly tied to overhead. I do all my own office work and as you should know office work is overhead. So I spent a month chiselling away at reducing office time. Now I don't spend any time doing office work. It's become a rather fluid operation for me. 

How is that any different than digging through a truck for parts? It's not. It's overhead.

So I spent months building an inventory system that allows me to be uber efficient, and when I mean "uber" I mean that in the biggest possible way. How I designed my truck and how I handle office work has given me superior efficiency in the marketplace. I'm convinced it's the best. It has given me a superior competitive advantage. Again, that's all overhead in my opinion. I guess it depends on how you define it.

This is critical in my opinion. The reason why is because my competition doesn't call it "overhead" instead they call it "the price of poker". They just accept it.

So what do they accept and what is it I don't accept and how is this a competitive advantage? Well, because they accept employees who chuck everything in a pile in the van costs are high. While my competitors NEED to charge $200 for a service call I can charge $135 and still make more money then they do.

Overhead is an interesting and often misunderstood concept.

Good luck.

Mike


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## JSM_CC (Jul 25, 2012)

Oconomowoc said:


> Sort of. Lol
> 
> I saved about $7,000 this year in fuel by restructuring how I schedule jobs. That was pretty easy and cheap to do, I figured it out while grilling steak on the grill.
> 
> ...


Ahh nothing like some good bbq fumes and beer to get the 'ol wheels turning. 

I understood your post perfectly. My truck to is set up a certain way every time for efficiency. As its inventory grows my setup evolves. My whole businesses side of things is in early development stages. As i become more experienced with what i need, i can create better systems. But if I don't fully understand what exactly I need yet, than Im sure there will be plenty of waste. A rookie in the trades will spend half their time doing circles to either remember the what the next step is or to go back for something multiple times.


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## Flag ship (Nov 21, 2008)

JSM_CC said:


> *Not sure about you but as a self employeed sole proprietor i get double taxed. And income over 25/hr as an *employee is around 30% tax. California is going crazy with taxes right now. There are a few big cities that already filed bankruptcy. The Dept. Of Motor Vehicles has done major layoffs and cut operating hours. Online purchases from other states must have state use tax added as of 3 weeks ago.
> Subway now charges an extra .50 cents to toast your sandwich. There is a proposition this election to crack down on multi state contractors personal income taxes. The list goes on.


 

Fix the bold first. stick with it but right now you have enough experience to be dangerous to you and others. Keep your self small for the next few years. You wont risk your security and you will figure it out.


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## BamBamm5144 (Jul 12, 2008)

overanalyze said:


> I hope you are paying yourself a salary and not just dividends. The IRS is really cracking down on owner operated business that only pay themselves out of the profit. If you actually work at your company then you better take a salary...which gets taxed like all other employees.


Huh?

If you're an employee you get a paycheck with all taxes taken out. If you're an owner, you take a draw from the company. Draws show as profit. At the end of the year, if the company shows a profit, I pay taxes.


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## JSM_CC (Jul 25, 2012)

BamBamm5144 said:


> Huh?
> 
> If you're an employee you get a paycheck with all taxes taken out. If you're an owner, you take a draw from the company. Draws show as profit. At the end of the year, if the company shows a profit, I pay taxes.


Im starting to see the benefits of being an LLC. Kinda the best of both worlds; sole proprietor and corporation.


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## Jaws (Dec 20, 2010)

JSM_CC said:


> So I think 30% O&P is a good target. But is it realistic in this economy?


Depends on what kind of project, often how established you are ect... 

Kitchen, bath, decks, window and door replacement, probably so. 

Your location may have a lot to do with it.


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## Jaws (Dec 20, 2010)

JSM_CC said:


> Thanks everyone for any advice or input you contributed. I think i can probably lower my OH % down to about 20% now.


20% of what? Revenue, project total....


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