# Your costs as a Percentage of Gross Income? Please share!!



## cabinetsnj (Jun 10, 2012)

Jaws said:


> I disagree. Some of the better companies I worked for had competent foremen on site and production managers/supers running the foremen. Talking commercial and very high end residental.
> 
> Just not the circus I want to run :thumbsup:


Why not? That is where the money is at.


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## EthanB (Sep 28, 2011)

Ninjaframer said:


> Oh- then I made about $0


I really laughed out loud at that one.You can still benchmark your profit if you look back over a few years and average out a salary for yourself. Anything over that would be profit, anything under would be loss. 

It's a good habit to be in because then you can identify negative trends. I use it because, in starting a new business in a bad economy, I expected to make less than I would if I had the same job for another company but I wanted to be able to tell when I actually DID become profitable rather than just being content with whatever I could get.

Being content is great but not when it's because of intentional ignorance.


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## Jaws (Dec 20, 2010)

cabinetsnj said:


> Why not? That is where the money is at.


Im not interested in not being on site every day, for atleast a little while. You can still make a very good living and run just a few jobs.


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## Littlefield (Dec 29, 2008)

So true, on the paying self different amounts. 



Jaws said:


> In fact, Id bet money most of my subs make more actual money than I do, salary or otherwise.
> 
> Besides, many people say they make a profit and only pay themselves 600$ a week, and some say they struggle to paying themselves 2,000$ a week.


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## Littlefield (Dec 29, 2008)

Thats true, being great somewhere can lead to success despite being average or less than elsewhere. 
I know its not the "linchpin" of success to know your numbers, but I think everyone reaches a point where they are more interested in that, and seeing if its worth the "headache". 

However, you could be the greatest craftsman ever, and go broke if you can bid your work right. I see quite a few guys that do good work, but struggle in the big picture, and those are the guys I like to help out, the ones that are rolling in cash don't need advice, right? 



Warren said:


> I know a couple of those guys to which you speak. One was a GC who also built custom cabinets. He did really nice work, but I know his profits were dismal. I encouraged him to pursue the cabinet aspect more, because for him it was a better fit and more profitable. He left the trades two years ago and went back to school. Another guy, while still in business, is equally bad. He has built several homes, many additions, and also does some nice remodels. His scheduling is his downfall, but he is oblivious to it.
> 
> I am sure that neither of these guys tracked their costs very well. But in the end, other factors were also working against them. I know a few other guys who don't track very well, but are very profitable due to their strengths in other aspects. I probably fall somewhere in between. I track pretty well, can manage jobs well, but I just happen to specialize in a trade that is tough to be profitable in.


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## Littlefield (Dec 29, 2008)

Don't know what they are charging or if they are making a profit, yes. Again, this is my experience, yours will vary. 

I know a few nail bag GC's, too, that can do that, but for every one that does, there are 10 that are going broke, and just don't know it yet. I'm not saying GC's specifically, I'm lumping contractors together, subs, builders, etc. 

Every industry I've looked at has low ballers, etc, and I don't think they set out to be, they just don't know what they are doing yet. Some do good work, some don't. Some might do better work if they bid more, a lot probably wouldn't do any better. 

I'm only interested in talking to people that are either:
willing to teach, or 
willing to learn. 

There's something to be learned from everyone, even if its how not to do something! 

In my company, looking at numbers caused a few things. 
1. We learned what things were profitable, and what weren't. 
2. Different types of jobs may have different labor and material costs, but the only way we break the 50% rule is if are using labor only overhead recovery, and we are sure the bills are getting paid regardless, before we submit the proposal. 


If this is too obvious, you probably don't need the info. If it sounds amazing, I"m here to help! :thumbup:



Jaws said:


> Most under a million don't know what they are doing? I agree that many dont know the difference between a margin and mark up, or how how to make a Gant chart tracking overhead costs, or develop a critical path schedule that would pass on a major commercial project.
> 
> 
> But I know a few nail bag GCs who can build a bad azz project, keep a schedule in a spiral notebook, manage cash flow and balance a check book. They dump a shoe box of receipts on their CPAs desk come March. There has been quite a few like that here long before you or I started up, probably be here when we hang it up.


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## Jaws (Dec 20, 2010)

Littlefield said:


> Don't know what they are charging or if they are making a profit, yes. Again, this is my experience, yours will vary.
> 
> I know a few nail bag GC's, too, that can do that, but for every one that does, there are 10 that are going broke, and just don't know it yet. I'm not saying GC's specifically, I'm lumping contractors together, subs, builders, etc.
> 
> ...


We log historical data. Office manager turns over a cost report, showing total net at the end of each job, as well as broken down in to each category, Framing Materials, Framing Labor, ect.. as well as time logged by the PM and LC. Each purchase is shown on the report.

This allows us to accurately track the actual cost of performing each task (foundation, framing, roof, ect...), actual amount of oversight done by the PM ( every hour is coded to a task, so that if you want to do a report on Project Management costs for a specific task (framing, trim out, mechanical. ..) or a report on costs for a particular type of project (custom home, addition, kitchen, bath, deck, boat dock) or a report on how much time is spent doing scheduling, administration, ect... you can.

Same for LC (Lead Carpenter/Site Supervisor), or carpenters, or the painter. Broken down into as much detail as we would like.

We do quarterly and annual P and Ls, but that does nothing for the historical data needed to accurately bid a job profitably, especially in this market.

We have the same system to track everything, overhead, advertising (none, really other than some brand recognition stuff), attorney fees, office, office supplys, insurance, vehicle maintenance, fuel, ect...

Fuel is tracked to a particular truck, same as maintenance. Same for office supplys, ect.. everything.

Is it labor intensive? Yes, but necessary to me. I dont do data entry at all, just compare the data. When my mom lets the office manager position go and retires, I hope she will give me time to get a replacement for her to train. I will always need a book keeper :laughing:

Point for the post, is directed at Littlefield. I didnt cross a mil until '11, and we practiced all of this. Many people I know are in the same boat. Most have read Mark up and Profit, The E Myth, ect...

Many on this site are under a mil and practice good business practices....

Im not attacking you, just seemed like you were stating things as fact that I know are not. 

Are most smaller contractors not tracking the way they should? No, your probably right. But there are A LOT who do.....


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## Jaws (Dec 20, 2010)

So what kind of tracking / system do you use, Littlefield?

Must be a pretty good one to be able to sell your business.


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## Littlefield (Dec 29, 2008)

Jaws said:


> So what kind of tracking / system do you use, Littlefield?
> 
> Must be a pretty good one to be able to sell your business.


Good post above, too, jaws, I didn't realize I was coming off as derogatory. Sometimes hard to tell people's tone in writing. 

Anyway, to your question. 

We used QB, and my wife was very strict about itemizing all materials and labor costs. Doing a split on every paycheck, with every line assigned to a task, and a job, allowed very detailed reports later. 

Same thing with materials, although usually materials were bought for one job at a time, but not always. 

In the past 18 months that the new owner has taken over, though, he's gone thru 3 office managers, and all the lapses in coding are really mucking up the reporting. I was hoping to get some good feedback showing how others do their books, so I could print it out and show to the new owner what the standard is, and why others do it. For background, I took a job managing the sales and marketing for him, after he bought me out. The only reason I really care is that I get complaints about profits, and there's no way for me to show him he needs improvement on production, if he's convinced it's all about the price the jobs are sold at. 

There's no way for me to check my numbers against his labor rates, if I don't get reports. Materials aren't too bad, I can check those on my own, but labor, not a chance. 

I'm hoping this year will be a big improvement, hes seen some of the hassles it creates without reporting, and seems committed to whipping the guys into shape to turn in receipts, etc, and I worked with the new girl to show her how to track and not just make notes in the Memo lines of check.....sheesh. Lol!


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## CITY DECKS INC (Sep 4, 2012)

GOOD DATA TRACKING. I'M A GOON ABOUT IT BECAUSE OUR HISTORY CAN DICTATE THE FUTURE. I NOTICED THAT KNOW ONE HAS MENTIONED THE “DIMINISHING RETURN FACTOR” 


WHEN YOU OUT GROW YOUR 2-3 MAN TEAM MAYBE TOP OFF AT 800-MILL A YEAR. YOUR BUSTING AT THE SEEMS TO STAY ON TRACK SO YOU HIRE MORE PEOPLE WORKERS MANAGER ETC NOW MAKING THINKING YOU'LL DBL YOR MONEY BECAUE YOU CAN THE JOBS DONE FASTER BUT NOTICE THE 20-30% PROFIT JUST TANKED TO ABOUT 5% 
THE NUMBERS ARE NOT RELEVANT. 

WHAT DO YOU DO THEN?

A) HOLD YOUR GROUND WITH CREW AND OVERHEAD STAYING AS IS MEANING YOU RIDE THE WAVE AND KEEP A BACK LOG ALONG WITH EXCELLENT SERVICE AND HAPPY HAPPY CUSTOMERS?
B) STAND YOUR GROUND AND RAISE YOUR PRICES? AGAIN EXCELLENT SERVICE AND KEEPING HAPPY HAPPY CUSTOMERS.
C) DBLE DOWN AND ADD 3-4 MORE PEOPLE TO YOUR BUSINESS. BUCKLE UP UNTIL YOUR OVER THE HURDLE AND LAND IN THE 3-5MILL/YR LAND? 


:whistling


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## stewart.knowles (Nov 20, 2010)

I'm sure Uncle Sam had differing opinions about you "making $0" when you paid yourself $80k


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## Jaws (Dec 20, 2010)

stewart.knowles said:


> I'm sure Uncle Sam had differing opinions about you "making $0" when you paid yourself $80k


Why? 80k is a reasonable salary for many jobs. I know several residential PMs who make that and more.


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## Jaws (Dec 20, 2010)

stewart.knowles said:


> I'm sure Uncle Sam had differing opinions about you "making $0" when you paid yourself $80k


The key from my understanding is to pay yourself a salary, every month. Whether thats $10,000 or $1,000.


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## stewart.knowles (Nov 20, 2010)

What I meant by that was this: Even though you paid yourself $80k, that is still taxible income which equals profit, as your taxible inclome is the same as a profit and loss statement in my opinion. To say that that you made no money after you paid yourself would be inaccurate. You made $80k and your balance sheet equals 0. Technically your company made no money after you were paid, but you are the company, therefore you made money.


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## Jaws (Dec 20, 2010)

stewart.knowles said:


> What I meant by that was this: Even though you paid yourself $80k, that is still taxible income which equals profit, as your taxible inclome is the same as a profit and loss statement in my opinion. To say that that you made no money after you paid yourself would be inaccurate. You made $80k and your balance sheet equals 0. Technically your company made no money after you were paid, but you are the company, therefore you made money.


Actually,if the 80k is a salary, your taxed at like 15%. What you claim as profit is close to a third 28-35%.


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## Jaws (Dec 20, 2010)

Jaws said:


> Actually,if the 80k is a salary, your taxed at like 15%. What you claim as profit is close to a third 28-35%.


My point:

Jaws salary = $ x every other week. It is taxed as such (payroll )

That is not profit. That is the same as any other payroll deduction.

If Y is left at the end of the year, you pay taxes on it as profit. Y (profit) is taxed at a higher rate than x (salary).


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## stewart.knowles (Nov 20, 2010)

At the end of the year, it does not matter if I pay myself weekly or none at all. Revenue minus expenses = taxable income. Whether you are a sole proprietor,LLC, or Incorporated may have something to do as to what tax rate you fall under at what time. But I know at the end of the year I pay the same rate on the money that is my salary as well as what is left over at the end of the year and I am an LLC in TN with no state income tax.


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## Warren (Feb 19, 2005)

Jaws said:


> My point:
> 
> Jaws salary = $ x every other week. It is taxed as such (payroll )
> 
> ...


Not always. Depending upon how the company is set up, deductions, personal tax bracket etc. As an llc, mine all ends up in the same place eventually.


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## EthanB (Sep 28, 2011)

Jaws said:


> Actually,if the 80k is a salary, your taxed at like 15%. What you claim as profit is close to a third 28-35%.


It really depends on how much money we're talking about. corporate tax up to 50k is 15% then you have dividend taxes which are linked to income tax brackets. The company is going to pay 15.3% on payroll before the income tax, etc. is calculated so you're talking very comparable amounts at the lower end of the spectrum.

Unfortunately, I have no idea how this works out in the higher end of the income brackets.:sad: 

Totally different rules for a sole-prop as it's all considered personal income.


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## Texas Wax (Jan 16, 2012)

Doesn't most of this conversation revolve around how the company is structured? Or how the accounting is structured? And how/when the money is taken?

Like a corporation, even a "one man" corporation. Two ways to take money, salary and disbursements by stock owner ship. The later in some cases being subject to corp taxes and personal taxes. That one is considered as profit, right?

A sole proprietorship and other entities that tax/function the same way there is all profit/owners equity that is taxable. Considered Profit again?

From a non tax standpoint and operational cash disbursement view for most construction companies typically goes like this?

Cost of sales + Cost of Goods + production labor and management = Hard Costs 
Hard costs - Sales = Gross profit
Hard Costs + Overhead & all other expenses = Cost of doing business
Cost of doing Business - Sales = Net Profit (True profit,liquid cash, money to blow or save.)

I believe that is how Jaws is doing his figures...An owners taking of money really should be included in cost of doing business as wage and or salary. And profit figured based on that both for individual job and qtrly-yearly calculations.

Please correct me if I'm wrong. LOL after decades of these same discussions I'm tired of the constant debating and confusion over terms, structure, accounting methods...let's throw accrual accounting into this profit debate and see where it goes FROTFL

Only thing I know for sure is "A proper view and approach toward profit is critical to success" What ever method or terms used :thumbsup: 







Jaws said:


> My point:
> 
> Jaws salary = $ x every other week. It is taxed as such (payroll )
> 
> ...


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## hdavis (Feb 14, 2012)

overanalyze said:


> To the guy that said 20% should be standard net profit...I wish! For remodeling we are closer to that than new homes....but still no 20%....


The guys around here under 15% on residential work keep going out of business - some multiple times. Bigger companies should be able to get that down.


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## QCCI (Jan 28, 2013)

overanalyze said:


> Even as an s corp we pay on the profit via our personal returns. It gets reported on a schedule k. Even if the money stays in the company acct.


Always good to have some retained earnings!!


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## hdavis (Feb 14, 2012)

Jaws said:


> I shoot for net 10% after all is said and done. Most GCs I know do.


10% around here probably puts you out of business at some point. 15% is pretty standard. A lot of accepted bids at lower profit, followed by lucrative change orders. Just what I'm seeing.


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## Jaws (Dec 20, 2010)

hdavis said:


> 10% around here probably puts you out of business at some point. 15% is pretty standard. A lot of accepted bids at lower profit, followed by lucrative change orders. Just what I'm seeing.


You realize Im discussing net profit right?

If I bid any project, I figure all materials, permits, labor for my crew, subs, put a line item for project supervision, then mark it up.

Say I do 16% on all my projects. if you gross say 1.2 million, then my gross profit is $192,000.

Most if not all my salary is paid for by my labor as a PM or carpenter, or whatever. Most of my salarie is covered before the $192,000 gets touched. 

Now out of the $192,000, I have to pay:

Office manager
Office (mines paid for) 
Office supplies
Office Utilitys
Shop
Shop Utilities
Shop supplies
Truck payment
Maintinance on my truck and 3 others
Fuel
General Liability
Workers Compensation
(Builders Risk is project Line item)
Tool replacement and maintinance
Cell phone bills
Internet for the house
Advertising (very little)
Company shirts and hats
sponsorships in the community
associaton dues

and a lot more

What is left say, 10% or less is my actual profit on top of my salary. I dont see how you would go out of business at any location. Location is besides the point.

Side Note : I actually try to pay all my crew overhead ( salaries, taxes, comp, vehicle and tool overhead, shop overhead) in my labor bids. And hopefully make some profit from the labor, or why not just sub everything.


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## BamBamm5144 (Jul 12, 2008)

Uhh, isn't that gross profit?


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## Jaws (Dec 20, 2010)

BamBamm5144 said:


> Uhh, isn't that gross profit?


??? 

Whats left after all expenses and overhead is net...

Isnt it?


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## killerdecks (Apr 18, 2008)

I don't make any money. I have never drawn a salary. Just reinvest, every dime i can get my hands on.


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## hdavis (Feb 14, 2012)

People go out of business if they don't have the cash reserves and / or line. of credit to cover the unexpected. I can't tell you how much is a cash flow non-linearity, screw ups, whatever. I can say that a nothing special 2 story PT deck will run pretty close to 2.6X materials for the 4 man sized companies.

Roofing is a different story, they run very thin margins.


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## Jaws (Dec 20, 2010)

BamBamm5144 said:


> Uhh, isn't that gross profit?


Or do you mean because I left out taxes :laughing:


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## hdavis (Feb 14, 2012)

Jaws said:


> ???
> 
> Whats left after all expenses and overhead is net...
> 
> Isnt it?


Yes, net.


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## Jaws (Dec 20, 2010)

hdavis said:


> People go out of business if they don't have the cash reserves and / or line. of credit to cover the unexpected. I can't tell you how much is a cash flow non-linearity, screw ups, whatever. I can say that a nothing special 2 story PT deck will run pretty close to 2.6X materials for the 4 man sized companies.
> 
> Roofing is a different story, they run very thin margins.


Thats why you dont keep all your profits until you have a large operating reserve, + 3 months salary and overhead....:thumbup:


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## BamBamm5144 (Jul 12, 2008)

My bad, I misread!


Ignore me!


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## Jaws (Dec 20, 2010)

BamBamm5144 said:


> My bad, I misread!
> 
> 
> Ignore me!


Happens to me all the time


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## harrymontana (Dec 27, 2012)

killerdecks said:


> I don't make any money. I have never drawn a salary. Just reinvest, every dime i can get my hands on.


so the company is rich and the owner is poor?


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## CScalf (Dec 18, 2008)

harrymontana said:


> so the company is rich and the owner is poor?


That's the best way to be if you want your company to grow and grow and grow and grow...

If you have a rich owner and poor company then how do you expand? What happens when you goof and the company has to fork out money but doesn't have any? You lose the company and then what?

I prefer to have a rich company and poor owner myself. Don't get me wrong, my bills are paid and there are "perks" but the company has more money than me:thumbsup:


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## Stephen H (Feb 18, 2011)

CScalf said:


> That's the best way to be if you want your company to grow and grow and grow and grow...
> 
> If you have a rich owner and poor company then how do you expand? What happens when you goof and the company has to fork out money but doesn't have any? You lose the company and then what?
> 
> I prefer to have a rich company and poor owner myself. Don't get me wrong, my bills are paid and there are "perks" but the company has more money than me:thumbsup:


I actually operate exactly opposite to this.

The company is merely a vehicle to build my families and employees net worth-nothing more.

If the owner is "rich" and the company is "poor"-that's a highly desireable state of affairs.

If the company needs an infusion of cash for some reason, I can provide it------------

but in the meantime that money is spread out into many different areas and earning on it's own

it's called diversification.

Remember about 2008?-------A lot of Contractors had "rich" companies-right up untill construction contracts dried up and then suddenly they were out of business. ( all their eggs in one basket)

If they had been better financially diversified they would have weathered the storm much better------------------

Not to mention that 2008-2009 was a historic buying opportunity of a lifetime----------which I would have entirely missed if most/all of my finacial assets were tied up in the company

Stephen


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## harrymontana (Dec 27, 2012)

Stephen H said:


> I actually operate exactly opposite to this.
> 
> The company is merely a vehicle to build my families and employees net worth-nothing more.
> 
> ...


Very good reply, diversification you mean money outside the one and only company, which in this case would be you, the owner. To have some extra cash is always good, I am located in Bolivia and last year when comnpanies got broke I could buy some ipe decking very very cheaply athough I am not a merchant but a hardwood mill myself. 
Anyway, here in this country, owners tend to extract too much money from the company, they prefer to drive in a Hummer rather then to pay their bills because they don't have any 'money'...


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## philcav7 (Jan 15, 2009)

Warren said:


> John:
> 
> The difference is that you are an S corp, while I am an LLC. Ours is a "pass through entity" which means that all profits are passed through to the members (my wife and I). We then report this profit or loss on our personal income tax return. It is also subject to the SS tax in most cases. We get taxed on any profit whether or not we even receive it. This means if we leave money in the company at the end of the year for a large equipment purchase, we still pay the tax right then and there.


Correct. 

With proper planning, there may be some ways around that. You may be able to use the funds that you are holding for the purchase to place a deposit on the equipment before the tax year is over. Then pay the remaining balance afterwards. Depending on the situation, you may even want to finance the rest on short term credit, if the interest charges are less than the tax. 

If you often find yourself in this type of situation, needing carry forward earnings, you may talk to your accountant about changing your tax structure so you can hold capital without taxation.


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