# Myth: I am small & have little overhead



## brunothedog (Sep 8, 2013)

I have an old spread sheet some where from the old times that basically has the overhead calculated for every employee hired, the costs of work.
As the work force increases along with the overhead, there is a point where they level out.

We had a cost per hour to break even was outragous, something like 1200, with subs we had to almost triple the mark-up just to break even.
You dont do T & M jobs with a big work force.


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## Pearce Services (Nov 21, 2005)

The obvious issue is recognizing and charging for the real overhead incurred.

What I do is charge my overhead not based on my actual overhead but my projected overhead for next year, so the money is there for growth and replacement costs.

Charging overhead based on last years numbers will only slow down your growth.


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## Driftweed (Nov 7, 2012)

My original point was that 1 man companies share alot of the same overhead as big companies. They fail to see it, & think they can use it as a crutch to justify lower pricing.

You have company vehicle(s)
you have an office
You have support staff

whether you want to admit it or not it's there.

You should treat your business like a girlfriend. Do you want one that can pay her share? Should she not help pay for rent? should she not help pay for a shared vehicle?


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## BamBamm5144 (Jul 12, 2008)

Most guys in business for themselves need to go back to being an employee.

How many guys here who do their sales are being paid a sales commission on top of everything else?


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## thesidingpro (Jun 7, 2007)

BamBamm5144 said:


> Most guys in business for themselves need to go back to being an employee.


This is very true.

I agree with the first post but the title is misleading. Obviously if you are small you have little overhead compared to a big company. I get the point though that everyone should be charging for your costs.

I am what is considered a smaller company. My over is low compared to my sales volume. I know that for a fact.

A large outfit is going to have 10 vehicles to your 1 vehicle and so on. A large outfit is also going to have additional burdens like higher turner over rates, loss of productivity, payable commissions, additional staff to manage things like that fleet of vehicles, etc.

It's all about keeping your overhead to sales ratio low. A well funded and managed small company has lot's of advantages over a large company as well. The first one that come's to mind is cherry picking your jobs since you don't have the monster to feed. Having the monster burden get's you into situations that can be less than profitable during a down swing.


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## hdavis (Feb 14, 2012)

Bruno has some good points, as does Driftweed. One implication would be you have to be large or small - the in between seems to be the worst of both worlds. I hadn't considered that, any comments?


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## D.E.P.S. (Aug 3, 2013)

Driftweed said:


> Been seeing this alot & it needs to stop. You are fooling yourself. That's no different than thinking "my wife has a good job..."
> 
> Value your time. If you don't value your time, no one else will.
> 
> ...



I doing just fine being a sole proprietor with little overhead and I pay cash on the barrel for all my job materials. The only reason I even bothered to get a Class "B" is because a lot of property assett companies require a state license.

1. I do my own taxes. 

2. Truck is paid for....... if it breaks, I'll fix it.

3. I do not have employees, and probably never will.......and my insurance agent is not considered a *employee*.....she is a necessary service provider. There is a huge difference. If I need a "sub".....fine!

4. If times ever get slow....*screw it!*. I'm retired Navy and get a check every month whether I get up in the morning or not. I'll go fishing on the bay.

5. My business model is based on doing what I love to do. I make a killing on some jobs, and I do some "pay it forward" work for people with little money. What goes around comes around.

6. My advertising is my reputation, and it has put me in a position where I can turn down as much work as I accept.


It is none of your business ( or anyone elses ) what a person charges for the services they provide.


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## Warren (Feb 19, 2005)

My thoughts on the original post:

1) Truck:

My truck was purchased used in good condition. I did not finance it, so dollars were saved there. A good work truck does not need to cost $40,000. New trucks need just as much repairs and maintenance as a good used truck does.

2) Tools
Anybody who doesn't budget money for the proper tools, should not be running a business. Tools are necessary to perform your job at the peak level. Many tools will pa for themselves in just one job.

3) Employees
Yes, they do cost more money than just being a sole proprietor. As an SP, you can forgo WC in most states. You can also have better productivity working solo if you choose the right jobs. For me, being a framing sub requires employees. I know for a fact that I could make more money working solo and choosing the right jobs. None of my employees are as efficient or productive as I am.

4) Marketing
I don't think a one man show need to spend as much in marketing as a big company. Drumming up too much work would be stupid if you couldn't handle the work load. Some might say that you could choose just the higher paying jobs, but then you would still waste money figuring out which jobs were best.

5) Wife has a good job

Yeah, I wish! While I do know a few guys in the trades who's wives are nurses and lawyers, they don't use that as an excuse in their business. To me that would is just being a bad husband and has little to do with business.


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## Ohio painter (Dec 4, 2011)

Very interesting topic, I own a small painting business and with an employee and usually a sub, I plan to add another employee to keep up with the work coming in but still be selective. I do not want to get too big so that I am taking on work outside of my area of expertise just to keep "feeding the machine", what a great phrase.
Overhead can be anything any of us want it to be, but to be competitive I keep it to what I need to run my business, the roof on my house "office" isn't part of overhead, for me at least. If a company owner chooses to include his home maintenance as it is his office then that is up to him or her. 

I try to plan for overhead for the coming year and I am always trying to keep it to the minimum yet I see vehicle mechanics and accountants as professional services necessary to keep my business profitable and they are money well spent so they are planned for. 

What gets little mention here is profit, the company has to make a wage too. Equipment fees are charged that go toward maintenance and replacement, these fees are included on bigger more expensive items such as sprayers etc. I never know where to draw the line on this. I don't charge for getting out a ladder. Some tools allow work to be performed quicker and easier and so in their own way become profitable. 

Finally, I tell myself that I should track every hour spent on my business, but I don't, maybe I should. I do include a cost for anticipated time spent doing office work in my overhead however. I have found that by sticking to my area of painting expertise that estimating stays much easier and efficient. Once a while a curve ball job comes along that I spend way too much time on estimating. 

Overhead is only one part of a profitable business. 
Great thread, it gets me thinking "am I doing all I should be"?


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## bbgcarpentry (Apr 11, 2009)

Driftweed said:


> Been seeing this alot & it needs to stop. You are fooling yourself. That's no different than thinking "my wife has a good job..." Value your time. If you don't value your time, no one else will. Excuses: 1) My truck is paid for, so I don't have to factor that in overhead. No its not paid for. You may not owe the bank, but you still have to pay your mechanic. Transmissions randomly go out, vehicles die mysteriously. So what are you gonna do when that day arrives? Sharply raise your prices? If you factored in a vehicle payment, you have no worries. Otherwise, your sunk. 2) I already have more than enough tools. Liar. No tool lasts forever, & no contractor has enough. Tools break. You should always be "renting" your tools to each job. If your not renting your tablesaw for that project, what happens when it dies? You don't eat that week? 3) I don't have employees. Yes you do. You have an accountant who does your taxes. If you need to be licensed in your trade, you have an insurance agent, you have a lawyer lined up to collect, & so on. These are the "hidden" employees. If your wife/cousin/3rd uncles sisters boyfriends half brother is taking calls or doing books they need paid. No one works 100% solo, they just fail to recognize their support staff. 4) I don't have a big marketing budget. Business cards run out. Your door magnet falls off. Your truck lettering wears out. Or worse yet, you hit slow times & want to do direct mailings/flyers. But you failed to budget, your broke, too late now. 5) my wife has a good job... Why is your wife financing your company? You know, eventually shes gonna get tired of being your sugar momma & leave your azz. Suck it up, buttercup. Factor your half the bills into your salary AND CHARGE FOR IT!!! You cannot & you will not be succesful if you you do not factor in the TRUE cost of doing business. It's nice to not have to worry about replacing tools/vehicles. Join the ranks.


So true I'm just coming to terms with my increasing overheads and have decided to track every job and expence to see if I'm actually making any money.its easy to sell jobs if we all under charge. It's a real mind f---k when you come to terms that things really have to to change.


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## bbgcarpentry (Apr 11, 2009)

Gary H said:


> A interesting thread. Everything I own is paid off. I thought I was doing ok, but now I need to re look at what I am doing and see if I am just charging wages or running a business. This maybe a eye opening dilemma . I will think on this and come back with what I am doing.


here here


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## Driftweed (Nov 7, 2012)

I've been watching my overhead very closely since last october. I am a one man show with a family to feed & smart enough to know I just cannot do physical labor until I die. No matter how much I like my job. 

And as I drilled down into the details, it gets spooky. You just don't know what you don't know. 

I set myself up with a $40k salary & am lucky to say this (year 3) I just may make salary. 

But when you go to hire, as I so desperately wish, it truly shines a light on everything you are missing.

Denying yourself workers comp (although legal) isn't fair to yourself. Either is absorbing all the other costs like vehicles & offices.

When I started looking at my business model from an employees perspective it really gets ugly.

Would you take a job that requires you to bring your own tools, use your truck to haul materials, THEN have to fill out reports at nite from home? All without ANY health benefits like workers comp?

I know I wouldn't work for that company. But the scary thing is, that IS my company.

And THAT is how you know you aint got everything figured out that you thought you had figured out.


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## Inner10 (Mar 12, 2009)

Driftweed said:


> I've been watching my overhead very closely since last october. I am a one man show with a family to feed & smart enough to know I just cannot do physical labor until I die. No matter how much I like my job.
> 
> And as I drilled down into the details, it gets spooky. You just don't know what you don't know.
> 
> ...


How long have you been on your own?


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## Driftweed (Nov 7, 2012)

July 2011


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## Inner10 (Mar 12, 2009)

Driftweed said:


> July 2011


Took me a few years to get myself to a place where I didn't sell myself short as well.


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## sailfish27 (Jan 25, 2014)

Driftweed said:


> I've been watching my overhead very closely since last october. I am a one man show with a family to feed & smart enough to know I just cannot do physical labor until I die. No matter how much I like my job.
> 
> And as I drilled down into the details, it gets spooky. You just don't know what you don't know.
> 
> ...


Agree with this. It sounds like your writing this thread to yourself. I wouldn't want the job 40k, does this include FICA, unemployment ins, health ins, vacation, sick days, holidays, personal days, life ins, 401k? I wouldn't work for someone who didn't offer this. Also I would obviously require your truck, gas and tools if I worked for you and I wouldn't be kind to them. I probably wouldn't show up every day and when I did show up to work I would only produce about half to a quarter of what you normally do. If you can't make money on me after paying all my expenses (and your own,sales,supervision,admistrative etc.) then yeah you are too low. :no:


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## D.E.P.S. (Aug 3, 2013)

I get the standard lecture every day from a lot of my contractor pals as to how to run a business. They tell me that I am wasting my talent and selling myself short by not growing. The funny thing is....... I don't have the same priorities as they do, or half the worries. They pull up to thier staffed offices in the mornings driving a 50K Dodge Rams. They are on the phones for the first 15 - 20 minutes listening to phone calls why "Joe Blow" can't make it in because he fell into a beer bottle the night before, or opening a letter from OSHA stating that they have 15 days to reply to a fine because one of his workers stood on the top wrung of a 4' ladder. Then they have go over all the other "BS" drama that comes up with the scheduling, staff, cpa, general contractors...etc. etc. etc. 

My cell phone is my receptionist. My Microsoft Surface is my planning/estimating/billing departments. I spend about 30 minutes every morning doing invoices and estimates. The rest of the day is going about my work......or just goofing off.

I'm not knocking these guys with the big trucks and and pretty receptionists by any means. I admire them quite a lot. They can do things on a much larger scope than I ever will. But at the same time, they are always worried about payrolls, margins, and pulling in projects large enough to support the business. They don't have the flexibility that I enjoy.

In the end.......it all comes down to what your goals are as a owner of a business.


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## pinwheel (Dec 7, 2009)

EricBrancard said:


> You always make the mistake that your expirences = everyone else's.



That could be said for a lot of members I see post here.


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## hdavis (Feb 14, 2012)

Driftweed said:


> When I started looking at my business model from an employees perspective it really gets ugly.
> 
> Would you take a job that requires you to bring your own tools, use your truck to haul materials, THEN have to fill out reports at nite from home? All without ANY health benefits like workers comp?
> 
> I know I wouldn't work for that company. But the scary thing is, that IS my company.



I've given this advice to other people flying solo. Set up your business model as if you're a big business. You may not have extra expenses due to having a leased office, but if you grow, you will. Or you may not have all the personnel perks / expenses, but if you grow, you will. If your business model doesn't have all that in there, you can't grow without making the change - do it from the start, and set aside the "expenses" you don't incur - you need a pretty good buffer if you plan to stay in business long term.


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## hdavis (Feb 14, 2012)

pinwheel said:


> That could be said for a lot of members I see post here.


It's really part of what makes this a great forum - you get to see other things, other ways.


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## BamBamm5144 (Jul 12, 2008)

Reading this thread shows how a lot of guys on this forum shouldn't be in business for themselves.

I was physically working on a job I sold last week. I paid myself a sales commission like I would have to if i hired a salesman. (The whole no commission because owner does sales is just garbage said by guys who need to be employees). 

Then since I physically worked on it, I paid myself hourly, just like I would have to pay someone else if I wasn't there. Then I also got to take out all my other pay for just being the owner.

Then I paid myself for using up space in my house for my office. You see, if I didn't have the space here, I'd be paying for it somewhere else. I also paid myself for the garage and yard space I am taking up with equipment for the same reason.

The list goes on and on.

This thread explains why I continually run into guys who are working for wages or under what my costs are. It also explains to me why it seems it's always a new guy every year.

You can run your business how you want but when you see the guys with the offices and so on, they didn't get that way by working for $20 a hour for themselves.


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## iDAHOchris (Feb 11, 2012)

I see employees every day from other trades not doing their jobs. Standing around, BSing about last night, smoking, texting etc. etc. Not to mention they are usually pretty hard on tools and trucks. Just waiting around til quittin time. Using bathrooms more than they need, and Im always finding their tools lying around after they leave. My point is a small business may have 1 or 2 guys helping when a bigger one has more which creates a huge overhead because you are paying extra and not getting much more done. A big business needs more to get things done. Staying small is what kept us alive during the recession,and made us stronger


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## 480sparky (Feb 1, 2009)

iDAHOchris said:


> I see employees every day from other trades not doing their jobs. Standing around, BSing about last night, smoking, texting etc. etc. Not to mention they are usually pretty hard on tools and trucks. Just waiting around til quittin time. Using bathrooms more than they need, and Im always finding their tools lying around after they leave. My point is a small business may have 1 or 2 guys helping when a bigger one has more which creates a huge overhead because you are paying extra and not getting much more done. A big business needs more to get things done. Staying small is what kept us alive during the recession,and made us stronger


That's part of the reason I don't ever want to get employees. I will cease to be a construction business and become a day-care center.


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## iDAHOchris (Feb 11, 2012)

All I am getting from this thread is never bite off more than you can chew:thumbsup: And Im glad I never got too big


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## Millworker (Jan 17, 2013)

Driftweed said:


> Been seeing this alot & it needs to stop. You are fooling yourself. That's no different than thinking "my wife has a good job..."
> 
> Value your time. If you don't value your time, no one else will.
> 
> ...


I do my own mechanical work. If a transmission blows I take half a day to put another in. Same goes for anything else. If its a motor I would rent a truck till the weekend and change it out. I have saved thousands of dollars over the years all because my father got me into automotive hobbies when I was 5 years old.



> 2) I already have more than enough tools.
> 
> Liar. No tool lasts forever, & no contractor has enough. Tools break. You should always be "renting" your tools to each job. If your not renting your tablesaw for that project, what happens when it dies? You don't eat that week?


Tools can last years with the proper care. There are always deals out there. It really doesn't cost that much.

The more skills you are willing to learn the more money you can save in life.


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## Golden view (Feb 16, 2012)

I don't pay myself commission, hourly, office rent, for doing my taxes, or anything. Just the profit.


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## Golden view (Feb 16, 2012)

Millworker said:


> I do my own mechanical work. If a transmission blows I take half a day to put another in. Same goes for anything else. If its a motor I would rent a truck till the weekend and change it out. I have saved thousands of dollars over the years all because my father got me into automotive hobbies when I was 5 years old.
> 
> 
> 
> ...


It's cheaper for me to hone my money making skills than money saving skills like these. At the end of the year, there's more in the bank. If it's a hobby, it's a different story. I just don't like working on cars.


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## Driftweed (Nov 7, 2012)

So to save a buck, you take time out of your schedule (value) to fix your vehicle & no one gets paid for it.

So to save a buck, you use tools in ways they probably shouldn't. Who needs a table saw when a pair of vise grips & a circular will do the same huh? You dont need that expensive impact drill for masonry, just a regular drill and a few extra minutes...


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## country_huck (Dec 2, 2009)

I would bet that if each person took there "true" overhead and divided it by by volume sold, you would be surprised that we are all about the same percentage. 

There could be a few cases where that wouldn't be the case , like a paper contractor and one that uses all in house labor both being of the same size, but I would guess that it's not as much as you think.


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## Jaws (Dec 20, 2010)

I include office, shop, trucks ect... in my bids. I also charge for the bids. 

I do not pay myself a sales commission, neither does my partner. 

I get a salary, paid bi weekly with the hands, a few perks through out the year. I take profit at the end of the year around December 20th. 

It make zero difference if you pay your self the commision, rent ect... as long as you charge for it. I prefer to make sure my adequete salary is paid if we get slow, or if I need to drop 10k on a business expense, I want to write a check. My salary was set at the amount I need to fulfill my lifestyle. 

You can call it whatever you want, but to me it makes sense to charge for it and leave it in the company until the end of the year. That way I am not lying to myself or under charging for my bids, but it wont be the end of the world if I dont get my rent check like in 2010. Im still in business, which is my #1 goal. 

Same for the pick up. I dont have to have or charge for a new pick up. I like having a newer pick up so I do, but that is a choice. It really is just lessening my actual potential net profit. If I could get that much with this sled I could in my truck thats 12 years old, and I keep the balance.


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## Jaws (Dec 20, 2010)

country_huck said:


> I would bet that if each person took there "true" overhead and divided it by by volume sold, you would be surprised that we are all about the same percentage.
> 
> There could be a few cases where that wouldn't be the case , like a paper contractor and one that uses all in house labor both being of the same size, but I would guess that it's not as much as you think.


? 

Most of the paper builders here work from home, no employees. Cell phone, truck, liability insurance. 

I have a shop, office, 5 vehicles, crew, WC, and tools for a dozen guys. I probably have more tied up in scaffolds than they do in total business assets. Our overhead is completely different.

Our sales prices are close though usually, a lot of my overhead is taken care of by in house labor, where they are subbing everything, so it kind of evens it up on most things.


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## country_huck (Dec 2, 2009)

Jaws said:


> ? Most of the paper builders here work from home, no employees. Cell phone, truck, liability insurance. I have a shop, office, 5 vehicles, crew, WC, and tools for a dozen guys. I probably have more tied up in scaffolds than they do in total business assets. Our overhead is completely different. Our sales prices are close though usually, a lot of my overhead is taken care of by in house labor, where they are subbing everything, so it kind of evens it up on most things.


Most of ours have offices/ show rooms, and maybe even paying on a model house. 

Not to many paper remodelers here, those that are dabble back in forth with home building. 

To be fare with my statement , we would need to put the same expenses in the same categories


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## Jaws (Dec 20, 2010)

country_huck said:


> Most of ours have offices/ show rooms, and maybe even paying on a model house.
> 
> Not to many paper remodelers here, those that are dabble back in forth with home building.
> 
> To be fare with my statement , we would need to put the same expenses in the same categories


All small volume custom builders here, no big boys. Several of us have offices, most dont, not a big deal here. We (GCs) will all build houses, do additions, remodels, ect... kind of rural. 

When I say paper contractor I mean a dude who doesnt have a crew and subs everything. I know several who are very good contractors, extremely knowledgeable and have a ton of trades experience, just past where they want to bag up and dont want the headaches from a crew. I dont have any issue with those guys.


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## Texas Wax (Jan 16, 2012)

Millworker said:


> I do my own mechanical work. If a transmission blows I take half a day to put another in. Same goes for anything else. If its a motor I would rent a truck till the weekend and change it out. I have saved thousands of dollars over the years all because my father got me into automotive hobbies when I was 5 years old.
> 
> 
> 
> ...


Been there done that. Not bashing anyone for doing it. Still do if the repairs will trash my cash flow, plus it's fun/rewarding.

The hitches in the giddy up tho...
-Your time being productive on a paying job is lost. Lost revenue
-You have to take money out of the checking account to cover your time to execute, lost profit
-You are now behind on your schedule, what's that cost to get back. Lost time

Always figured the DIY major automotive type chit cost me 3x my losses in hourly productivity. If that's cheaper than having someone else do I'm all over it, LOL but not many auto shops charge 110-150/hr


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## Millworker (Jan 17, 2013)

Driftweed said:


> So to save a buck, you take time out of your schedule (value) to fix your vehicle & no one gets paid for it.


I save more then just a buck. People spend thousands in repairs going to a shop. I spend the cost of the part. 99% of the time its after work or on weekends I fix it. Some times even at the side of the road. I have yet to dig into my workday. How many people here pull in $2500-$3000 take home in half a day? I can pull the tranny and put a new one in for a fraction of that cost.

Engines rarely blow up unless neglected. Transmissions will usually give warning before they blow out completely. You usually lose 4th gear or reverse in most cases. Keeping an eye on everything else and doing a once over everY oil change will tell you all you need to know.

Differentials also last the life of the vehicle if properly maintained. If its leaking and you don't top it up they blow up. 

Tie rod ends, ball joints wheel bearing etc. Keep them all well greased and you wont have problems.

Keep an eye on brake pedal travel and you will know well ahead of time you are going to need brake work. I can almost guarantee that I am still ahead financially from doing my own repairs then you are taking it to a shop. 



> So to save a buck, you use tools in ways they probably shouldn't.


I use mechanical tools for mechanical repairs.



> Who needs a table saw when a pair of vise grips & a circular will do the same huh?


I have all those tools and they are all in great shape. I know several tradesman who have table saws that are 5-10 years old and work perfect.




> You dont need that expensive impact drill for masonry, just a regular drill and a few extra minutes...


I purchased one 18v hammerdrill in 2009 and it lasted well into 2013 when I bought a new one on sale because the batteries were becoming obsolete. I still have the old one here, and while its showing its age still works perfect.


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## Golden view (Feb 16, 2012)

If you can save $2500 in half a day, why on earth aren't you just a mechanic for a living?


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## Millworker (Jan 17, 2013)

Golden view said:


> If you can save $2500 in half a day, why on earth aren't you just a mechanic for a living?


That is roughly the cost of getting a tranny done in these parts. Using it as a comparison.

I do enjoy mechanical work and wanted to do it as a living. But I went the way of Carpentry instead. I come form a long line of Carpenters many of which loved the car/hot rod hobby on the side.

My auto expenses this past year was around $1400 for maintenance/parts. I racked about 32,000k in that time. All doing my own work.


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## sailfish27 (Jan 25, 2014)

BamBamm5144 said:


> Reading this thread shows how a lot of guys on this forum shouldn't be in business for themselves.
> 
> I was physically working on a job I sold last week. I paid myself a sales commission like I would have to if i hired a salesman. (The whole no commission because owner does sales is just garbage said by guys who need to be employees).
> 
> ...


I agree with you and Jaws on this. So enlighten the rest of us. If we should all be charging for the same stuff like sales,space,tools,truck etc. regardless of whether or not we actually have these expenses we should therefore, all have similar rates after taking into account regional differences. The constant refrain is "everyone's number's are different" you and Jaws seem to be saying everyone should be factoring in the same overhead, which would dictate the same or similar pricing. 

I'm a new contractor small handyman and remodeling jobs. I don't have good numbers to go by, my biggest challenge is calculating the correct man hrs. for a job. My rate is 500/day for myself and 250-300 for 15/hr. helper. I markup material 20% and pay my wife a commission on leads she creates and for writing estimates etc.. I then add her commission to total price. I don't know if this is correct, probably too low. I don't work everyday nor do I have much overhead, so it's hard to gauge. So if you mean what you say then educate me.

Yes, I own and have read Michael Stones book twice, great read but a lot of holes for a small startup.


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## BamBamm5144 (Jul 12, 2008)

Educate you how? I don't get what you mean.

My reply is to the guys who say "well id have it anyways without the business so it doesn't count". Those are the guys who are lacking in business skills. The physical aspect is by far the easiest part of any trade.


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## iDAHOchris (Feb 11, 2012)

Big Business = big $$. I think that is a myth


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## RobertCDF (Aug 18, 2005)

MarkNoV said:


> My fundamental business philosophy is that ALL the benefits resulting from my low overhead are mine, not my customers'.
> 
> Equally, ALL the benefits due to my investments in either training, or equipment that improve my productivity are also mine.
> 
> ...


I nominate this for post of the day yet again.


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## hdavis (Feb 14, 2012)

I'll just mention that I hand mortise a lot of new doors and trim 1, 2, or 3 sides when I'm working in an old building. It definitely takes longer using hand tools vs power tools. I don't do a standard door into a standard frame at the same price, just because using hand tools would take me longer. Yes, you get to keep the savings from your innovations, exceptionally fast work, etc, but not vs the slowest way something could be done.


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## chew (Apr 5, 2012)

I will make easy to see why a large company can charge less.
A company with 10 employees that nets $100.00 a day per employee nets $250,000.00 a year.
Now the owner has less work responsibilities and can spend time with their family & if they get sick they still make money.

If a small company charges a lot less to do a job that usually means they not correctly accounting for their overhead.

Wait most small companies do not know what overhead is.

By the way is does not matter that you have your truck & equipment paid for, because one day they will wear out & you will need to replace them.

If most small company owners would add all the time they spend working in their company they would be surprised how little they make an hour.


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## brunothedog (Sep 8, 2013)

MarkNoV said:


> My fundamental business philosophy is that ALL the benefits resulting from my low overhead are mine, not my customers'.
> 
> Equally, ALL the benefits due to my investments in either training, or equipment that improve my productivity are also mine.
> 
> ...


ya make no sense even if the words are all correct.
basically you have no competition.
just say so.

charge what you need to live a very comfortable life, send your kids to harvard, etc..

basically just reply i have no competition, and we'll understang,


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## RobertCDF (Aug 18, 2005)

brunothedog said:


> ya make no sense even if the words are all correct.
> basically you have no competition.
> just say so.
> 
> ...


I have 50+ deck builders in my market, yet I have no competition. Because we truly do use better materials and better techniques.


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## EricBrancard (Jun 8, 2012)

RobertCDF said:


> I have 50+ deck builders in my market, yet I have no competition. Because we truly do use better materials and better techniques.


You've managed to de-commoditize decking instead of competing in a race to the bottom. :thumbsup:


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## griz (Nov 26, 2009)

RobertCDF said:


> I have 50+ deck builders in my market, yet I have no competition. Because we truly do use better materials and better techniques.



Plucking ay witty.....:thumbsup::thumbup:

FINALLY, someone who understands my way of thinking...:thumbsup:

Integrity, quality and efficiency, takes a while to establish, but once you are there, the. Sky is the limit...:thumbsup:


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## PoleBarnsNY (Jan 18, 2014)

Thread should be a sticky


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## flashheatingand (May 3, 2008)

EricBrancard said:


> You've managed to de-commoditize decking instead of competing in a race to the bottom. :thumbsup:


Isn't just all about every business a race to the bottom. Lets take food production for example. Butchers shook their heads in disbelief with the industrial concept of slaughter houses. Slaughter house meat was significantly lower, and now, very few butcher shops. There are plenty of other examples available.

Just saying, people and industries have always strived to cut down on expenses in one way or another. For better or worse, it's all a race to the bottom.


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## 480sparky (Feb 1, 2009)

flashheatingand said:


> Isn't just all about every business a race to the bottom. Lets take food production for example. Butchers shook their heads in disbelief with the industrial concept of slaughter houses. Slaughter house meat was significantly lower, and now, very few butcher shops. There are plenty of other examples available.
> 
> Just saying, people and industries have always strived to cut down on expenses in one way or another. For better or worse, it's all a race to the bottom.


Cream rises to the top. :whistling

Jez sayin'.


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## flashheatingand (May 3, 2008)

MarkNoV said:


> My fundamental business philosophy is that ALL the benefits resulting from my low overhead are mine, not my customers'.
> 
> Equally, ALL the benefits due to my investments in either training, or equipment that improve my productivity are also mine.
> 
> ...


If your help completes the job in half the time, due to the Festool, do you still pay him for the whole time? If you are charging your customer Nail and Hammer time for a job, but paying your help wages at Festool rates, that would be considered double dipping.

Not a personal jab as I see this within our industry. To replace an heat exchanger in a furnace takes about an hour or so (thanks to impact drills). Yet, the customer is ofter charged roughly for about four hours.


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## hdavis (Feb 14, 2012)

flashheatingand said:


> Just saying, people and industries have always strived to cut down on expenses in one way or another. For better or worse, it's all a race to the bottom.


It's only a race to the bottom if you're chasing customers that want the cheapest. Market and sell based on something other than "cheap", and you can stay in business. When the digital watch first came out in the 70s, everybody and their dog in the US was putting out their own cheap digital watch. The all lost money. Seiko decided they were in the jewelry business, so they made money on theirs.


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## flashheatingand (May 3, 2008)

I think the general public knows there is no direct relation with quality and price, for the most part. It would be great if it were that simple. I don't market on being cheap. I market on being fair and spending the customer's money like it was mine.

That being said, we are always trying to find ways to do things in a less expensive manner. That's the way of the world. Sure, Seiko, Rolex, are doing well. But there are were a whole gang of watchmakers that went under trying to play that game as well. It would be nice if we all could be the Seiko's of construction. But, only the cream rises to the top. The rest of us are just dairy product.


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## hansol04 (Feb 14, 2008)

As a guy who started out on the tools, and used the tools to pay for me to go to school and get my CPA, I always like reading these threads as it's always enlightening to see where contractors and tradesmen are at in terms of running their businesses. As another poster said, it's one of the best forums around to see different ideas as to approach things. With that in mind, there's a few things to think about.

Someone mention the big guys and overhead vs. little guys. Two things to realize here:

* Imagine two business, one big, one small. Both are owned by one guy. And after all the operating expenses and admin expenses and taxes are paid, each guy wants to “earn” 10% of the gross billings of the business for that year.
* The big company bills $1mil a year – The small company bills $100k a year.
* 10% on $1mil = $100,000. 10% on $100k = $10,000 a year.

That's typically why you'll hear some contractors suggest “growing” the business. In the above example, the net earnings are still the same – 10%. It's the volume of dollars involved that increase what goes in a contractor's pocket.

However, there is no free lunch. In running that big company, you now need to scale up in terms of costs. More tools, more trucks, more employees, etc. It's the only way to service that kind of volume. This means that the owner can find himself on the phone 18 hours a day coordinating everything, and the headaches never end. The small business can instead take Fridays off and enjoy time with the family, as he can handle everything his business needs via a couple phone calls that week. So in my experience I've found it seems to be a lifestyle choice – stay small and have less “headaches”; grow large, have more headaches, but your net earnings tend to be bigger. 

Another poster talked about fixing trucks on his own time vs. having a shop work on it. Basically it's what's called “opportunity cost” - the fact that to do one thing, you have to give up doing something else. So in this case, the time taken to fix a vehicle is the time taken away from being on the tools and earning some cash. So to illustrate this simply:

*Let's say you bill out at $100/hour (and assuming a perfect world with zero overhead, so you pocket all of that cash.) and work for 10 hrs a day. That's $1,000/day you bring in.
* Let's say a mechanic charges $500/day to fix your broken truck, and he can do it in a day.
*However, you can take a day off and fix the truck for free - $0.00 spent.

So Scenario 1 is you fix the truck yourself. Directly, you saved $500 – you didn't have to pay the mechanic anything. However, you gave up a day of work, which means you didn't bring in $1,000. So $500 in savings less ($1,000) in missed cash = ($500) loss on the day.

Scenario 2 is you work that day. You bring in $1000, but you had to pay a mechanic to fix your truck. $1000 in, ($500) out = $500 income earned on the day.

So a contractor needs to be able to know exactly what his margins and operating costs are in order to effectively make the judgement call as to whether Scenario 1 or Scenario 2 is the better option. For some things it's more cost-effective to just work that day and let someone else deal with the problem. Other times if you can fix it yourself, you'll wind up saving money even if you miss out on a days wages.

Lastly, some guys have mentioned how they bill out “as if” they had to pay for an accountant when their sister does the accounting for free in turn for you handling all her honey-do items. Or themselves for being a “Sales Rep” every time they do a free evaluation. This is something that can be very productive in terms of knowing what your business can absorb when things slow down. By showing an “expense” on the books in terms of these items, you see what your business would actually incur in terms of costs if you weren't doing things for free yourself, or had a sister doing things for free, etc. It allows you to see for yourself how if you decided to just take tomorrow off, and you had to pay third parties to handle all the duties you normally do, would your business turn a profit? Or would you suddenly be dipping into the line of credit to make ends meet?

Additionally, it allows you to see where you can turn a profit where others can't. 2008 was a painful example of this. The guys who had the ability to “drop” the sales commission they charged when they did a free evaluation by themselves, and who could drop the accounting fee sur-charge because they had a sister who could do the books dirt cheap, these guys could stay alive and still make a living from a cash-flow standpoint. The cash they took in still covered their expenses. The guys who had to still pay a full-time sales employee, and had to pay a bookkeeper, suddenly had cash being tight. Those individuals still had to be paid, but cash was not coming in at the same volume as it was before. 

So that's a long-winded way of saying that it's important to consider these “implied” costs into your operating expense estimates, as it allows you to see if you're actually making money at the business in terms of whether or not you had the “advantage” of non-cash expense help, whether that's you, your spouse, a sister, etc. At the end of the day you need to know if you took a day off and had to pay a third-party for all the services you provide your business, would the business still be profitable? At the same time, knowing what those non-cash expenses are, and taking advantage of them should the need arise, allows a business to make money when nobody else can, and that can be your edge. 

Anyway, sorry about the novel. Hopefully it is of a little bit of use to everyone here.


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## DaVinciRemodel (Oct 7, 2009)

When I talk to guys in the trades (my subs) and even guys here, I find that lots of them know about the basic overhead items (gas, phone, insurance, truck, tools, etc.). But I find most miss some things I personally calculate into overhead. Here are some of the things that I see turn heads when I mention them.

Warranty: Somewhere – sometime – something is not going to live-up to its desired life. If a garbage disposal stops working within the year of its installation – I’ve gotta fix/replace it. If a new refrigerator stops working… If a new window stops operating… If a hinge breaks on a new cabinet…

These are things that I count on happening and I add a “Warranty” sub-account to my overhead calculations. I'm not taking it out of profit.



Vacation, sick, personal days and down time: Vacation, sick and personal days are (I hope) self-explanatory, but I also calculate downtime between jobs into my overhead. I intentionally schedule time between jobs so that I can react to change orders in the current project, clean/organize/maintain tools and the shop. I'm not doing this as a freebie and I'm not doing this in my free time.



Retirement savings: I like a banker, baker and Indian Chief, I want to stop working someday to play golf in my old age. It needs to be a planned event and funded.



Health, life, disability Insurance: As the owner, I waive out of WC, but I still have very good policies that cover me in the event. 



Planned Purchases: I plan a new truck every 6 years, I plan a new computer every 3-4 years, I plan a new printer, monitor, phone, office chair… By planning for these things and including them in my overhead calculation – I rarely touch my profit accounts.



I think the years I spent behind a desk in big business taught me that, businesses include these things into overhead. It’s not “If we have the money next year” – It’s “We plan on having the money next year”.


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## huggytree (Nov 3, 2013)

brunothedog said:


> i think your wrong on how you look at overhead,
> its not that a 1 to 2 man crew has no overhead, compared to larger Co. they have very little overhead.
> I am a 1 man crew that works with another one man crew, and we bid against the bigger Co.s and are able to easily stay 10 -20% lower, My home is my office so I pay no rent, I have no secretary and Geometer (estimator) so i have no one to pay.
> 
> ...


i am saying labor savings and material savings from being a large company cancels out any higher over head
...large companies can actually be cheaper per hour

i only know plumbing....so ill pretend your a large plumber

me(small)----i do all the office work....i charge for my full wage $116 per hour......
Large company----office girls -$12 an hour

me(small) materials----i buy in some bulk(i have a shop)
Large company----buys in huge bulk, gets 5%-10% discount....if large enough they can become their own supplier and get fixtures directly from Kohler....another 5-10% savings

me (small)----i do all the grunt work...charge $116 per hour to dig ditches and core holes
Large company---grunts galore.....$12 an hour to dig and core....apprentices w/o vans or tools....$40 an hour w/ benefits

large companies have buildings.....what else different do they have that costs more?.....large company---much more efficiencies and cost savings...........for me(small) im doing everything myself and paying myself $116 (full wage) while a larger company can pay grunts/secretaries $12 an hour to do the same.....

larger companies typically are lower priced than me...they work in bulk(or so they think) and lower profit margins.......i know larger commercial plumbers use a hourly wage of $75 an hour because they are averaging helpers/journeyman/apprentices.......

i built a $25,000 2 story barn for my shop.....its in my driveway....i have $2 an hour in my wage to pay myself pretend rent....what does a large companies shop cost a month? $4,500???....divide that by 20 workers, then deduct the 5-10% discount from buying in bulk.....i think your pretty even with where i am...that discount for materials is huge when your buying $100,000-250,000 a month in materials...id like to have $5k-10k in discounts a month

i worked for a large commercial shop for 2 months when i was an apprentice....i worked on a hotel project...they did all their water piping in bulk in the shop...they came up with templates and had shop buys soldering together the risers for the sinks and mixing valves.....if it were my small shop id be doing all that myself.....the savings on that idea alone probably saved them $10k on that 400 room hotel.....thats the kinda savings a larger shop can have....tons of cost savings by being big that a small shop cant do....


the reason most small people 'think' they have a low over head and can be lower wage is that they dont consider their wage when they do bids/office work/accounting....they do that stuff for free....i include it in my $116 per hour wage...approx. $15 an hour is to pay myself journeyman wage to do the office work and bids....i know most small time guys never think of that one...they like working 60 hours to make 40 hours pay


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## EricBrancard (Jun 8, 2012)

flashheatingand said:


> I think the general public knows there is no direct relation with quality and price, for the most part. It would be great if it were that simple. I don't market on being cheap. I market on being fair and spending the customer's money like it was mine.
> 
> That being said, we are always trying to find ways to do things in a less expensive manner. That's the way of the world. Sure, Seiko, Rolex, are doing well. But there are were a whole gang of watchmakers that went under trying to play that game as well. It would be nice if we all could be the Seiko's of construction. But, only the cream rises to the top. The rest of us are just dairy product.


Seiko is a diversified watchmaker. They have the $80 watch you can get a JC Penny and the spring drive watches that can be tens of thousands as well as everything in between. 

Then we look at a brand like Hublot that only makes big dollar watches. They have no desire to compete in lower end dept stores and they don't have to. Generally the only time I ever see a Hublot is when I have seats in the first ten rows at Yankee Stadium. 

Anyways, I have no desire to participate in the race to the bottom and I don't have to.


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## hdavis (Feb 14, 2012)

flashheatingand said:


> It would be nice if we all could be the Seiko's of construction. But, only the cream rises to the top. The rest of us are just dairy product.


I'll point out something here. It isn't always the best craftsman, it's the best businessman, many times, that rises to the top. There really are starving artists and well fed hacks:whistling


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## griz (Nov 26, 2009)

hdavis said:


> I'll point out something here. It isn't always the best craftsman, it's the best businessman, many times, that rises to the top. There really are starving artists and well fed hacks:whistling


Very sad, but true....

Not all are hacks, some are just a few levels below an artist...


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## hdavis (Feb 14, 2012)

griz said:


> Very sad, but true....
> 
> Not all are hacks, some are just a few levels below an artist...


There's a local paint contractor that's nothing special as a painter, but he's one heck of a businessman. Does everything from top level to low end. Top level gets the new vans, most skilled paint crew, yard signs, etc. Low end gets beginner or not o good painters beater vans, no yard signs.:laughing:

I know a lot about the ins and outs of how he runs his business, and it's all focused on making him money and having a reputation. Reality is, cheap people tell other cheap people where to get a cheap paint job, money is no object people tell other money is no object people where to get a really good paint job. Yard signs are only on mid to high end jobs (mid end are different crews from the other two, unless it's off-season here)


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## bbgcarpentry (Apr 11, 2009)

Thanks


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## MarkNoV (Apr 29, 2006)

flashheatingand said:


> If your help completes the job in half the time, due to the Festool, do you still pay him for the whole time? If you are charging your customer Nail and Hammer time for a job, but paying your help wages at Festool rates, that would be considered double dipping.


I don't charge for the time on a job, I charge for a job. My low overhead and superior productivity allow me the luxury of working less, earning more, or doing a better job.

Either way, it is my choice. 

Like I said, all the benefits are mine.

Mark

PS. Given the opportunity, I will triple and quadruple dip.


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