Is your profit margin where it should be? If you are unaware of what your indirect costs are, then it is extremely likely that you don’t know.
Why don’t we commit to run our business this year with a new level of professionalism and planning so that it will take better care of us? A few small improvements could easily make a 10-20% difference in our bottom line. A good place to begin is with the question; How much does it cost to run my business?
I was just over on ShuBee’s site and Frank Blau had brought up this question in his great article on the issue. I would like to give my condensed take on it here.
Your company’s costs are made up of fixed and variable, or indirect and direct costs. Fixed or indirect costs are referred to as overhead expenses, and can be best calculated by your accountant using a program such as Quick Books or Peachtree. As bills are paid, costs are given a category code and entered into the computer. A report can be called up in seconds that will give you more info about your business than you could imagine. You must know what to do with that info and Frank’s article is a great place to start.
If you are trying to do it any other way than up to date computer reports that are generated from your actual accounting numbers, then we’ve already identified how you can improve your business this year.
If you want to be an accountant, turn in your tool belt for a calculator. Frank is dead on in that we should be aware of our overhead and use correct markup calculations to assure that we are making the money we need to remain in business.
(I’ve said it before, our clients will not be benefited if we are not around to give them service, or if we are too weakened to give them the benefit of, as one example, quality diagnostic equipment and the time it takes to pinpoint air quality issues that never cross the minds of “fly-by-nights.” Another example is not having enough time to spend with the client to determine what is important to them and how you can make their life better.)
My point is, yes, you must understand all your costs in order to price jobs to make your necessary profit. However, if you try to do all the accounting it takes to keep you well informed and up to date it will not get done. Remember, you you want to (as much as possible) work ON your business, not IN your business.
Set aside regular time with your support team, which should include your accountant, marketing consultant, manufacturer reps and peers, brainstorming your business and how to make it stronger this year. This will keep you sharp on things you don’t have time to be an expert on.
The fact that you are reading this says that you are smart enough to be looking for new ideas and encouragement from outside yourself, so be encouraged and don’t hesitate to delegate.
Here’s the link to Frank’s article for an in depth discussion of overhead. While you’re there you may want to read about calculating mark up so you’ll be able to discuss it intelligently with your accountant.
http://www.shubeebusinesstips.com/2010/01/lets-talk-about-overhead/
Let’s make it a great year!
Rodney
