Knowing the difference between gross income and net income.

Having a plan before you start your business is a great idea because it gets you thinking. It makes you realize you have expenses and you need to make a certain amount of money per hour to cover those expenses. Without having some kind of financial goal to hit, you can very easily underbid jobs and lose money. Knowing you want to end the year with a certain amount of net income is great but to reach that goal, you have to keep a close eye on all the money that comes in and all that goes out. One lawn care business owner needed help in figuring out how much gross income he would need to achieve a certain net income level and he ask for advice with that on the Gopher Lawn Care Business Forum.

He wrote “I roughly know what I need to make per hour to break even in my company, but how do you figure what would be a good percentage of profit. I was thinking like 10% or something like that…..any advice would be helpful.

I want to make eventually $40,000 a year take home at the end of it all.  So, I am figuring $40K/1,400[working hours in a year] = $28.57/hour. That is how much I would need to make after expenses per hour.

Now my total equipment costs are about $2,770 per year as of right now which includes trailer, string trimmer, push mower, riding mower, and maintenance of them all.

$2,770.12/1,400 = $1.97 in equipment costs per hour. If I add that to the $28.57 I wanted to make that = $30.54/hour. I know I left insurance and all that stuff out, but this is just a ball park figure for now. My question is if I want to make a 10% per hour, can I take 10% of $30.54/hour and that ends up being $3.05 plus $30.54 = $33.59. Would charging that rate allow for a sustainable and reasonable profit?”

A second lawn care business owner said “you need to understand the difference between gross income and net income. Gross income is every single dollar your company brings in throughout the year. Net income is what you are left with after all expenses have been paid.

It’s very difficult to get a full picture of what your expenses will be until you get your lawn care business started. Only then can you truly start seeing the different issues and expenses that will pop up and have to be paid for and dealt with. You can do a certain amount of planning but it seems once you get started the plan is thrown out the window.

When you are attempting to plan out your potential gross and net income, you need to consider as many expenses as possible. Things like insurance, gas, overhead costs, taxes…. whatever.

Then it is important to keep track what is going out so you know what you need to bring in to first break even and then make a profit. If you can profit $40K in your first season, you will have gotten a good start. Most new business owners won’t be making $40k in their first year though.

As far as what percentage you will be able to profit, that has a lot to do with how much competition you have in your area, the types of services you offer, the types of customers you have, and your ability to keep your expenses down. If you have a low level of competition and a group of high paying customers, you will have a higher profit margin. On the flip side, if you have a lot of competition and a lot of cheap customers, you may profit very little if at all. Then there is also the ever possibility that you won’t break even and end up losing money while you are out working.

Keeping a keen eye on your income and expenses will tell you a lot about the financial health of your business. Don’t put this off until the end of the year either. Keep track of it day to day, week to week, and month to month. If you close your eyes to it all year, you may find no money left in your bank account at the end of the year and then be left wondering what happened.”

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