Have you ever heard of the term overhead costs? If so, could you name three of your overhead costs? When was the last time you created an income statement to check on your profitability? Do you create one after each job you bid on? Some business owners do that often and have a great understanding of their financial circumstances. If you are kind of stuck on this topic, here is a great discussion on it from the Gopher Lawn Care Business Forum.
One lawn care business owner wrote “In accounting the term overhead refers to all the non-labor expenses that are required to operate your business. These expenses can be either fixed or variable. Overhead generally refers to the ongoing expenses of your business administration which aren’t attributed to any specific business activity, but are necessary for the business to function. For examples overhead costs would include utilities, rent, insurance, and depreciation etc.
So even if you decided not to do anything tomorrow and take the day off, you would still have costs for that day and that is the overhead to keep everything going. We generally can’t do anything to change our overhead costs from one day to the next. Labor costs are variable as are sales costs as it depends on workload and what the sales are bringing in.
At what point should a business owner consider labor costs when trying to determine the financial health of their business? Any day of the week actually. You should be able to run an income statement at any time to check the pulse of your business.
In our first year of operation, I checked up on every job we did to measure the profitability. Now a bunch of years later, I have a very good handle on what we need to charge. I must admit I did lose money on three landscape jobs this year which became apparent to me after running an income statement during those jobs but all in all I feel I made it up and I am very pleased with my after tax income.
What is important to me is why did we lose money on those jobs and then change the problem or whatever the issue was right away. I know we made money in the bigger picture but undercharging on a few jobs is something that needs to be corrected.
For me personally, I find/found the hardest jobs to quote were wood cutting and chipping jobs. So from now on we are straight by the hour and if you are not happy about the progress you can stop us any time. I can give a customer a rough guess but I have found it impossible to quote the time to clean up already downed trees on a large scale. We can cut trees down, block them up and chip the brush two to three times as fast as cleaning up downfall as it always a major mess.
We have to know our overhead costs. It is critical information as to whether we survive or not. If we are working our butt off and barely making ends meet then we need to know before the repo guy comes calling and what can we do to fix it.
You can make it as simple as you want but everyone of us should be keeping some type of accounting and it should be updated no less than every three days, it honestly doesn’t take that long to do, just keep on it.
Your financial statement is a road map. You know where you want to go however without the map, you will never know if you are getting there or even close to the mark. It’s great having money in the bank account however where and which jobs are generating the best cash flow and which ones are an issue? You won’t know until you get your accounting in order. So start doing it today.”
Order the bookÂ 90% Of Lawn Care Businesses Fail In Their First Year. Learn How To Survive With These Tips! today.
Use these lawn care and snow plow estimators for your Android phone.
What are lawn care business overhead costs? GopherHaul 74 Lawn Care Business Show
What are lawn care business overhead costs? GopherHaul 74 Lawn Care Business Podcast