Seven-Delta-FortyOne
Goin’ Down In Flames........
- Location
- Humboldt
- Occupation
- EC and GC
This is a little thing I put together for a Contractor's FB group I’m on.
FIGURING AND APPLYING OVERHEAD:
First thing to understand is, figuring overhead is an ongoing task, and it deals with some projections. As the year progresses, projected figures will become actual figures, and you will adjust your overhead figure to match.
So, first thing, sit down and total up everything you spend to be in business: license fees, insurance, vehicle payment, registration, insurance, and maintenance, cell phone, tool purchases, tool repairs, office rent, utilities, shop rent…….It’s a long list.
What is NOT included: Labor, labor burden, profit, your labor, materials…..
One tricky item is fuel. You should come with a projected amount for basic travel, based on miles from your shop, say 50 miles per day. That would go into overhead.
Any amount over that should be charged as a direct job cost.
So now, you have all these numbers. Some are paid monthly, some yearly, some every two years, like a state license. What to do?
You must combine this all into a YEARLY figure. Divide your 2 year license by 2, multiply your monthly cell phone bill by 12, and so on.
Now you have a yearly amount that it will cost you to be in isiness, if you didn’t bid a single job.
Now, a tricky part. When you worked for someone else, you worked 253 days a year. That’s working every day, Saturdayand Sunday off, and the 8 standard holidays off.
If you got two weeks vacation, that’ll knock off another 10 working days.
So, do you divide your yearly overhead by 253 working days? Only if you want to go broke. Why?
Because you will not have 253 billable days in the year. Not to start out. There will be a day here and there in between jobs, days that you need to work in the office, days you got 1/2 a day in.
I use 200 working days a year. Again, that’s a projection, so check and adjust as necessary.
So, if your yearly overhead comes out to $70,000, divide that by 200, and you get $350/day. That is just to recover overhead. That is NOT your wages, nor is it profit.
Now, for the other way to figure it. It’s more complicated, and I think more prone to inaccuracies, unless your project are all nearly the same in scope and size. That is to take that yearly number, and divide it by projected yearly gross sales, and come up with a multiplier, that you will apply to the job cost. Charging overhead based on dollar amount vs days worked. Same basic result, I just prefer one over the other.
Now you have an overhead figure. If you bid a job that will take you an estimated 10 days, then you need to put $3,500 into the bid, JUST TO COVER OVERHEAD.
And you can see, that if you mis-estimated, and it actually took uou 11 days to do the job, you will LOSE $350, because you STILL acccrued those overhead expenses, but you did not recover any of it.
I’ll do a separate post about figuring total bids, using your overhead figures, and I’ll dig into markup a little bit as well.
FIGURING AND APPLYING OVERHEAD:
First thing to understand is, figuring overhead is an ongoing task, and it deals with some projections. As the year progresses, projected figures will become actual figures, and you will adjust your overhead figure to match.
So, first thing, sit down and total up everything you spend to be in business: license fees, insurance, vehicle payment, registration, insurance, and maintenance, cell phone, tool purchases, tool repairs, office rent, utilities, shop rent…….It’s a long list.
What is NOT included: Labor, labor burden, profit, your labor, materials…..
One tricky item is fuel. You should come with a projected amount for basic travel, based on miles from your shop, say 50 miles per day. That would go into overhead.
Any amount over that should be charged as a direct job cost.
So now, you have all these numbers. Some are paid monthly, some yearly, some every two years, like a state license. What to do?
You must combine this all into a YEARLY figure. Divide your 2 year license by 2, multiply your monthly cell phone bill by 12, and so on.
Now you have a yearly amount that it will cost you to be in isiness, if you didn’t bid a single job.
Now, a tricky part. When you worked for someone else, you worked 253 days a year. That’s working every day, Saturdayand Sunday off, and the 8 standard holidays off.
If you got two weeks vacation, that’ll knock off another 10 working days.
So, do you divide your yearly overhead by 253 working days? Only if you want to go broke. Why?
Because you will not have 253 billable days in the year. Not to start out. There will be a day here and there in between jobs, days that you need to work in the office, days you got 1/2 a day in.
I use 200 working days a year. Again, that’s a projection, so check and adjust as necessary.
So, if your yearly overhead comes out to $70,000, divide that by 200, and you get $350/day. That is just to recover overhead. That is NOT your wages, nor is it profit.
Now, for the other way to figure it. It’s more complicated, and I think more prone to inaccuracies, unless your project are all nearly the same in scope and size. That is to take that yearly number, and divide it by projected yearly gross sales, and come up with a multiplier, that you will apply to the job cost. Charging overhead based on dollar amount vs days worked. Same basic result, I just prefer one over the other.
Now you have an overhead figure. If you bid a job that will take you an estimated 10 days, then you need to put $3,500 into the bid, JUST TO COVER OVERHEAD.
And you can see, that if you mis-estimated, and it actually took uou 11 days to do the job, you will LOSE $350, because you STILL acccrued those overhead expenses, but you did not recover any of it.
I’ll do a separate post about figuring total bids, using your overhead figures, and I’ll dig into markup a little bit as well.