LoneCowboy
Veteran Member
- Joined
- Oct 2, 2006
- Messages
- 1,212
Since there isn't a business forum (HINT), I guess we'll have to put this here.
To decide what you can charge and stay in business you need to know what your costs are. If your costs are more than what the going price is, you can't and won't stay in business (and neither will anyone else over time)
There will always be people who lowball just to get business, but they'll be out of business over time, because they aren't covering their costs.
some places have longer seasons than others, this means you can split your costs over a longer time period. For example, here in colorado the season is approximately April to October, sometimes a little longer, but that's about it. and maybe for mowing, you might get 3 cuts in a really wet year. (last year was very dry, some places we did once, some places not at all). In Florida, I would imagine the season goes almost all year (and thus your prices can be lower because you can split your fixed costs over a longer period of time each year).
Insurance. You have business liability insurance (which isn't too excessive for just mowing, but for excavating and spraying chemicals can get ridiculously expensive). You have to insure your vehicle as a business vehicle (or get a business rider), which is not nearly as cheap as regular personal insurance (and obviously varies by area). Also, while personal trailers are covered by the vehicle, that's not true for business trailers, you have to get another policy (in colorado it's about $100 a trailer) for just liability. You also need to think of actual physical damage to your trailer and equipment. This is the typical Inland Marine policy that covers if it's stolen or damaged or whatever. This isn't cheap (but not outrageous either), but if you can't afford to replace that piece of equipment, you might think of getting some of this type, otherwise you are out of business. Snowplowing liability insurance is ridiculously expensive. (mine is $1500 a year for one truck, in addition to the regular business truck liability insurance). In some states you have to carry workman's comp with no employees, in some states you don't.
Fuel, fuel is of course a reasonable expense and shoudl be accounted for. Perhaps you have a travel charge for going long distance, whatever. But it does add it. it runs total about 15% of my revenue is fuel. Remember you have fuel to go out and bid jobs (that you won't always get) and go and get parts, materials, etc.
Equipment Maintenance: of course you need equipment and of course it needs to be maintained. Tractors need oil changes, parts break, mower blades dull out, tires get flats, tires wear out. You have to account for this. You might not need that new tire this year, but you will, and you need to be charging for it. I like to use the 10% of the cost of the equipment per year. seems to be a reasonable number, maybe a little high, but older tractors cost less, but usually have higher maintenance. Of course vehicles also need oil changes, tires, etc. if you can't maintain it, you can't stay in business long. You can of course do lots of this work yourself, but parts still cost money and some things you won't be able to do yourself and it's still your time that you aren't getting paid for.
Taxes: how could I forget taxes. Registration of vehicles, make sure you put them in the business name. Social Insecurity, errr I mean the self employed tax. Sales tax on equipment you buy, business taxes for the privledge of operating your business, income taxes and of course, the accountant's fees. Only the income tax is optional (you actually have to have income
). But don't screw up and not put enough away to pay your quarterlies. Small business is a function of cash flow, not profitability. The IRS is not a debtor you want.
Carrying costs: Business bank account, (always more expensive than personal checking), some type of tax software/ledger to keep track of your expenses, etc. You still have to do this, you don't get to bill for the time. Accounts receivable. You bill people, they pay 2 or 3 weeks later (or worse), meanwhile you still have expenses to pay every day so you have to carry a decent amount of "dead" cash to cover for those slow times. You also have to cover for your off season, the mortgage still comes due every month, no matter if you have business or not.
Depreciation: this is what everyone misses. sure, you already have a tractor, a truck, a trailer and a mower, and it's already paid for so you can go out and make money. BUT, someday you'll need to replace that stuff and if you haven't accounted for that cost you aren't making any money. Most larger things depreciate on a 5 or 7 year schedule and in your head you should do that too. this tractor might have cost 20,000 grand if I bought it today, therefore I should put 4,000 a year away, because in 5 years it will be "worn out" and I'll have to replace it with yet another 20,000 dollar tractor. Now, of course if you can make it run for 10 years, you've made extra money in the meantime, but you have to cover the cost of your capital.
I can tell you that just one of my rigs is $50,000+. Tractor, truck, trailer, mower, that's a ton of money. Will they last more than 5 years? I hope so but that's my cost of capital I need to cover. Posted by Toiyabe and an excellent point: You should also factor in interest on your capital. Even if you paid cash, that interest is the cost for not investing your money elsewhere.
Advertising: gotta advertise if you want to get business. None of it is free. Web pages, classified ads, display ads, business cards, etc. Maybe after you've been in business a while it's all word of mouth, but up front, you gotta get your name out.
I hope that helps and I'll do an example in the next post.
To decide what you can charge and stay in business you need to know what your costs are. If your costs are more than what the going price is, you can't and won't stay in business (and neither will anyone else over time)
There will always be people who lowball just to get business, but they'll be out of business over time, because they aren't covering their costs.
some places have longer seasons than others, this means you can split your costs over a longer time period. For example, here in colorado the season is approximately April to October, sometimes a little longer, but that's about it. and maybe for mowing, you might get 3 cuts in a really wet year. (last year was very dry, some places we did once, some places not at all). In Florida, I would imagine the season goes almost all year (and thus your prices can be lower because you can split your fixed costs over a longer period of time each year).
Insurance. You have business liability insurance (which isn't too excessive for just mowing, but for excavating and spraying chemicals can get ridiculously expensive). You have to insure your vehicle as a business vehicle (or get a business rider), which is not nearly as cheap as regular personal insurance (and obviously varies by area). Also, while personal trailers are covered by the vehicle, that's not true for business trailers, you have to get another policy (in colorado it's about $100 a trailer) for just liability. You also need to think of actual physical damage to your trailer and equipment. This is the typical Inland Marine policy that covers if it's stolen or damaged or whatever. This isn't cheap (but not outrageous either), but if you can't afford to replace that piece of equipment, you might think of getting some of this type, otherwise you are out of business. Snowplowing liability insurance is ridiculously expensive. (mine is $1500 a year for one truck, in addition to the regular business truck liability insurance). In some states you have to carry workman's comp with no employees, in some states you don't.
Fuel, fuel is of course a reasonable expense and shoudl be accounted for. Perhaps you have a travel charge for going long distance, whatever. But it does add it. it runs total about 15% of my revenue is fuel. Remember you have fuel to go out and bid jobs (that you won't always get) and go and get parts, materials, etc.
Equipment Maintenance: of course you need equipment and of course it needs to be maintained. Tractors need oil changes, parts break, mower blades dull out, tires get flats, tires wear out. You have to account for this. You might not need that new tire this year, but you will, and you need to be charging for it. I like to use the 10% of the cost of the equipment per year. seems to be a reasonable number, maybe a little high, but older tractors cost less, but usually have higher maintenance. Of course vehicles also need oil changes, tires, etc. if you can't maintain it, you can't stay in business long. You can of course do lots of this work yourself, but parts still cost money and some things you won't be able to do yourself and it's still your time that you aren't getting paid for.
Taxes: how could I forget taxes. Registration of vehicles, make sure you put them in the business name. Social Insecurity, errr I mean the self employed tax. Sales tax on equipment you buy, business taxes for the privledge of operating your business, income taxes and of course, the accountant's fees. Only the income tax is optional (you actually have to have income
). But don't screw up and not put enough away to pay your quarterlies. Small business is a function of cash flow, not profitability. The IRS is not a debtor you want. Carrying costs: Business bank account, (always more expensive than personal checking), some type of tax software/ledger to keep track of your expenses, etc. You still have to do this, you don't get to bill for the time. Accounts receivable. You bill people, they pay 2 or 3 weeks later (or worse), meanwhile you still have expenses to pay every day so you have to carry a decent amount of "dead" cash to cover for those slow times. You also have to cover for your off season, the mortgage still comes due every month, no matter if you have business or not.
Depreciation: this is what everyone misses. sure, you already have a tractor, a truck, a trailer and a mower, and it's already paid for so you can go out and make money. BUT, someday you'll need to replace that stuff and if you haven't accounted for that cost you aren't making any money. Most larger things depreciate on a 5 or 7 year schedule and in your head you should do that too. this tractor might have cost 20,000 grand if I bought it today, therefore I should put 4,000 a year away, because in 5 years it will be "worn out" and I'll have to replace it with yet another 20,000 dollar tractor. Now, of course if you can make it run for 10 years, you've made extra money in the meantime, but you have to cover the cost of your capital.
I can tell you that just one of my rigs is $50,000+. Tractor, truck, trailer, mower, that's a ton of money. Will they last more than 5 years? I hope so but that's my cost of capital I need to cover. Posted by Toiyabe and an excellent point: You should also factor in interest on your capital. Even if you paid cash, that interest is the cost for not investing your money elsewhere.
Advertising: gotta advertise if you want to get business. None of it is free. Web pages, classified ads, display ads, business cards, etc. Maybe after you've been in business a while it's all word of mouth, but up front, you gotta get your name out.
I hope that helps and I'll do an example in the next post.
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