| What business? Nursery, design, maintenance, construction,..? If it is a service business, keep records of all expenses directly related to each part of the whole job. In other words, if you do a job that includes a brick walk for example, you should be able to add up how much you spent in terms of hours and dollars so that you know how much it actually cost you to make. That way you can do accurate pricing in the future. It sounds obvious, but you would be surprised at how few people actually do this with anything resembling accuracy. The second thing that you must do is develop solid pricing. Another seemingly obvious thing that is not done by many people. Developing solid prices comes from knowing your expenses for each task that you do. That is the importance of the overly simple brick walk example. There is nothing worse that you can do besides soft pricing. When someone challenges you on your pricing, you have to know if it is enough, not enough, or too much. If you do, you can and should stick to your price and be able to walk away from the job rather than knocking the price down to land it. You can't really do that if you don't record keep. The third set of words of wisdom would be to understand what business you are in and max out your efficiency before adding more and more equipment and running it all on a part time basis. The example I like to use because I see it so much is: Don't have $30k worth of mowing equipment hanging out for five days a week in order to mow for two days while having a $30k skid stear loader running 100 hours a year parked next to the hydroseeder, the bark blower, spray truck, cherry picker, pipe puller, cement mixer, .... while you try to decide what to buy next in order to "get over the hump" with your 2 employees. A lot of words to say that equipment alone does not get work done. Managing people gets work done. We are all limited in the number of employees we can manage. Some have bigger limits than others. Those that deny this to themselves buy more and more equipment thinking it will make them money. All the while they can only bill for the two or three operators/laborers that they can manage. They gross more money, but often net less all the while they think they are doing better because of all the stuff they have. Don't emulate them. And finally, always understand that those who are established know the market, know the costs, know where to buy stuff, are in a better position to have work come to them, and often have lower overhead. It is doubtful that a new person has the ability to charge less and make more money than they do. But for some reason, new people often think they are going to out produce these people who know, through familiarity, the ins and outs. The biggest single disadvantage is that the consumer is more comfortable with a known product. It is not how much you know or can do, it is how you compare to the people you are competing with. All things being equal, will the consumer take you or your product over the next guy? If not, you have to make sure that not all things are equal in order to level the playing field. That usually means the new guy has to charge less in order to get work even though it costs him more to produce. One more thing:
If you are leaving a full time job, take your salary, add the other half of the SSI that your employer pays, the cost of your health insurance, employers share of an IRA or 401k, the cost of the insurances, rental space, equipment, fuel, checks, envelopes, paper, tools, and every last expense that you will have and divide that by the number of BILLABLE WORKING HOURS you will expect over the first year. Keep in mind what hours you can actually bill for will not likey be 40 a week for 52 weeks. That $50 k salary will easily need $65k to net you the same cash. That is a net of $1,250 a week, or $31.25 an hour. If it is an outdoor business, whether is going to limit those days. If you only miss two billing days a month, that is 192 hours. Will you take two weeks a year vacation? That is 80 more. When your tire goes flat, there goes another one. Now your up to $36 per hour to break even and you have not bought any gas, insurance, tools, equipment,... One $6k lawn mower costs over $1per hour with no interest over three years. The trailer is another $.50. It won't take much more equipment, expenses, and NON-BILLABLE TIME to get your break even point at $50 per hour. Yet hearing a rate like that makes so many think it is huge profit. |
