The Decision Maker

Managing a Profitable Company

Break-even is the point in a business where sales income equals expenses. Do you know your break-even? Do you know how to determine sales needed to make a 15% profit ? Do you know what you increase in sales needs to be to cover the cost of adding a new truck?

Net income equals zero at the break-even point. Sales Variable Expenses Fixed Expenses Zero net income(break-even point)

Total Sales = 100% -Direct Costs % (Variable Costs or COGS) = Gross Profit Margin (%) Break-even sales = total fixed costs (operating expenses) /GP% To make a 15% profit, deduct 15% from the gross profit margin before doing Break-even sales calculation. To make a desired dollar profit, add desired profit dollars to fixed costs before doing the break-even calculation.

Labor Overhead Profit Selling Price Costs Employee wages Operating ExpensesRevenue Payroll TaxesBeyond BenefitsExpenses

Labor Costs Equipment Replacement Costs Non-Billable time Materials Administrative Expenses Overhead Costs

Sample Costs for a Field Employee $24.04 per hour (2080 Hours/Year) $ 50,000 Social Security Taxes (6.2%) $ 3,100 Medicare Taxes (1.45%) $ 725 Federal Unemployment Taxes (0.8% on 1 st $7,000 Earned) $ 56 State Unemployment Taxes (3.2% on 1 st $10,000 Earned) $ 320 Workers’ Compensation (5.0% on 1 st $35,000 Earned) $ 1,750 Uniforms ($25/week) $ 1,300 Health Insurance ($500/month) $ 6,000 Retirement Contribution (2.5%) $ 1,250 Employee Total Compensation Cost: $ 64,501

Efficiency is never 100%. Non-billable time is the single highest expense a company incurs. Non-billable time is any time that can not be charged to the customer that requires wages to be paid out. (Vacation pay, shop time, company meetings, travel, vehicle maintenance, no shows, holiday pay, sick days, recalls, warranty work)

52 Weeks x 40 Hours Per Week = % Vacation (10 days)80 Holidays (8 days)64 Sick (3 days)24 Training (3 days)24 Total1929.2% Hours Remaining:1888 Drive Time (10 hours per week)520 Call Backs (.25 hours per week)13 Warranty (1 hour per week)52 Meetings (1 hour per week)52 Other (2 hours per week)104 Total % Projected Billable Hours/Field Employee1, % Billable Hours - Field Minus Paid Time Off and Training Time Minus Field Non- Billable Time

Owner wages Office Manager/Bookkeeper wages CSR/Dispatcher wages Company Matching Taxes 11.45% - FICA match - Medicare - State Unemployment

Example: Vacation (2 weeks)80 hours3.8% Holidays (6 days)48 hours2.3% Sick days (2 days)24 hours1.2% Drive time (1 hr. a day) 235 hours 11.3% Total Non-billable time 18.6% You have to build non-billable time into the cost of doing business.

This is the 2 nd highest cost of doing business Example: Truck #1 30,000/3 = $10,000 Truck #2 30,000/2 = $15,000 Truck #3 30,000/5 = $ 6,000 Owner’s Vehicle 45,000/4 = $11,250 Total Annual Cost$42,250

The standard markup for materials averages 100%. Material markup can help to absorb some of the costs of inefficiency limiting the need to add costs to the hourly rate.

Advertising Insurance (Work Comp, Liability, Vehicle, Medical) Rent Utilities Dues Office Expenses (phone, supplies, postage, bad debt, credit card fees) Professional Fees (Accounting, Legal, consultant) Travel Training Loans/Leases Computers Small Tools & Equipment Fuel Vehicle Maintenance Licensing Retirement Plan Building Maintenance Contributions

Systems or Policies put in place by a company to ensure -the integrity of financial and accounting information -operational and profitability targets are met -and transmit management policies throughout the organization.

What are some of the basic internal controls every company should have in place?

Keep inventory secure at all times Require purchase orders for all purchases Complete a physical inventory every 6 months Keep inventory current (how often do items turn)

Have a strategic business plan Create an annual budget Know your numbers Review and evaluate your financial statements often Manage your cash flow Always look for opportunities for growth Manage and control debt Always work towards sustainable profitability Manage company assets Implement internal controls Keep everyone informed and focused on goals