Time for another post but this time we will take a look at something entirely different. Quite often we tend to venture into our own contracting business thinking that we will be able to get out there, do a good job and at the same time make a healthy profit on our work. Absolutely nothing wrong with that, the problem lies in how we go about running the business
In our industry it seems to be the norm to set up a business and immediately start cutting our competitor’s prices in order to win the job right? What you need to ask yourself is the following:
What does it actually cost you simply to run a business? In other words, your true overhead costs.
Why on earth would you want to be working at the lowest rate around? When employed full time, don’t you try to earn more?
Have you got the resources to be delivering what you promise your clients?
Let’s start by looking at the cost of being in business.
First, your salary! Include here your salary, pension/super contributions, medical cover, insurance payments etc.
You need an office to work from (most will start by working from home)
You need office supplies, telephone and a PC with a decent printer.
You need a reliable vehicle. Now here is where I tend to have a bit of a different view. Your vehicle portrays the image of your business. It needs to be clean, in good condition and suited to your work and lastly, signwriting! This is important. Everyone that sees your vehicle could be a prospective client so make sure it looks professional. Don’t think that because your vehicle is paid for you do not need to include a figure for it. The truth is that you need to be able to replace this at some stage and it needs to be calculated into your costing.
Traveling Cost. Where is the bulk of your work likely to be, how much fuel would you be using to get to the jobs? These are all items that you need to be estimating and taking into account
Tools and equipment. True, you need basic tools to get started but you need to ensure you have the right tools for the right job, and anything that will make the job quicker and/or safer is a must.
So, by looking at all of the above, calculate your cost/month. Take this figure and work it back to an hourly rate. This hourly rate is the bare minimum or break even rate. If you are willing to work for this rate, you may consider finding a full time job with an employer again.
This is where a lot of us would go wrong. We see this rate, it could be $55/hour, and we think that is a lot of money as it is way more than what you earn as an employee right?
What you need to consider is that you may have weeks where you do not have a guaranteed 40 hours of work and someone needs to pay the bills. The reason you run a business is to show a profit. That is why we have a profit margin on top of our rate that we must calculate. Your competitor needs to do the same. To be honest, I would rather not have enough work than working at a loss on a job.
That is enough for this post. Calculate your cost and see where you are positioned with your business. Next time we will have a look at how you need to plan your material purchases etc. Until then, have a wonderful weekend and remember, always put safety first.
By the way, if you have not got a copy of my book yet, head on to www.lulu.com/spotlight/SparkyHelp