True costs of Operating a Lawn Care Biz

[MSlawns]

How do you figure the true costs of running a lawn care company? I know you have to figure in the costs of things like equipment,insurance,fuel,truck and trailer, but I'm sure there are several things I'm not including.Let's just say that I've come up with a number of $25,000.00 as my start up costs....then I'm into the year, buying fuel, trimmer line, blades, etc. I know all of this gets figured in.When I finally get all the numbers together, how do I break them down and come up with my actual cost of doing business?
Seasoned veterans please respond.

[Phil Nilsson]

reply

From an accounting point of view the straight out answer is that cost is what you spent on business related expenses, recorded, then adjusted at year's end for any prepaids (like insurance) and accruals like withheld payroll & taxes) but that's where the similarities end because what you really want to know in the contracting bizz is not so much what it "did" cost ... but what it was (supposed) to cost. Compared to what? Compared to your job cost estimate and pricing strategy. This is because labor is your biggest expense, the thing to control, the thing that can make or break your profit level and performance.

. What are my actual (adjusted) costs?

. What were they supposed to be given the labor hours employed?

. How close did I come controlling labor inputs against standards?

. Why is there a difference, how can I change outcomes, the next time?

<b>P.S.</b> This is a big subject and if we get lots of interest in it, I'll keep going with it ... not because I am a "smartarse" but because I have an accounting background and can probably clear up issues and help out.

Phil Nilsson
Nilsson Associates Consultants
Visit Lawn Service & Landscaping Book Store



Edited by - Phil Nilsson on Sep 05 2002 5:07:20 PM

[GrassMaster]

reply

Hello Everybody:

This is a Very Good Subject & You got a Good Person Willing to Help You! I Strongly Suggest that You All Take Advantage of this while Phil is Offering to do it? Ask Away!

I Will Help Too, I Will Make Sure that this Stays on Topic, Delete any Off Topic Post as Needed, Why? I'm Very Interested in it Too & I want to Learn it! <img src=icon_smile.gif border=0 align=middle>

<b>Have a Nice Day!
GrassMaster - Admin -Click to PM Me or E-Mail Me!
Help this Site - Take a Survey & Visit our Sponsors!</b>

[Phil Nilsson]

reply

If we get into this subject the place to start is to talk about <b>basic accounting "theory"</b> and while that sounds kinda fancy ... to know the numbers in your bizz you need to know how the numbers are classified, how they relate to one another because all numbers are not equal in accounting and using cost? That's right. $10,000 in equipment is an asset, maybe worth more than $10,000 or even less ... $10,000 in sales is a revenue or income item (maybe) and if you actually collect it, but it's worth less because of interest factors if you have to wait? ... $10,000 spent on costs are not necessarily "spent" just because you wrote a check for the $10,000 if some of the expense is "sitting in inventory on the shelf" ... or work in process on incompleted jobs. So the $10,000 expense can be at times an asset, not an expense item. AND it can also be a contingent liability if IF the inventory "goes bad" as in "dead plants" that become worthless before you plant them.

But ... when you understand the basic accounting equations you can then understand all the numbers ...

Do you need to know this stuff? ... no ... but if you do, you'll be completely in the "know" about job costs, job estimating and be able to read a P&L and analyze what's going on in your bizz. No more guesswork! Contracting is a numbers game to do it right know numbers?

Phil Nilsson
Nilsson Associates Consultants
Visit Lawn Service & Landscaping Book Store



Edited by - Phil Nilsson on Sep 05 2002 6:30:42 PM

[MSlawns]

reply

Whew, Phil you are way over my head but I'm game for learning.Basic accounting theory is the place to start ....do we need to have an accounting class so to speak? Here, I mean? I've never taken a real class, just done lots of reading, and asking of questions. In it's simplest form I had thought that you have 2 colums, one for expenses, one for income.....subtract colum for expenses from colum for income to find your true income (but not necessarily profits???). All i know is that at tax time this year I saw in BIG RED numbers that it is costing me about .66 cents to generate 1 dollar.OUCH !! I know this falls under cost controlling......but I feel overwhelmed sometimes and just need to get started somewhere. Maybe I didn't ask the right question ?? People like me who are doing their own books should be able to learn something from all of this ?

[Phil Nilsson]

reply

I think they will benefit from just going over a few accounting basics to identify assets, liabilities, revenue and expenses and sort out account classifications ... things that impact the bizz decisions made almost daily. It doesn't have to get complicated. Just knowing the connections between the figures, what to look for in controlling operations ... what IS controllable 100% what is not, what must be left to chance, where to focus the energy of management to achieve the results with eyes wide open to the possibilites.

I guess what I'm saying that running a bizz is like running a 3 ring circus keeping an eye on 3 rings for the impact of decision making all around the board. Accounting is said to be The Backbone of All Business. So I guess we need to put some "bones" into our mix of understanding of it to support the "flesh" around the bones.

Phil Nilsson
Nilsson Associates Consultants
Visit Lawn Service & Landscaping Book Store

[Maddog]

reply

Well I'm in.

I have some accounting knowledge, but I am always eager to learn more.

Wayne