Financial ManagementThe Decision Maker

Managing a Profitable Company

Know your Break-Even

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?

Break-Even Sales

Net income equals zero at the break-even point.

Sales

Variable Expenses

Fixed Expenses

Zero net income(break-even point)

Break-even CalculationTotal 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.

Determine Your Pricing/Making a Profit

Labor Overhead Profit Selling PriceCosts Costs

Employee wages Operating Expenses RevenuePayroll Taxes BeyondBenefits Expenses

How Are Prices Determined

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

Labor Costs

Sample Costs for a Field Employee

• Wages @ $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 1st $7,000 Earned) $

56 • State Unemployment Taxes (3.2% on 1st $10,000 Earned) $

320 • Workers’ Compensation (5.0% on 1st $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

Non-Billable Time

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 = 2080 100%

Vacation (10 days) 80

Holidays (8 days) 64

Sick (3 days) 24

Training (3 days) 24

Total 192 9.2%

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 741 35.6%

Projected Billable Hours/Field Employee 1,147 55.14%

Billable Hours - FieldMinus Paid

Time Off and

Training Time

Minus Field Non-

Billable Time

Administrative Wages

Owner wagesOffice Manager/Bookkeeper wagesCSR/Dispatcher wagesCompany Matching Taxes 11.45%

- FICA match - Medicare- State Unemployment

Non-Billable Time Example for Admin

Example:Vacation (2 weeks) 80 hours 3.8%Holidays (6 days) 48 hours 2.3%Sick days (2 days) 24 hours 1.2%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.

Equipment Replacement Costs

This is the 2nd highest cost of doing business

Example:Truck #1 30,000/3 = $10,000Truck #2 30,000/2 = $15,000Truck #3 30,000/5 = $ 6,000Owner’s Vehicle 45,000/4 = $11,250

Total Annual Cost $42,250

MaterialsThe 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.

Overhead Costs AdvertisingInsurance (Work Comp,

Liability, Vehicle, Medical)RentUtilitiesDuesOffice Expenses (phone,

supplies, postage, bad debt, credit card fees)

Professional Fees (Accounting, Legal, consultant)

TravelTrainingLoans/LeasesComputersSmall Tools & EquipmentFuelVehicle MaintenanceLicensingRetirement PlanBuilding MaintenanceContributions

Internal Controls

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.

Internal Controls

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

Understand your Accounts Receivable

Manage Your Accounts Payable

Control Your Inventory

• 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)

Ways to Increase Cash Flow

Formula for Financial Success• 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