Here are the steps that will take you through the process: Pick the time period The process of calculating your own overhead is simple, provided you have reasonably good financial records. Make sure that the overhead you charge as a percentage of cost, comes out to the right percentage of sales.
In this case, you would have to charge 18.975% of cost to leave you with an overhead equaling 15% of sales. We charged 15% of cost, and only came out with $75,000, leaving us $19,875 in the hole. However, we did not charge 15% of sales for overhead. Notice that the sale price is $632,500 and 15% of this amount should cover overhead. Here are the numbers: Total material cost These calculations will actually give you enough overhead dollars to equal 11.9% of sales, giving you a deficit of 3.1%. If you take your cost, and mark it up 15% for overhead, and then add 10% for profit, it might at first seem that you have your overhead covered. There is obviously a difference between the two, although it is frequently not noticed. On most estimate summary forms, overhead is calculated as a percentage of cost. You may find a problem with your calculations from this: We are expressing overhead as a percentage of sales. (It may just be that your methods of calculating need help.) If your figures are significantly higher or lower than the averages, you should take a good look, and see if something is wrong somewhere. The figures that we covered above can serve as a guideline for you, but they should not be taken as law. There is no certain “correct” percentage. Your overhead should be the minimum necessary to keep your people in the field working at maximum efficiency. When you correct such overhead problems, you must correct both sides of the equation. If you stop hiding some money in inflated material costs (to match reality), you will have to increase the overhead percentage you charge (to match reality). But beware since correcting these little games is a two-sided process.
SOLAR CONTRACTOR EXPENSES PROFESSIONAL
In the best professional opinions, such methods of “willingly deceiving yourself” should be avoided. The truth is that if you look at certified financial statements, your overhead will probably be in the 13%-20% range, regardless of what percentage you tack onto your estimates. This is where the extra overhead money comes from.
When figuring a new job, almost all of us hide extra money in the estimate by using inflated material prices. You are probably aware of the little “games” that we play while estimating. On the left are expense items, and the three columns to the right show the percentage of sales taken in each category by small, mid-sized and large electrical contractors:Īs you must know, very few electrical contractors really charge 20% for overhead. Here are estimates of how all electrical contracting expenses break down. Remember, however, that these are averages, and any particular company may have higher or lower percentages, depending upon what types of work they do, their methods of doing business and their activities for a specific accounting period.
The smallest contractors generally have the highest percentages of overhead, and very large contractors have the lowest percentages. (Note, however, that there are several different ways to calculate overhead, and strong opinions as to which is best.)įor electrical contractors, overhead generally runs at between 13% and 20% of total sales. Office expenses, salaries, sales expenses, office equipment, vehicles and similar expenses are considered to be overhead. It includes everything except material, labor and job expenses. At its elemental level, overhead is the money you would have to pay to keep your business operating when you had no one working in the field.