Most of the clients I am working with are having to look at their recovery cost (specifically overhead recovery). As business owners, we are all clear that profit should be profit; not always the case and point when looking at cash payments for principal amounts for loans that reduce the cash in the bank or having to pay off those credit cards and perhaps debt factoring amounts. However, we are talking about recovering a percentage of your overhead since businesses don’t run on love and fresh air, so how do you go about recovering a percentage on every hour sold on a job/project and are you recovering for replacement of assets as well (separate challenge)?
You might be thinking how to function in these costs. If I am already on the high side in my pricing and will I miss out in getting the job? Well, perhaps you have factored in the overhead cost to all jobs/projects, and your current profit is true and correct; if not, and you are charging out hours, consider estimating the total hours for the year that can be charged out eg. 20 000 hours and then working out your total overhead costs for the year (assuming your owner salary is included as well) – $360 000, simple calculation – $360 000/20 000 hours will give you around $18 an hour to recover with every hour for labour sold.
Another factor to consider will be to work out % towards every hour sold for the replacement of key assets, eg. vehicle/equipment and IT gear etc. All business owners need to budget for CapEx – capital expenditure so that you have some cash collected/saved towards a replacement asset.
There are other areas to take into consideration that might be slipping through the cracks, touch base with us to work through them with you.
