An email we received recently:
I recently became involved with a furniture repair/ restoration company in order to help his business become more profitable. The owner is a Master furniture restorer / finisher, but does not realize his talent, and definitely does not charge fair prices – he struggles to eat most of his days, much less cover overhead cost.
My main problem is with estimating. Based on reading your website, I do the stick accounting, but I am not sure if it is working, and it is time consuming (although that does not bother me). Is your software, and or estimating classes able to work outside of the construction industry?
Every job that we get is different and I also struggle with where and when to apply a markup – on the material cost or at the end. At this time I do not even have the owners salary worked into the overhead at the advice of his Accountant (I guess because he should get the markup). I do it for free at this point because it kills me to see such a talented person not get a fair shake – he just wants to be nice and do right by people, but people don’t care if he eats or not.
Any help you can give me will be appreciated. I am very eager to learn how to help him run this business and want to make sure that I am on the right track.
P.S. I am having a blast reading your website. Only downside is that I have quotes to produce and can’t read fast enough. 🙂
I applaud this person’s efforts, helping someone else with the business side of business so the craftsman can continue being a craftsman. It’s good to help others when we can. But this craftsman is going to have to either learn how to run a business or start charging enough for his work to both feed himself and pay an office manager. This angel won’t be willing to do this work for free forever.
I’ll disagree that the main problem is with estimating. It sounds like the estimating is getting done; the main problem is with pricing.
I’m shocked every time I hear about an accountant advising someone to not include owner’s salary in the overhead. How does the accountant expect the company owner to be paid?
The usual answer is that they’re told to take a draw whenever they need money. It’s a great idea, but let’s get real. Where does the money in the account come from? It comes from sales of jobs. If the price of those jobs didn’t include any salary for the owner, why does the accountant think there will be enough money to both pay the bills and an owner salary?
I know, the owner’s salary is the profit. And if anything goes wrong with a job, the owner just won’t take a salary. Except they will because they have bills to pay, and that’s when cash flow problems start. It just takes a few jobs to start falling behind, and eventually the company will either have to close its doors while the owner finds a different job to pay the bills, or they’ll file for bankruptcy.
If an owner is involved in running the business, they should be paid a salary. With remodeling, it should be about eight percent of the total sales price of each job. Furniture repair might dictate a higher percent for salary.
Now, if the owner is also working on the jobs, i.e., doing the repairs, they should also pay themselves an hourly wage and that pay should be included in every job estimate. Look at it this way: if they aren’t able to do the work, they should have enough money in the price to hire someone else to do the work. In my opinion, $45 per hour is a reasonable wage for a business owner working on jobs.
If you don’t pay yourself, you’re working for free. Forget this crap that you get to take a draw once in a while or that you get dividends. That’s hogwash, double hogwash. If you aren’t getting paid on a regular basis, you’re working for free.
The principles of establishing the sales price for your work or service can be found in our book Markup and Profit; A Contractor’s Guide Revisited. It doesn’t matter if you’re building houses, hanging drywall, repairing furniture, planting trees, shoeing horses or you’re a chiropractor. The principles are the same. Figure out your job costs, apply your markup (which is your overhead and profit), and you have a sales price.
One comment on the estimating software. Most estimating programs operate basically the same way; the main difference is how the database is put together. Our estimating system can be adapted to create estimates for furniture repair or furniture making as well as almost any other manufacturing or building task. I would break every repair job down into basic assemblies, such as disassembly, lathe work, drilling, gluing and sanding, refinish, upholstery. Determine the materials and labor required for a given unit of each assembly, and now you have the basic pieces that can be used as needed for each project.
Finally, let me address the statement that the owner wants to be nice and give his customers a fair shake. That’s commendable, but then who feeds the owner and his family?
Never forget that you’re in business to provide a service and make a profit doing it. If you’re in business to be nice, you don’t have a business, you have a hobby. Life would be easier if you shut the doors and did volunteer work. If you’re in business, then get in it. Charge enough to cover your direct costs and overhead, and make a fair profit.
Because, as the email said, people don’t care if you eat or not.