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Business Owners & Managers

How to Calculate Your Cost of Doing Business

By Jim Nelson from J and J Lawn Service

To effectively operate a successful and profitable business you must understand your operating costs and profit margins. I have attached a spreadsheet of business costs and how they break down per hour for a small scale lawn business.

The numbers I've listed throughout the sheet are hypothetical and can vary greatly from business to business. After calculating your operating cost; the minimum cost per hour is what you would need to make in order to operate your business and pay your salary.

This spreadsheet below is merely one example of a way to calculate costs. Several factors can either be eliminated or added to the spreadsheet to suit your particular business costs:

Just from my first impressions, some of the things that stand out are:

  • funding a retirement plan,

  • purchasing health / dental / vision insurance,

  • and/or having other employees or subcontractors that you pay.

Depending on your business composition, your equipment list can be very long; however, it is important to understand the cost to operate and maintain every aspect of your business.

Some of the items may take time to establish the long-term costs that may be associated with it. This is especially true if you haven't been keeping track of it or are just starting out. This list will also help you in completing your annual operating budget for the following year.

I track my fuel all together for the year, while some may choose to track it for each particular piece of equipment; the same goes for routine maintenance and parts.

Initially starting this process, I would suggest you tracking each item so you can easily see how the cost accumulates and breaks down, per item, as well as understanding how adding any additional equipment can fluctuate your costs and profit.

Something to keep in mind for this example, I used a profit margin of 35% which is extremely high, most small businesses average around 10%. The more people employed and equipment utilized will increase your hourly operating costs and can drastically affect your specific profit margins.

Wish you all nothing but the very best; time to go out and continue to do great things!

  BASED ON WORKING 40 WEEKS PER YEAR / 50 HOURS PER WEEK / 10 HOUR WORK DAYS     
ITEMLIFE SPANWORK HOURS (LIFE SPAN / ANNUAL)HOURLY COSTANNUAL COSTTOTAL COSTRESALE VALUENET COST
TRUCK5 YRS10000 / 2000$2.50$5,000.00$45,000.00$20,000.00$25,000.00
TRAILER5 YRS10000 / 2000$0.30$600.00$5,000.00$2,000.00$3,000.00
MOWER2 YRS2000 / 1000$3.00$3,000.00$10,000.00$4,000.00$6,000.00
TRIMMER2 YRS300 / VARIES$0.58$87.50$300.00$125.00$175.00
BLOWER2 YRS300 / VARIES$1.00$150.00$500.00$200.00$300.00
BLOWER2 YRS300 / VARIES$1.00$150.00$500.00$200.00$300.00
EDGER2 YRS300 / VARIES$0.42$62.50$250.00$125.00$125.00
HEDGER2 YRS300 / VARIES$0.67$100.00$400.00$200.00$200.00
CHAINSAW2 YRS300 / VARIES$0.67$100.00$400.00$200.00$200.00
MISC TOOLS (SHOVEL, RAKE ETC)2 YRSVARIES$0.50$75.00$250.00$100.00$150.00
        
VECH INSURANCE.FOREVER10000 / 2000$0.60$1,200.00N/AN/AN/A
BUS. INSURANCEFOREVER $0.31$625.00N/AN/AN/A
STATE / LOCAL LICENSESFOREVER $0.25$500.00N/AN/AN/A
CONTINUING EDUCATIONFOREVER $0.15$300.00N/AN/AN/A
MARKETINGFOREVER $0.50$1,000.00N/AN/AN/A
        
FUEL VEHICLE / EQUIPMENT TRUCK -12,000 MILES @ 10 MPG PRICED AT $2.50 GAL$4.00$8,000.00$8,000.00N/AN/A
        
PARTS - ENGINE OIL / 2 CYCLE OIL  $2.50$5,000.00$5,000.00N/AN/A
FILTERS / AIR, FUEL & OIL, BELTS ETC       
        
MY PAY  $25.00$50,000.00N/AN/AN/A
COST TO OPERATE PER HOUR  $42.95    
PROFIT MARGIN 35%  $15.03    
        
MINIMUM CHARGE PER HOUR  $57.98    
        
ANNUAL GROSS   $115,953.75   
ANNUAL OPERATING COSTS   $75,800.00   
        
TOTAL PROFIT   $40,153.75   

Jim Nelson
J and J Lawn Service
UAG Member 2019
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