Business Management Resource Guide: Details, Details

This section of the Business Management Resource Guide provides some of this information. We’ve also provided explanations of the charts in the copy that follows. We hope you find them helpful in your daily, monthly and yearly planning.

BUDGET RECAP AND RATIO ANALYSIS.This chart, when adapted for your company, can provide a tremendous level of information about the status of your business. Use the chart and description of the line items contained the text below to formulate your own analysis, or to compare your company with industry averages. Keep in mind, however, that the figures presented are generalizations and approximations, and actual figures will vary across companies. The items listed in numbers 1 through 7 on the chart are relatively easy to understand, but the ratios beginning with item 8 are a bit more complex. Below is a description of these items.

Ratios and Per Hour Calculations. These items are calculated by dividing the annual amounts by the total billable field labor hours, and the ratios listed in the chart are figured by dividing the cost of the first item by the second item. For example, the material-to-labor ratio is figured by dividing the material costs by the labor costs. Listed below are general ranges into which these figures will typically fall:

A. Sales Per Hour: For construction, $45 to $65; for maintenance, $15 to $35.

B. Direct Costs Per Hour: For construction, $30 to $45; for maintenance, $10 to $25.

C. Gross Profit Margins Per Hour: For construction, $15 to $20; for maintenance, $10 to $25.

D. Overhead Per Hour: These numbers differ for seasonal and non-seasonal companies and divisions. For seasonal construction up to $1.5 million in sales, $8 to $13. For companies with $1.5 to $5 million in sales, $4 to $10. For companies with sales $5 million and more, $3 to $7.

For non-seasonal construction up to $1.5 million in sales, $5 to $9 per hour. For companies from $1.5 to $5 million in sales, $3 to $7.

For companies $5 million and more in sales, $2 to $4.For maintenance-only companies, the sales per hour varies from region to region, which greatly affects the overhead per hour. Generally, the overhead per hour will come out to 16 percent to 28 percent.

E. Profit Per Hour: This is defined by multiplying the company/division projected net profit margin percent by the projected sales per hour. If your net profit margin percent is 10 percent, and the projected sales per hour is $55 for construction you would have a profit per hour of $5.50.

F. Material to Labor Ratio. Here’s one way to analyze material costs using a standard ratio. Companies that install hardscapes generally have a 2 to 2.5:1 material-to-labor ratio, which means that a worker installs $2 to $2.50 in materials for every dollar spent on field labor. Using an average hourly wage of $7.00, the material cost per field labor hour would be from $14.00 to $17.50.

Here are some other ratios for types of installation: planting only, 3:1; planting and hardscape, 2 to 2.5:1; planting, hardscape and irrigation, 1.5 to 1.75:1; irrigation, 1 to 1.5:1; maintenance, .1 to .15:1.

G. Material Per Hour: This is generally $14 to $20 in construction, and $.75 to $3.75 in maintenance.

H. Equipment to Labor Ratio: Again, this will differ in construction vs. maintenance. In maintenance, these are the typical ratios: Light (usually residential) maintenance, .2 to .3 to 1; Moderate maintenance (usually light commercial work) .4 to .5 to 1; heavy (commercial/municipal), .5 to .7:1.

In construction, these are the ratios: Light (pickup trucks, wheelbarrows), .2 to 3:1; Moderate (above plus tractors), .3 to 4:1; heavy (above plus backhoes, medium dump trucks), .5 to .7:1; extra heavy (graders, front end loaders, etc.), .75 to 1:1.

I. Equipment Cost Per Hour: Using the categories of equipment above, these are the typical percentages of equipment as a part of labor costs: In construction, light intensity equipment is 30 to 40 percent of total labor costs; moderate is 40 to 50 percent; and heavy is 50 to 70 percent. In maintenance, light is 15 to 25 percent; moderate is 25 to 35 percent; heavy is 35 to 50 percent; and extra heavy is up to 100 percent.

These figures, multiplied by the average field labor wage per hour, generate the maintenance or construction equipment cost per field labor hour. The typical ranges for this final figure are as follows: Construction, $2 to $6; construction doing earth moving, $6 to $12; maintenance, $1.50 to $4.50.

J. Company Average Wage or Direct Field labor Per Hour: Typical industry figures are as follows: seasonal construction, $8 to $12; non-seasonal, $6 to $10; maintenance seasonal, $6 to $10; non-seasonal, $5 to $9.

K. Billable Field Hours: Use the figures to compare budgeted numbers to actual numbers to see if they are on target for the year.

APPLYING PROFIT. Profit can be approached two ways. One way is to calculate profit by dividing breakeven cost by the inverse percentage of the desired profit to earned revenue. For example, if earned revenue is 100 percent, and the total of direct costs and overhead (breakeven cost) equaled 90 percent, then the remainder, the profit, would be equal to 10 percent. 90 percent is the inverse of our profit percentage and is found by subtracting the desired profit percentage from 100 percent.

The second method to apply a profit is to use the markup method. In this instance we want to determine a markup factor on breakeven costs which will equal the profit percentage that we want on our selling price.

ESTIMATE SUMMARY SHEET. This useful worksheet is designed to tell you what will happen to your bottom line profit when you’re considering lowering the final bid on a job. First, transfer the information from your work papers of the job’s take-off and extension into the standard pricing column. In the second column, insert the bid at the top and refigure the job based on the costs and overhead. The resulting change in the bottom line profit will help you decide whether to take the job or walk away.

PLANT OPERATIONS BY HAND. This chart makes easy work of determining the time it takes to execute the steps required to plant a tree or shrub, based on the caliper and ball size.

FERTILIZER SPECS. This final chart lists the amounts of fertilizer required to cover a 1,000 sq. ft. area based on the percentage of nitrogen contained in the bag.