*Shop Overhead* anybody willing to reveal how much it is?!?

Z Man is correct, any reason for then to void the policy will be taken. I had a small incident that caused a claim and the first thing the adjuster did was a compliance audit, wanted to see all of my licensing, inspection certificates, and how I kept things stored in my shop. The incident happened in a home 3 miles from my shop, they never even inspected the home, just sent contractors to get estimates. They spent 3 hours looking for a way out in my shop. Compliance is 100% or none, audit yourself.

 

Quote: The best part is listening to some dope who you gave a really excellent price to explain to all his pals how his $220 job just about paid in full for your hot rod. Thanks for mentioning that. I love it when people spend even a few hundred at my shop and think they are funding my 5 person household

 

Actually, he knew he didn't have proper insurance.


BTW I think a lot of you are missing the OP's point, doesn't seem he's looking to start a shop, just curious about how much of his $225 dollar repair bill was profit.

 

You are correct. The obvious answer is not much. I'm not sure what difference it makes. Everyone needs to make a living. I doubt the guy putting in the u-joint is going to retire with millions

 

For those few here who commented they have no rent "because they own their shop"....you have a rent factor whether you recognize it or not. If you own the property free and clear, or have a mortgage, you still have an investment in that property and generally accepted accounting rules would say the rental value of that property needs to be taken into consideration. In other words, you need to see yourself and your property as two seperate entities, and charge yourself it's fair market value. To do otherwise is to ignore the true cost of your operation.

In addition, you really need to listen to those who have said that you will spend a great deal of time in 'non-productive' work. Talking to customers, rounding up parts, and a whole range of other 'time stealers' will reduce your time available for billable hours to way below adequate unless you work much longer total hours to compensate.

Not saying these things should cause you to decide not to be in business for yourself, only that you need a realistic expectation of what it means.

Ray

 

Wow - lots of plumbers on this thread.

I own half of a small plumbing company in SE WI. I have a partner that runs a truck full time. I work a full time job and manage the business.

Our company has turned into more of a hybrid in order to keep overhead low. We have taken working capital and started purchasing rental real estate - taking advantage of the soft market here.

With one single family rented out, we cover the mortgage on the house and the 2400 SF shop that we own. Once we get one more, we should be able to cover the taxes as well...It has taken income sacrafices to do it but it is a long term plan.

I know that this doesnt answer your question - numbers from the Chicago plumber above are right on.

 

Across an annual average, in a good year, for a non working owner 15 to 25% is the norm.
For a working owner, who also incorporates his wages into the factor he is lucky to break a 5% profit over and above his wage. The reason being, if he is of a good business ethic he will many times eat time which equates to profit margin. This may be good for the business reputation in the long term but seldom directly relates to profitability per anum. This is why many businessmen refute any and all claims against them, they feel it is more profitable to discard a problem than loose the profit by resolving it. I personally choose to be a poor businessman in favor of being a respectable human being. Works well in a big round world.

 

I owned my own surveying company for 18 years. We figured that our gross revenues had to be 2.4 times the total monthly salary for all billable employees to break even. That would cover the operating expenses, taxes, rent, secretarial, consumables, etc. But this was a company that employed from 10 to 40 folks over the years. A couple of items haven't been mentioned. I spent a lot of my time just putting proposals out. There was a fine line between getting the job for a fee that allowed me to make a profit and the job going to someone else. The second issue was cash flow. A shop has a little more leverage because you have the client's vehicle but, if he doesn't pay, you are faced with storing it until he does, or the expense of a mechanic's lien and disposing of it at some later date. In our company we usually pulled about an 8% profit margin after all was said and done. I twice took second mortgages to make payroll and I once was within one missed house payment of going into foreclosure. 12 hour days were the norm and 16 hour days were frequent. I had 2 real "go some place with the wife and kids for a week" vacations in 18 years. A sobering fact: Only 5% of all small companies licensed in this state are still in business 5 years after they are licensed. If it is a sole proprietorship, you've exposed all of your personal assets too. People can and do build successful small businesses. It is a combination of technical expertise, a strong business savvy, a good economy and a lot of luck. It is hard imagining success in a new venture right now when so many established firms are going under.

 

Well stated Sam. Many other good points.

 

It's not funny, but sitting on the hill with a blanket waiting for a bear to eat you, made my day. Like you need to be on a hill?

 

Often when we get these business question type threads it's very clear which respondents have actually run a successful business, and which are people who, though well intentioned, don't really know what it takes to run a successful business. You're fortunate with this one because a higher than usual percentage of respondents are business guys.

I'll draw a distinction of info sources. There's a difference in experiences between self employed people (aka, one man operation), and a business operator/owner. Not saying one is better or worse than the other, just that they are very different entities with different perspectives. Likely the operation you talk about in the original post was a business entity. The single biggest area of of cost for most businesses is employees, and over the years the more government requirements heaped on the businesses of this country, along with market forces, the more costly, as a percent of operating costs, the worse it's gotten. Understanding the impact of that would answer a lot of other questions, but not the point of this thread.

To answer your orignal question, which sounds to me like, "how much proftit did this guy make?", there's an organization that compiles that data known as RMA (formerly Robert Morris Associates, now Risk Management Associates). They report based on SIC (standard industrial classification) code, a classification number assigned to each type of business. I don't have access to their database, but if interested one of the accountant guys here might. But as an example, when I was in the collision repair business, they listed the net profit "average" for the industry at something less than 5%, varied from reporting period to reporting period. For other types of automotive repair it ran slightly higher but still well below 10%. These are numbers in line with what Sam above reported, and others might have agreed with. Personally, I always thought those numbers were on the low side, but then I don't know who they surveyed to arrive at them. Most of the shop owners I knew that you could pull a number out of were closer to 10% net profit, though one who was very near and dear to me consistently ran 17 to 19%. Those in the business who can't figure out how to generate that kind of performance will scream BS! And if they can't conceive of it, they're correct......for themselves.

The upshot of all that is, the shop you paid, on average, likely only "pocketed" something around $20, give or take, after covering his total costs of doing business. Unless he ran a really "tight" operation, then it might have been a little higher.

 

Zman, my insurance co. has inspected my garage and i have one of the best policys they have. After being a service manager for a gm dealer you get to know insurance agents and mine is related to me so i know i got a good deal. after 70 years of life you learn alot,and make many friends who support my business and i don't have to advertise to keep the shop going. Between the shop and my family and car hobbies it keeps me young.

 

X 2

 

I work out of my house, and I only have a couple of friends that work with me. Even with this low overhead it still takes me about $140,000 a year to get a sallery of $35000 to live on. Materials are exspensive, as is heat and electricity. Its long days and longer nights, but I love my job.

 

My shop before I sold it in Calif. (2006) It cost me just being open 8 hours a day and 5 days a week was $48.00 per hour just to put the key in the door that hour with no employees . If I was open on Saturday the rate would go down a little ! That was all the business expensives ,Lease payment,lights,heat,air,electric,phone,water,sewer,insurance etc. etc.

 

Johnny It appears you are from Ca? The most over regulated anti-business state in the US so naturally it cost more to do a simple job..I feel for these people trying to hold the doors open

 

I recently looked into buying a business and here was the monthly costs that were incurred by this business.
Lease $3000 (includes taxes and insurance)
Utilities $1000-$2000 (more or less depending on time of year.)
Supplies $800-$1500
Internet $100
Phone $100
Advertising $250
So roughly it was looking like about $2500 a week to break even with only one person getting paid. However this shop would require at least 3 full time and one part time. Therefore the weekly cost looked like it would be closer to $4500/week.
Plus I am sure there are misc. costs that I was not aware of.
The building was just over 6000 sq/ft
-

 

On top of all that I unlock the door in the mourning, lock it at night. My mechanics had three weeks vacation last year , I had four days. I'm 60 and would like to retire but dont have enough saved yet. All my buddies Have Retired, Because they worked for the state, school district, phone company,gas company, etc. It is nice being your own boss , but it is NO bed of roses.

 

my 2800 sq ft shop costs about 200$ per month ,taxes, utilites and shop phone it is only used for set up of my show cars and clean up and working on my vehicles. this is a commercial location in town, burn wood and used oil and have no heat other than electric in bathrooms to keep water from freezing.living on social security and am liquidating the business a little every year to supplement income, whos gonna need tools and equipment when you are dead or in a nursing home??
looks like the phone is gonna go this year its a unneeded expense.
for the cost it seems reasonable as i have 3 stalls in rear and have the roadster in the showroom
and spending on tools and equipment has mostly stoped so when i need something it is usually broken or needing repairs or other spending
when I run the shop I always kept up the equipment and supplies and it cost a ton but was taking in good money then, would hate to try to run a business nowdays for the expense

 

Not sure why anybody would want to open their own shop. So many headaches from what I hear. My plan is to retire in 4 years and then work from out of my own garage. I'll build/sell projects, flip cars, and do piece-meal work (upholstery, bodywork, etc.) as time permits. Of course it will help that I'll have a pension, but still... starting up your own business.. unless you have a HEAD FOR BUSINESS.. and are very talented.. it's a very tough road.

 

I know a local mechanic, owns his property and business. On a 2 bay garage, pays well over 20k in property taxes a year.

 

When I had my one man shop in town 20 years ago, my monthly expenses were pretty low. I paid for rent (under 500/month) and utilities were about a hundred a month, no employees, no advertising, tax was a percentage of what I made. I still never made much money at it, best I ever netted was $10k/yr.

 

i started 3 yrs ago basically created a job for myself rebuilding antique engines and related repair. since doing so i can definetly understand how a job like that can cost what it does...something most people dont think about till they are on the other side of the counter. i had to get a permit to work from my own garage . i would love to have a legitimate business location but you cant touch commercial property without a 30 or 40% downpayment and thats huge on 250-300k location. you cant even rent a single bay garage for much less than 1200/mo. you have to have pretty good cash flow for that. id be out of business pretty quick. seems as tho restorers/ customers i deal with have the opinion im just doing this as a hobby or its for fun and they shouldnt have to pay fair for my time! if they only had a clue what it costs for heat electricity supplies tools taxes fees advertising ad nauseum but most importantly the experience and knowledge to turn out a good product that 225$ doesnt seem so bad afterall

 

As a small auto related business owner, I can tell you that money spent on your repair wasn't providing any profit unless it was in the last three days of the month.

My gross is about 220k a year, about 50K is labor the other 170k is in product sales, gross profit is about 110K.

So lets take the 110K divided by 12, roughly $9000 in profit for the month, take out expenses, rent, insurance, which both for me is very reasoneable, phones, cell phones, advertising, security, utilities, car expenses, fuel, average of $100 a month in tool purchases, and payroll expenses for one employee and my salary of about $3500 a month leaves a net profit for the business at about $1500 a month.

Sometimes more sometimes less. So in the end I am one of the lucky ones who overall covers expenses, my payroll and the business has a profit of about 10% in the end. However, if I had the personal expenses that some I know have I would have to take the extra profit that the business keeps and use it for my salary and the boom the four months a year I loose money I would be screwed.

The best thing I did was get incorporated and set a salary so I have a budget to stay within personally. Periodically I take a bonus out of the business account.

Generally speaking it takes about 16 to 18k in sales and labor combined to break even for me, on average. Oviously if I can get more labor I don't have to rely on just sales of parts. Couldn't imagine only one or the other.

The shop owners that don't mark up there parts to a fair price are just hurting themselves. Sometimes when it is real slow, on an expensive part, if it is good labor I won't mark it up hardly at all just to get the labor. To make a habit out of this will make me into a former business owner.

By the way I had ten years in my field before I opened.

Hope this helps, Joe

 

The respondents to the original question have put out some of the best info on the subject I have seen here or anywhere.

I've worked in a lot of shops in the past and some had great managers who kept track of everything and showed a decent profit and some while great techs or mechanics had little or no business sense and struggled all the time as they either didn't charge enough or get enough work in the shop to keep it busy enough.

The Napa store that I deal with a lot just bought out and older independent parts house in town and remodeled and moved into the building to save about three or four thousand dollars a month in rent/building expenses. It was a two block move and doesn't have quite the visibility or parking but There has been a parts house at that location for 40+ years.

It doesn't matter what business you are in you are still going to have expenses that have to be met before you can put any money in your pocket to call your own.

That includes the guys who work out of the shed in the back yard.

Even the guy sitting on his computer in the corner of the living room and selling on the net and having what he sells drop shipped by his vendors is going to have certain expenses before he shows a profit.

That 230$$ U joint job probably took into consideration= A high profile high cost piece of real estate and building right on the main road, techs who got paid top rates in the area, added expenses including paid uniforms, office staff, clean up crew and on and on and on. It wasn't like pulling into Greasy Jim's in the back alley behind the Cafe with the"EAT" sign and having "Jim" roll the floor jack out and slide under the car on a sheet of cardboard because he didn't have a hoist and getting out fo under 50.00 parts and labor included. Truth be known, Jim probably would have made more profit on the job due to low overhead.

 

Yeh I missed his question in his post when I gleaned it.

I can make a sandwhich at home for alot less than going out to buy one. But I like to go out and have a sandwhich made for me sometimes. I dont ask why it costs more, as its pretty obvious.

 

i have been out of the so-called loop for about 10 years but if someone in this town charged 225 for the install of a 30 dollar u-joint on the average rear wheel drive car i dont think they would last long in this town.

 

$918 a day for the construction company not including employee's wages

or

less than $100 a day for my silkscreening company

i didn't read the whole thread but it really has so many variables from business to business

 

I own my own 4 bay shop. I wrench and my wife does (cooks) the books. I've been an ASE master tech for 20 years and still love working on cars. We have gross sales of $225k and I make $40K with no money left. I made way more money and worked less hours at the dealerships but life ain't about money. It's about being happy. If the bills get paid and you can take your best girl out once in awhile AND throw a couple bucks at your hotrod---then life is great!

 

Why is it people have all kinds of money for parts and refuse to pay for reasonable labor.