Software Solutions for Landscape Professionals

1. “Budgeting and Overhead Recovery” • Planning for Profitability 2011 Webinar Series • October 19th, 2011 Software Solutions for Landscape Professionals • Presenter: Marcus vandeVliet • Consultant – MV Enterprises • marcusv@aol.com

2. Agenda • Pricing Systems - Price Based/Cost Based • Pricing of the Product • Pricing Formula • Bid vs. Estimate • General Conditions • Profit Factors • Real Company Profit • Budget • Yearly Profit and Loss Statement • Sales Budget, Materials, Labor, Labor Burden, Subcontractors, Equipment, Overhead • Industry Standard Ratio • DS Manage|360 Demonstration • Conclusion & Discussion

3. Pricing Systems • There are many types of pricing systems, but most can be placed into a two categories: • Cost Based • Single Overhead Recovery System • Multiple Overhead Recovery System • Labor Only Recovery System • Price Based • Multiplier System • Fair Market Value System • Comparative System • Guestimate

4. Cost Based • Single Overhead Recovery System • Used by Accountants • Does not account for variation in LMES ratios • Labor Only Recovery System • Used by Jim Houston • Does not account for variation in LMES ratios • Multiple Overhead Recovery System • Used by VKA. • Does account for LMES used on each project • Accounts for labor being the biggest cost and risk to OH.

5. Price Based • Multiplier System • Usually a factor of material cost • Does not account for project general conditions • What about company costs and OH • Fair Market Value System • Now known as the Unfair market price • Where does this number come from? The Customer? • How does the customer know my company? • Comparative System • Compares similar previous projects • Did you make a profit on the previous projects? • Guesstimate • Speaks for itself.

6. Price Costs Overhead “Hoped for profit”

7. Price “Determine profit” Overhead Costs

8. Pricing Formula Project Costs (Labor, Materials, Equipment & Subcontractors) + Overhead Costs = Breakeven + Profit = Selling Price

9. Pricing of the Product • What is the breakeven costs for producing the actual product? • How will I recover all my overhead costs? • What profit margin would I be able to apply to this product? • What will my customer be willing to pay for this product? • What is my competition charging for this product? • How much profit do I need to make?

10. Bid vs.Estimate • Estimating is determining what a job cost: relating to Labor, Materials, Equipment and Subcontractors. • Bidding is taking the estimate and adding Overhead, Profit and Contingencies to determine, the price to be paid for that job • Bids can be lowered by reducing profit, but estimates should not be lowered, because costs are costs

11. General Conditions • Job specific overhead • Costs only associated with that project • Critical that all specifications are studied carefully • Examples: Mobilization (Equipment and labor) Clean up & Debris Removal/Dumping Material delivery, Load/Unload & Storage Site Conditions & Maintenance Access Site Repair Supervision & Meetings Warranty Permits, Bonds, Additional Insurance etc.

12. Profit Factors • Size of Project • Risks Involved • The Marketplace • The Need for Crew/Company • Competitive Advantages/Disadvantages • Client Factors

13. Real Company Profit: • The most important number for your company is not your bank balance. • The other irrelevant number is gross sales. • The single most important representation of your success is long-term sustainable profit. • Short-term profit may be impacted by factors such as: • The marketplace • Preparation for growth, new market, new product etc. • Capital improvements. • Employees.

14. Real Company Profit: - Cont. • Another common question: my profit loss statement shows I am making a profit of $200,000, where is the money? • The real profit can only be determined by also looking at your Balance Sheet report. • The accounting industry’s primary mission is to determine your tax liability ( and to confuse business owners and management to ensure their job security). • Balance sheet, profit and loss and budget need to be reviewed together on a regular basis to track the overall corporate picture.

15. Real Company Profit: - Cont. • Balance sheet items that impact profit: • Inventory value. • Equipment payments. • Capital improvement payments. • Loans. • Lines of credit. • Accounts Receivable. • Accounts payable.

16. Real Company Profit: - Cont. • These items should be deducted from the profit shown on your P&L statement, to produce the real profit. • Real profit is the money that you actually have in hand, that can be used for the following purposes: • Owner return on investment. • Employee bonus. • Payment of outstanding liabilities. • Growth. • Capital improvement. • Employee development and education. • More consulting.

17. Pricing Summary • Use cost based OH Recovery system • Cost + OH + Profit = Price • Adjust Profit for each project • Build the project in your mind: GC • Real profit needs to include Balance sheet items.

18. Budget • Projected for Upcoming Year (2012) • Not Your Accountants Budget • Field Equipment in Costs of Goods Sold (COGS) • Labor Burden and insurance for Field Persons in COGS • Set up to Determine Overhead Recovery Percentage (OH%) • Broken Down Into • Sales • Cost of Goods Sold • Overhead

19. Budget • Include Key Employees • The budget will not be perfect the first time • Be Conservative • Review monthly • Allocate expenses as they occur • Review YTD and make adjustments for next year • Set up Chart of Accounts in P&L to match Budget.

20. Yearly Profit and Loss Statement

21. Yearly Profit and Loss Statement

22. Sales : Critical Item • Can we sell this budgeted amount ? • Work must be profitable • Match our Sweet Spot • What is our production capacity ? • What is our sales strategy ? • What is our minimum sales amount to recover overhead ? • Sales volume below BE, must recover OH from Profit. • What are the individual sales goals?

23. Sales Budget

24. Materials • Wholesale Cost of Materials • Material Cost Increases as Volume Increases • Impact of Subcontracting Changes • Include Sales Tax and Freight & Delivery • Inventory - Use Cost & Additional Expenses: • Shipping • Handling • Spoilage

25. Labor Budget • Field Persons Only • Foreman & Labor • No Overhead Persons • Supervisors are OH • List Employee Names and Next Year’s Wage • Hourly Employees: ($ Rate + Overtime) x Weeks

26. Labor Burden • Additional Taxes and Expenses Added to Labor • Calculate on Average Wage as a Percentage • Define Field Burden and Overhead (OH) Burden • OH Burden Does Not Include: Liability Ins.; WC Rates are Lower; Paid Time Off

27. Labor Burden : Totals

28. Subcontractors • Independent business that completes part of your contract for a fixed price. • Look ahead to next year: What is the total $ amount you will subcontract out this upcoming year? • Increases as Volume Increases • Ensure the sub-contractor’s price includes the entire scope of work.

29. Calculate Equip/Vehicle Cost/Hr

30. Rental Equipment • Project Next Year’s Rental Cost • May be better to rent equipment, than purchase. • Rent specialized equipment, with experienced operator.

31. Cost of Goods Sold (COGS)

32. Overhead • Typically overhead (OH) is not directly related to sales volume. • OH remains constant and can not be completely eliminated. • Does inflation effect the item? • Is this item any place else in your budget?

33. Yearly Profit and Loss Statement

34. Industry Standard Ratios • Overhead vs. Gross Sales 25%-30% • Direct Labor vs. Gross Sales 18%-21% • Material vs. Gross Sales 25%-40% • Equipment vs. Gross Sales 7%-10% • OH Salaries vs. Gross Sales 8%-13%

35. Budget Summary • Project numbers for 2012. • Sales • COGS • Expenses • Good starting point P&L for 2011. • Involve key people for buy-in. • Review each month.

36. Dynascape Manage|360 • Demonstrate DS Manage|360 Capability for Different Type of Overhead Recover – Division Screen • Demonstrate DS Manage|360 capability to see your break even number for cost book items – Show plant/material in cost book. • Demonstrate DS Manage|360 capability to see your break even point on an estimate – Open an existing estimate.

37. Thank you for attending DynaSCAPES “Budgeting and Overhead Recovery” Webinar Presented By : Marcus vandeVliet Organizer: Andrew Wilson Consultant – MV Enterprises Manage360 Account Mngr/Sales Rep Phone: (302) 239-6612 1 800 710 1900 x231 marcusv@aol.com awilson@dynascape.com www.mventerprises.biz www.dynascape.com