keeping cost under control

[Framingham Auto Service]

What expense percentage model do you try to achieve?

I'm Current trying to achieve the following:

 

Parts Cost- 30%

Labor Cost- 30%

Fixed Expense- 20% ( Currently not been able to maintain under 20%, due to loan and equipment lease)

Net Profit- 20%

 

Any inputs?

 

Thanks!

[bstewart]

I heard of someone else using this:

20% cost of goods sold

20% production labour cost

40% operating expense - includes non production labour

20% net profit

 

I don't know if it's accurate or attainable, but just another point of view.

[alfredauto]

While preached by many, I feel 20% net is a poor goal unless one likes paying a ton of tax. I try to keep net about 4-5% max. The shop can use a new truck, another employee, and new equipment more than it can use a 35% tax bracket.

[bstewart]

While preached by many, I feel 20% net is a poor goal unless one likes paying a ton of tax. I try to keep net about 4-5% max. The shop can use a new truck, another employee, and new equipment more than it can use a 35% tax bracket.

I think the point is to have 20% net profit "in hand," then use it at your discretion for shop improvements in the places it will benefit you the most.

Shop tools, building improvements, training, computers, inventory are all good places to look at. How about profit sharing with your employees??

 

Ps. Canada only has a 15% corporate tax rate, much nicer then 35%!

[KMS]

The 5% Net profit is a good way to look at it for tax purposes. Just pay yourself more to get the lower percentage of taxes owed. Than put that money in savings just in case it is needed.

[GeeZ]

While preached by many, I feel 20% net is a poor goal unless one likes paying a ton of tax. I try to keep net about 4-5% max. The shop can use a new truck, another employee, and new equipment more than it can use a 35% tax bracket.

 

What! You want less net so you don't have to pay taxes! If your personal tax rate is 35% then you still keep 65%. You are mixing up

business and personal taxes. A business that is Sub-S, LLC or a Sole Proprietor puts all profit to the owner's 1040. When you buy all the stuff you need, what do you do then. Cut your prices?

 

I must not understand your reasoning.