I'm interested in input on what your overhead costs are as a percentage of revenue? I'm running at 24% of gross rev. but I'm not sure what the industry standard is for small to mid-sized shops. I would love to learn what other shops are seeing in their business and what they include in that figure. We did just shy of $1MM last year with 7 employees (including myself) and my budget includes the following for overhead:
Building rent
Utilities and Fuel
Property and Franchise Taxes
Office supplies and Admin costs
Insurance (GL, Property, and Auto)
Auto and Equipment financing
Equipment repairs and Maintenance
Shop Supplies (nails, glue, sandpaper, etc.)
Computer expenses and Software
And two that I'm especially interested in comments: Estimating Labor and my salary ($120k)

I have talked with a few shops locally but most of them don't track these items as closely as I do. The ones that do are considerably larger than us so the numbers don't really equate. I would like to know what you include in your OH budgets and if you think any items in mine should be moved to COGS. TIA.

From the top of my head

We include depreciation.
The reason we include depreciation is so we are always capturing replacement machine money.

Estimators wages, project managers wages, admin wages, finance wages, engineering wages, partners wages, gifts, bonues, 401k matching expense.

Although some of the above may be job costs we don't send estimators home when we don't win bids, we don't send the PM home if there is no work to manage today.

Tradeshows, meals and entertainment, marketing and advertising costs.

Safety program awards and training

EPA fees.
Contractors license, all business liceneses, FSC licenses, WI license ,trade association dues, online bid expenses.

MSP that manages our network, updates, antivirus, firewalls , servers, basically 24 x 7 support.

Prelien fees, postage, mail courier, bank fees.

Equipment and vehicle loans.

Basically almost every dollar that goes out that isn't directly a job cost is overhead for us.

After close to 40 year, make sure you get paid enough for the risk you are taking above your salary. Fund a retirement plan, either a 401k or what your adivsor recommends.

35 years ago the AWI developed two methods of recapturing overhead, one is only on labor, the other is on labor and materials.

The logic for the second method is there are many materials that have the same labor value regradless of the cost of the materials so the dollar values of sales varies based on both labor and material costs. If you do jobs with consistent material costs to sales then you can recapture overhead on labor only.

We could do a job with a lot of MDF trim for one job, and the next job could be Corian tops with custom veneer panels so lower labor, higher material cost, higher sales revenue.

We use a separate OH for installation (they don't need to support the palnt but have expenses the plan doesn't have)

A-

We track every dime.

If we can buy edgebanding with free shipping, and it takes two days to get us , that’s ok. As long as the cost plus the free shipping isn’t more then the competitor with low cost plus adding shipping

It’s essential to actually look at your building lease and realize if it’s triple net, are you capturing the Insurance and taxes ?

In a change order or add, the items read- drafting, pm, ordering, recieving, Qc, all the way to install. The client sees the add for what it is Added work.

Track everything and check every vendors number accross the board.

Print out the register that can tell you where a lot goes

I would say that if there is no industry standard, then any comparison numbers are arbitrary, and it is easy to get too caught up in formulas that are subject to change based on individual accounting methods, and to compare numbers based on the honesty of the person supplying the numbers.

You have to track all of your costs, and make sure that you are being compensated for all of them. If you are paying your bills and making money beyond your salary, then comparisons tend to just muddy the waters, because no two shops are the same.

To me, overhead would be the costs you would incur if you kept your shop ready to operate but had no work, and everything else would be job specific costs, by virtue of either direct costs, or a percentage of expenses that can be added to job estimates based on your shop history.

(i.e., if you have no work, you use no sandpaper, but during the course of a year you can take the cost of shop supplies and determine what percentage of revenue it is, and add that percentage to your estimates.) Hourly shop rates are an amalgamation of these numbers.

Alan, as always, makes excellent points, and perhaps it is more important to recoup all of your costs, rather than to worry about which column the numbers go into, and how any derived percentages compare to other shops that may do it in an entirely different fashion. If it works for you, it works.

For what its worth.
TonyF

Tony,
Generally, accountants view overhead as fixed and variable.

Things like rent and liability insurance are fixed.
Items like workers comp, fica, futa,sdi are variable as are some percentage of power, utilities

NASFM used to measure sales a lot of different ways to normalize the measurements between firms.

We are a merit pay shop so we work on the theory that the best people are at 100% and others are at 80% or 90% so they may produce less per hour but they produce fine based on the pay rate. So when looking job cost we look at dollars and hours.

For OH recapture we use the best employee rate and then apply all overhead to that rate for our internal shop rate (what we charge ourselves prior to markup.)

I like to subtract all buyouts and installation, then divide sales by production hours, thats a quick cross check to see if I am charging enough.

The other issue to be aware of is if we capture x dollars per month for overhead based on y sales and we increase our sales in a short period we can choose to to either bank the overhead for the future or lower our price.

A-

Alan:

I know next to nothing about accounting, and have always worked in small shops, including my own, where it was never done to the level of detail that an operation the size of yours would require.

I offered up what I did as more of a small shop general philosophy; that tracking ALL of your expenses, and including those expenses in the estimating process, may be more important than which column they go in to, and that if you are making money beyond all of your expenses then you are doing well, and that hopefully the extra money is worth the business risk.

Comparisons to other shops, which seems to be what the OP is looking for, needs an apples to apples comparison, which would require similar situations, shop owners who are honest about their numbers, and shop owners who are categorizing expenses in exactly the same way.

I'm not sure what end would be served by knowing that a competitor spent less on estimating, or that another shop owner paid themselves less or more than one paid oneself. It seems to me that it would be more of a distraction than a benefit.

More philosophy than accounting, I suppose. My apologies to all.

TonyF

Tony,
Probably the best source for comparison is to join the CMA. Lots of small shops in similar situations.

Attending seminars at trade shows is where you can quickly be exposed to ideas from other shops

You are correct its more important to track and make sure all overhead costs are covered.

It sometimes helps to have them in different groups in a financial statement so you can look at them year over year or month to month.

I agree comparing to other shops is not as important for pricing or understanding.

Tracking bids against the competition is where we learn where our pricing is and allows us to adjust or review our bids.

The more important thing is we need to know if we are making money and hopefully where and how or why.

A-

Cabinet Makers Association