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BuildYourNumbers.com presents:
Achieving Profitable Return$ on
EMPLOYEE LABOR
Diane Gilson, Certified Advanced QuickBooks ProAdvisor
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620
BuildYourNumbers.com ♦ InfoPlusAccounting.com
What do we do?
• We help business owners, bookkeepers, and accounting professionals create management accounting systems that clearly show which jobs make money, which jobs lose money, and how to use this information to increase profits.
• We help you "Build Your Numbers" using online training classes, industry-specific accounting products, or personal web-based consulting and coaching.
• The ultimate goal? To empower your business to create the lifestyle you deserve…
Toll free: 866-244-2228
Contact Diane Gilson [email protected]
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Experience: 30+ years varied accounting experienceincluding 15 Years as a CPA
Focus: Management accounting, job costing, and training for construction and manufacturing industries since 1994
Speaker: Various local and national groups including National Remodelers Shows, Atrium Group, International Builders Show, etc.
Developer: > 90 Online Training Classes, eCPA, AccountingPRO and various other accounting support products, calculators, procedures, templates
Author: Accounting with QuickBooks for Builders, Remodelers & Developers + various nationally published articles
QuickBooks Certifications: Certified Advanced ProAdvisor, Enterprise ProAdvisor, Intuit Solution Provider + others,… (see cover sheet)
Awards:- 2014 and 2015 “Top 100 ProAdvisor” (from > 65,000 ProAdvisors) - Associate of the year (2006)- Distinguished Service to the Building Industry (2009)
Service: - NARI National Member (8 years)- NAHB National Board of Directors (4 years) - MAHB State Audit Committee (4 years)- Treasurer - HBA (10 yrs)- Treasurer - Remodeler Council (2 yrs)
Diane GilsonPresident, Info Plus Accounting, Inc.
Founder, BuildYourNumbers.com
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
20+ years of: - Working w/hundreds of company owners
throughout the U.S.
I’ve seen: - How few companies are really ‘on top of’
their accounting information
- The pain company owners face when it comes to job cost, employment, and pricing decisions
I understand:- The profitability issues that owners face every
day (especially those ‘bottom line’ results!)
Most importantly:
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
• Lots of info to cover in a short time frame!• Multi-tasking? • You’ll get the most value if you’re able to focus on each step.
So please remove distractions (cell phones, email, FB, co-workers dropping in, etc.)
• We’d like your ideas, comments and insights throughout! Please enter these in the Q&A Box! We’ll be monitoring your questions and comments… We’ll also display the results of the polls so you can see them. If I don’t get to your question, email me at [email protected]
Achieving Profitable Return$ on Employee Labor
Achieving Profitable Return$ on Employee Labor
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
What we’ll cover today:
• What Are, & Why Should We Care About, Our True Costs of Labor?
• How to Price Labor to Yield the Gross Profit % and $ You Need
• Resources – including Free & Discounted Versions of the eCPA (employee Cost & Pricing Analyzer)
• Why You Should Track True Labor Costs For Each Job
• What Else You Can Do With Burdened Cost Info?
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
What IsOur True Cost of Labor
& Why Should We Care?
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
What’s our “True” (Fully-Burdened) Cost of Labor?
Compensation + Burden Costs
= Total Annual Cost of Employee
÷ Hours Available to Perform Desired Activities
= Fully-Burdened Cost per Production Hour
Achieving Profitable Return$ on Employee Labor
Phones, Computers, Tablets, Software
Shop, Clean-Up, Breaks, Training Time
Insurances: Health, Dental,
Life, Workers Compensation
Paid Time Off: Holidays, Vacation, Sick Time
Equipment & Vehicles:
Asset, Operating, Insurance,
and Maintenance Costs
Facilities: Shop, Floor or Office Space
Union Benefits Retirement Programs
Liability or Errors & Omissions Insurance
Q. Exactly WHAT IS Labor Burden? Examples:
Achieving Profitable Return$ on Employee Labor
Employee Costs We Can’t* Assign Directly to Jobs…*or are very difficult to…
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
Why Do We Care?
Cost &
Price
Time &
Money
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Under-Billings: You can “do the math” using this BLOG POST
• Example 1: 2080 hrs – 180 hrs = 1,900 production hours
Under-billings of $5/hour for 5 employees:
1 year ________ 3 years ________ 5 years ________
• Example 2: 2080 hrs – 330 hrs = 1,750 production hours
Under-billings of $12/hour for 20 employees
1 year ________ 3 years __________ 5 years __________
Note: Printed version included in your handout: “Are You Losing A Lot?”
Achieving Profitable Return$ on Employee Labor
$47,500 $142,500 $237,500
$420,000 $1,260,000 $2,100,000
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Knowing how to properly PRICE for employee time can make all the difference!
This single factor can decide whether a company with employees will:
• Grow and thrive• Just limp along • Go out of business
Achieving Profitable Return$ on Employee Labor
“But how do we figure out what we should earn or charge for employee time?”
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
Why Would Any Business UNDERCHARGE or LOSE MONEYon Employee Labor?
1. Default to what others charge (“It’s the going rate.”)
3. You don’t have a clear picture of how to mark up to meet your gross profit goals.
2. You don’t know what each of your employees actually cost per hour that they work on jobs.
“How do we figure out what we
should charge or earn for
employee time?”
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Please type into the Q&A Box & share …
Examples of types of businesses that could benefit from
• Knowing (and regularly updating) their
cost of employee work time, and
• What they should be earning
from employee work time
Achieving Profitable Return$ on Employee Labor
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
How to Compute Your Employee Costs& Price Employee Time
to Yield the Gross Profit % and $
You Need
Achieving Profitable Return$ on Employee Labor
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
CAUTION!
Labor burden calculations will likely require a variety of estimates and a good dose of “judgment”.
As a result, burdened costs will never be accurate down to the penny, but will yield job cost results that are still far more accurate than without.
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
Overview of the Free eCPA
(employee Cost & Pricing
Analyzer™)
Let’s fill one in together…
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
6 things we can learn from burdened cost results for 1 employee:
1. Number of ________ your employee has available to do “real” work.
2. Additional ________ required for your employee to do their work.
3. ________ cost as a % of your employee’s base pay.
4. Standard, overtime, and weighted average $ per __________ _____.
5. The $ to charge or earn per hour to achieve your desired
______ ______ for that employee.
6. Annualized difference between suggested and ______ hourly rates
for your employee.
Achieving Profitable Return$ on Employee Labor
Burden
costs
gross profit
production hour
actual
hours
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
Resources:Free & Discounted Versions
of the eCPA (employee Cost & Pricing Analyzer)
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
Your FREE (Single-Employee) Version is located at:
http://buildyournumbers.com/free-labor-burden-calculator/
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
Special Offer ONLY through Friday Midnight, 9/30/16
10% Discount on the 2 Business Versions
Small Business: $497.00 $447.30
Mid-Sized Business: $997.00 $897.30
Enter SEPT10 at Checkout
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
Examples:Why You Need to Estimate & Track
True Labor Costs For Each Job
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
1. _____________________
2. ________________Costs
3. More _________________
(Indirect Production Costs)
4. COGS (Cost of Goods Sold =
Total Costs of ___________)
5. Gross Profit ($ and %)
aka “Profit _______”
Note: This $ amount isn’t enough
to cover this company’s _________
of $259,100 (25.9%) ( Net loss of
$111,870)
Your Management & Job-Cost Reports
Total income
Burden
Burden
Production
Margin
overhead
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
• Yellow Line is Gross Profit
• Assume a Gross Profit Goal of 25%
• $275,730 earned by all “regular” jobs
• Which jobs exceed the goal?
• Which jobs are less than the goal?
BUT after deducting Labor Burden Costs,
Gross Profit is reduced to $147,230! (14.7%)
Job Reports BEFORE Allocating Labor Burdent to Each Job
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
Job Reports BEFORE Allocating Labor Burden to Each Job
Job Reports AFTER Allocating Burden to Each Job
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
1. Job cost reports without burden costs:_________________________________________________________________________________________________________
2. Job cost reports WITH burden costs_________________________________________________________________________________________________________
Why Do the Differences Matter To Your Company?
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
• Fully-burdened rates for different positions are shown in the first grid.
• Labor cost totals for the first job (Job A) are shown in blue at the bottom of the second (blue) grid.
• Labor cost totals for the second job (Job B) are shown in green at the bottom of the third grid.
• The difference in labor costs is shown at the bottom, in yellow.
For Estimating…
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
• Same number of hours, but wide variance in estimated labor costs: $517.
• The estimated labor costs for Job B are 34% higher than for Job A!
• Why? Different fully-burdened labor costs
for each type of employee. Difference in time between the
specific people working on the job.
• Without those detailed numbers at hand, you wouldn’t know how dramatically different your costs could be! And this should impact your pricing – right?
For Estimating…
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
Monitor Variance Reports (By Job Stage) as Job Progresses…
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
What Else Can You Do With Burdened Cost Information?
Compare internal costs to outsourced costs
Measure productivity
Use results for evaluations
& profit-sharing
Assign the right employees to the right tasks
Decide whether and when
Overtime can be beneficial
More accurate results than industry standards
Learn “averages” by Employee
Level or DepartmentSet objective performance goals
Compute potential payback
on new equipment
How Else Can Labor Burden Info Help Your Business?
Achieving Profitable Return$ on Employee Labor
Add Objective Info to All Employee-Related Activities!
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
More Examples:
Check your email for our upcoming series of useful profit-enhancing
tips and examples. We’ll be sharing and explaining many more
specifics about how you can use, and apply, burdened labor cost
information to your business…
Achieving Profitable Return$ on Employee Labor
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
What we covered today:
• What Are, & Why Should We Care About, Our True Costs of Labor?
• How to Price Labor to Yield the Gross Profit % and $ You Need
• Resources – including Free & Discounted Versions of the eCPA (employee Cost & Pricing Analyzer)
• Why You Should Track True Labor Costs For Each Job
• What Else You Can Do With Burdened Cost Info?
Q&A
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
Q&A
© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com
Achieving Profitable Return$ on Employee Labor
Special Offer ONLY through Friday Midnight, 9/30/16
10% Discount on the 2 Business Versions
Small Business: $497.00 $447.30
Mid-Sized Business: $997.00 $897.30
Enter SEPT10 at Checkout
From: http://buildyournumbers.com/under-billing-calculation-employee-labor-free-calculator/
Are You Losing a LOT of Money By Under Billing for Employee Labor?
Let’s do the math: Here’s a free calculator you can use to find out how much revenue you may be losing over one, three, and five years if
you are under-billing or under-charging for employee (production) labor time. Just enter numbers in the yellow cells below to show the
results of various scenarios. I’ve added examples and notes below the calculator. Instructions:
Enter Your Estimates in the Yellow Cells ONLY (entry in any other cells will invalidate the results).
To start over simply refresh the page. . .
To see full-screen, centered results, use the slide bar at the bottom of the calculator.
If you’re not sure how much you may be undercharging or are unclear on annual production hours, refer to the information below.
Example: Under Billing Calculation #1:
…Results Show a 5-Year Revenue Loss of $237,500 to $332,500
Every company’s estimates will vary, but here’s a screen shot of what the calculator would show if you entered estimates of:
1,900 hours per year of average “production” time. (Total work hours available for the year including overtime, less all paid time off and any
other ‘non-production’ time such as company meetings, evaluations, time sheet prep, non-job breaks, and other ‘non-job’ time.)
Estimated average under billing of $5 per production hour.
A minimum of 5 revenue-earning (‘production’) employees.
A maximum of 7 revenue-earning employees.
You’ll see that, using these variables, over a 5-year time frame, the under billing calculation shows a loss in revenue ranging from $237,500
for five employees to $332,500 for seven employees.
…
Example: Under Billing Calculation #2:
…= 5-Year Revenue Loss of $2.1 to $2.6 Million!
You’ll see in the following example that changing the variables will have a different impact on lost revenue. For this example, you’ll
see estimates of:
1,750 hours per year of “production” time – including overtime. (See notes about production time in Example #1.)
Estimated under billing of $12 per production hour.
A minimum of 20 revenue-earning (‘production’) employees.
From: http://buildyournumbers.com/under-billing-calculation-employee-labor-free-calculator/
A maximum of 25 revenue-earning employees.
With these estimates, over a 5-year time frame, the under billing calculation shows a loss in revenue ranging from $2,100,000 for twenty
employees to $2,625,000 for twenty-five employees. …
Of course for larger companies with more employees, the numbers get proportionally larger!
What the Under Billing Calculation Reveals…
What starts out looking like a fairly small under billing difference for employee labor, when multiplied by a number of employees and
several years, can amount to a staggering loss of revenue. This revenue reduction flows directly to the pre-tax bottom line. You can likely
imagine that these amounts can ultimately make the difference between a company’s long-term success or failure.
Is There a Possibility That You Might Be Under Billing?
If there is a possibility that you might be under billing, please take a few moments to enter some estimates into the free calculator at the
beginning of the article to see the potential impact on YOUR company’s revenue (and pre-tax bottom line). If you’re in doubt about
“Annual production hours per employee” or “Potential $ per hour of undercharge” (the first two cells in the under billing calculation) please be
be sure to check out the following paragraph.
Do You Know Your Critical Employee Labor Cost and Billing Numbers?
For instance, do you know:
1. Your annual production hours per employee?
2. What each employee really COSTS per production hour?
3. How much per hour you SHOULD be charging (or building into your product costs) in order to hit your gross profit goal for employee
labor?
4. Based on item #3 above, how much per hour you are potentially under billing?
Now that you can see what a huge effect under billings for labor can have on your revenue, if you don’t know the answers to these 4
questions, I’d like to invite you to click on any of the above links to look at a unique resource that we’ve developed to help you determine
exactly what those underlying numbers look like for YOUR company. I believe you’ll find these videos and information to be both
informative and eye-opening…