In an earlier post, I showed you how to figure out your personal living expenses, and how that translates into what profit you need from your business to cover it and your income tax as well.

I also said if your business profit does not meet you requirement for your living expenses, then you needed to spend less or sell more. Some of you thought that was a little unhelpful, so I am giving you a simple tool to help you develop a strategy to achieve the profit you need.

Anyway who has been to our courses knows that I bang on endlessly about this formula:

Sales less Business Expenses equals Profit

It is that simple, and that doesn’t change. However, in order to plan your profit strategy, you can employ junior cert maths and flip it on its head:

 Profit plus Business Expenses equals Sales

And where does that get us? Well, it is the start to helping us to figure out a sales figure that will generate the profits that after tax will support the lifestyle to which we want to become accustomed.

What you need to know before using the tool is:

1. The profit you need to make on a weekly basis to support your lifestyle. (Hint: 1000 profit per week gives a single self employed person around 3000 per month into their hand)
2. The number of days per week you want to work.
3. The number of weeks per year you want to work. (Hint: PAYE people work a max of 46 weeks in the year.)
4. A ballpark price per sales unit you want to charge. For example, for a service business, it might be an hourly or daily rate. You will have to opportunity to mess with this using the tool.
5. A ballpark idea of expenses you might incur. Advertising, Training, Accountancy fees, other.

And now the tool:

The formulas are in the black areas, so just type into the blue areas and you will get how many sales units you need to achieve per day that you are willing to work in order to support your lifestyle. Couldn’t be easier, right?

So give it a go, and you will be one step closer to financial control!

How to price a job is a common puzzle for new business owners. Too high and you won’t get the business. Too low and you are doing yourself. So how to get it right? For the services industry a key component is fully understanding your employee costs and adding a decent markup. This is an area where people get it wrong time after time. So let’s get it right starting now!

 What information do we need?

• 1. Employee gross wage, including PAYE and PRSI
• 2. Employer’s PRSI
• 3. Employer’s Pension contribution
• 4. Holidays
• 5. Paid sick days
• 6. Paid training days
• 7. Training costs
• 8. Uniform / Equipment costs

 So now we add up the costs like this:

Gross weekly wage plus employers PRSI plus Employer’s pension contribution

Multiply that by 52 for the base annual cost.

Add in the annual training costs and uniform and equipment costs.

Now we do the days: 

First figure out the number of working days you are paying your employee for. This is generally 52*5=260.

Next, figure out the actual days they will be working. Subtract 20 days statutory holidays and 9 days bank holidays at a minimum. You cannot escape those.

Will you be paying them for training days or sick days? If so, subtract them also.

So now take your annual cost as figured out above, and divide it by the annual working days.

This is now your break even cost for your employee to which you need to add a percentage to in order to make a profit. Got it?

Example:

Single guy Gross wage 573.70 (net wage 500 into his hand) per week.

Employers PRSI = 91.01 per week.

Total weekly cost to employer = 635.37

Annual employer cost 33039.24 for 260 paid days.

Divide 33039.24 by number of actual working days (260-20-9=231) = 143.03

So your actual employee cost is 143.03 per working day. This is what you have to keep in mind when pricing your jobs.

This example is a minimum example with no training days, sick days or employers pension contribution or training costs.

Bad example 

I have seen people say, I am paying the young fella 100 a day into his hand and I will charge him out at 150.

This gives the sum total of 6.97 gross profit per day on young fella assuming he is gainfully employed every day. 

This normally happens when people leave the payroll up to their accountants and do not know until years end what the costs were so they do not have the information to do proper job costing.

Don’t get caught. Figure it out yourself first, before handing over to someone else.

Download an Irish payroll package, from www.collsoft.ie or www.payback.ie , it’s very simple.