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True Costs

Discussion in 'Business Fundamentals' started by Ipushsnow, Mar 5, 2009.

  1. Ipushsnow

    Ipushsnow Senior Member
    Messages: 314

    I see, and have been part of, a lot of back and forth about true costs. I think a lot of people have no idea what their true costs actually are. I will list what I think as costs for the average person plowing snow, if anyone thinks I missed something, or has any suggestions speak up. This could get to be a good thread that we can point the "Hey everyone, new to the site, I noticed how much its been snowing so I ran out and got a truck and plow and am ready to get rich now" guys that we all love!

    Expenses:
    Depreciation-Trucks, loaders, salters, snow throwers, etc. (Cost divided by number of expected years in service.) BUT If you use a piece of equipment half for snow and half for your summer business take half the amount. As a side note I think this is the one expense people do NOT consider when calculating costs, and its usually the biggest!

    Labor (Wages, workers comp, unemployment, FICA.

    Rent/Mortgage/Taxes/ Utilities on shop or storage building.

    Salt bin cost (I spread it out over 10 years)

    Fuel

    Maintenance

    Advertising

    Time/fuel spent bidding jobs

    Phone

    Office expenses-paper, printer, ink, computer, software, etc

    Salt

    Salt trucking

    Time spent loading/unloading salt

    Equipment rental

    Insurance, liability and commercial vehicle

    Any licenses/certification required

    Taxes

    Bad debt-someone IS gonna screw you
     
  2. QuadPlower

    QuadPlower PlowSite.com Addict
    Messages: 1,056

    I added to the above
     
  3. Bajak

    Bajak Senior Member
    Messages: 999

    This business is going to get more competitive than ever. Snow removal and plowing snow is a relatively new business. World wide it is not even close to being a respected or recognized business, therefore, none of us are recognized or respected.

    Your cost of business is no different than any other business. If you do not like it than get out. I look at retail businesses along main street America/Canada. I see a lot of vacancy. These are our best customers of the past, that are now our past customers. I am happy to be Canadian and our wimpy banks of the 70's, 80's,90's,and even into the new millennium are now the model of the new financial institutions of the future. The U.S. can call it socialism but I prefer to call it the new and improved way of commerce.

    Sorry I got a little off topic. Back to the original post. The cost of business is always going to vary. I plow more snow than the average member on this site. Where I live I get more than the average snow accumulation than a lot of people on this site. The true cost of this business is different for every member and the true profit is extremely varied among every member. From what I have learned from Plow Site is that the people getting 3-6 feet of snow make no more than the people that get 6-8 inches of snow. Some work harder than others to get the same results.
     
    Last edited: Mar 5, 2009
  4. T-MAN

    T-MAN PlowSite.com Addict
    Messages: 1,363

     
  5. Bajak

    Bajak Senior Member
    Messages: 999

    Well in Canada our banks are mostly run by their customers. None of which are any government agency. Although they are almost all insured by the government of Canada. Our financial institutions(Banks) have historically been relatively small on a global scale. It was not until 2009 that 2 of our Canadian banks became within the top 25 largest Banks world wide. Partly due to the fact that some of the worlds largest banks have now succumbed to the global economic crash. Hence our banks have not necessarily grown, but have in fact not lost in the recent crisis.

    T-MAN as far as Huge Mega banks are concerned, Our banks, representative to population, are huge. 6 major banks in Canada for a population of 40 some odd million people. In the U.S. I'm not sure how many customers per bank it would work out to be. Our bench mark "Bank Of Canada " lending rate just hit a new low of 0.5%. Most of our banks prime lending rate is around 2.2% to 3.0% for a mortgage. Credit card Co. is still outrageous at 12.5% to 28.0%. My mortgage is locked in at 3.99% until April 2010 because I would have never thought for the life of me 4 years ago it would ever get any lower. I hear south of the border a lot of talk about the "credit crunch". It is virtually non existent here, at least for now.

    This is a global recession I realise. But in my opinion Canada is one of the few Countries that is fairing better than most. Our economic indicators say we are only half as bad as the U.S. and Europe. The U.S. and Europe are only half as bad a Asia, China Japan and the rest of the world. WTH?

    I hope it does get better for all of us.

    BACK TO PLOW TALK! If you are on seasonal I hope it doesn't snow. If you are on by the push, I hope you get blasted with snow. It is a gamble either way.
     
  6. augerandblade

    augerandblade PlowSite.com Addict
    Messages: 1,054

    Some guys just starting out will be working at cost, or even below cost:dizzy: in order to get a foothold/beachhead in the snow biz. Its a case of 2 steps forward and one back as far as you being their competitor. When you lose a job to a "newbie" you have to under stand that his business is in that mode. Sometimes its best to allow him:help: to get setup, incure the expenses, wakeup to reality with the result that he MUST raise his prices. Now business wise is the right time to compete with him. Bartering is a form of payment. Some times I have done work in order to acquire a piece of equipment that would benefit all my contracts. So I price a lot at a rate that will pay for the lease/ finance of a certain piece of equipment. Although there is no conversation between me and the facility manager , Its the same thing as saying I will perform snow removal/ ice control work at your site and you pay for the lease or finance of my machine.The competition will say boy isnt A & B ever cheap!!!!!!!!! which is correct, but it is more of a deal for me:rolleyes: cuz Im getting that much needed machine. Always remember sometimes your comp etitors are in "Survival Mode"tymusic
     
  7. Ipushsnow

    Ipushsnow Senior Member
    Messages: 314

    The reason for the post was not to complain about costs, but to educate myself as well as others. We have all heard people that think its so fantastic that they are making $60.00 per hour and when they go plow for 10 hours they think "Wow, I just made $600!" I think its people with this mindset that are the ones that are "lowballing" and keeping prices down for everyone everywhere. Maybe if they take a look at the real numbers and they see they are really only making $4-5,000 per year plowing when all expenses are figured in they will increase their prices accordingly and we will see some slow down in being undercut by these guys.

    Now with that said, I in no way believe we are going to stop lowballers, but I think if we can show some people that they really arent making what they think they are it will benefit them, as well as us.
     
  8. RODHALL

    RODHALL Senior Member
    Messages: 374

    Ummm… you can not be serious the depreciation of trucks? While I would agree if the person kept the truck and used it for just work, and kept it till was past the point that it was cost effective to repair VS replacing it. but honestly very few do this. Take a trip to your local drag strip, wal mart, or bar… and look see how many “work” trucks you see in and out over a few hours time…. So the customer is expected to pay for newer equipment for you to do your job faster and make more money, and you to go to wal mart the bar and the drag strip (where you really tear it up)


    This is what is wrong with this industry. Some want to have everything and others want to make a living…
     
  9. QuadPlower

    QuadPlower PlowSite.com Addict
    Messages: 1,056

    I thought this post was to be like the "what do you carry in your truck" posts. A list of things that new plowers should think about that will be an expense to their business.

    Depreciation of your truck is a tax right off. Not a cost added to your per hour rate to buy new equipment.

    If you buy a truck that is used for business then you can deduct that amount off of your taxes, thereby reducing your income and thereby reducing the tax paid. You can either deduct all of it in one tax year that it was placed in service. Or you can depreciate it over time meaning the total amount is divided by how many years you plan on using it and that amount is deducted each year. If you are not doing either one, then you are loosing out on a tax break. Yea, you part timers might use your truck to drive to wal-mart in the off season, but you can still deduct your truck costs as a percentage of use.

    Example: $20k truck / 5 years that you plan on keeping it = $4k Say you made $20k plowing - $4k depreciation = $16k you owe taxes on.

    If you use that truck 4 months a year for snow plowing then that truck is used for business 33% of the time. Or it can be based on miles drivin for personal use divided by the miles driven for work use. So now that $4k depreciation becomes $1,320 each year off of your taxes.
     
  10. Ipushsnow

    Ipushsnow Senior Member
    Messages: 314

    Yes, I am serious, depreciation on trucks. You are right, a lot of guys use their trucks more for personal use, some guys use their trucks 50/50, and a lot of guys use their trucks solely for business. Personally, I have one truck I use probably 95% for business, and one about 80% for business. And if it wasn't for plowing I wouldn't have one of them. I plan on adding 1 truck for sure, and maybe two this year, both will be exclusively used for plowing. So yes, the cost of purchasing these trucks is a true business expense.

    As far as taxes, yes, the depreciation you take on your truck actually lowers your tax burden and saves you money. That's another reason its beneficial to keep a vehicle for 5 years and then get another one (if you don't take the Sec. 179 deduction). But just because depreciation is a deduction you can take on your taxes doesn't mean it isn't a real business expense, in fact the opposite is true, you can take the deduction BECAUSE its a real expense.

    As far as how much to consider to depreciate for plowing, you can do time, or miles. Miles would probably be more accurate, but the other thing to consider is that 1,000 miles driving in summer, even pulling a trailer are much, much less hard on your truck than 1,000 miles pushing snow.

    Plow truck at a drag strip? I am putting my money on the other vehicle.

    Finally, I don't know what you mean by your last sentence. I think we all want to make a living, and we all want to do better. But I don't know how discussing the true cost of plowing would lead you to say we "want to have everything".
     
  11. hedhunter9

    hedhunter9 Senior Member
    Messages: 212

    I think what he meant by seeing at the drag strip,
    is many trucks see double duty.

    They are used for tow vehicles

    My truck plows snow in the winter,

    And I use it to pull a 24 foot enclosed trailer for my stock car
    during the summer....

    (and it is used to pick up and deliver motorcycles/scooters/atv's)

    Bob
     
  12. Mopard

    Mopard Senior Member
    Messages: 290

    Actually, it's not that simple and not calculated that way at all.
    My business-use percentage is calculated differently but your example above would mean you could deduct that $1320.(along with all your other biz expenses) from your Gross Income to come up with your Taxable Income. It does not mean you get that amt back at the end of the year nor is it directly deducted from your truck expense as saved taxes.

    Let's say, after all your expenses and deductions that you had a Taxable Income of $30K
    Let's say this puts you in a 20% tax bracket ... 20% of $1320. = $264.
    So you would have saved about $264 in taxes ... that's it.

    Depreciation of your equipment is a huge part of your operating expense but is not as simple as using the amt of your "tax write-off".
    My accountant saves me a lot more in taxes than I pay him so I let him deal with this part.
     
  13. QuadPlower

    QuadPlower PlowSite.com Addict
    Messages: 1,056

    I didn't mean it that you get that money back. What I meant is like you said. It reduces the amount of gross income that you pay taxes on.

    I'm not exactly sure how business percentage is figured as all of my vehicles, property, etc, are 100% business.
     
  14. RODHALL

    RODHALL Senior Member
    Messages: 374

    Look what towed the drag car to the strip or dirt track car to the race track once... unless it is a owned/ sponcered by that is personal use...

    trading a truck off every 5 years is costing you more then it is saving you in taxes. if you think you can write off 100% of what you paid your wrong. if the IRS ever shows up at your door. you best hope you have DOT paperwork in order and log book for said truck....even if you already sold that truck, then you have to show what you got for trade in /resale as profit.
     
  15. QuadPlower

    QuadPlower PlowSite.com Addict
    Messages: 1,056

    You could have your race car sponserd by your snow plowing company and deduct a lot for advertising.

    You are right about claiming the trade in or resale value against the price paid. New truck cost - old truck trade = price paid. That is the price you paid and that can be depreciated.