B&P Accounting Solutions

Equipping You to reach a Financial Peace of Mind from The Rain of Accounting and Taxes

Financially Support Your Business Without Debt Part 1

"Most business owners need some investment to get the business started in the beginning. You will need to reinvest back into the business and use other funding, but at some point, the company needs to grow and begin to support itself and the owners." - Y. Michelle Coard

Over the last two months, I broke down payroll and how to determine your labor charges or cost of services sold.

Cost of services sold includes your labor and any materials (such as applications, certifications, training, tools) you would need to provide the service.  Cost of Goods sold includes your materials to make the product plus labor cost.  Many business owners only price at what they want to earn per hour (the labor rate.)   If you only price at your labor rate, you will not make enough to cover other expenses.

In accounting, there are many pieces and terms to break down spending and income into particular categories.  However, we will focus on the main categories.  Today let’s talk about overhead.  Overhead cost is the cost that isn’t directly related to producing your product or service. 

The overhead cost would include; professional fees, advertising, insurance, interest, labor (not related to performing the service sold), repairs, supplies, website expenses, overall income taxes or other taxes, telephone, utilities, office, business management software, training, mentors, coaches, consultants, etc.  

If your pricing only includes your labor cost, you must prepare to receive less than what you need to earn on the personal side because your overhead cost supports the business as a whole.  Refer to my payroll blogs if you have any questions regarding your pay rate.  Overhead is part of the business markup expenses and add up with each sale. Many business owners do not pay themselves so they can reinvest earnings back into the business, yet their pricing is still not enough to avoid using personal funds. 

Most business owners need some investment to get the business started in the beginning.  You will need to reinvest back into the business and use other funding, but at some point, the company needs to grow and begin to support itself and the owners.  You can only reach this goal when you earn enough money from sales.  If a business owner needs to make $1500 a month in salary but only earns $1505 a month, the business owner only covers labor.  What about other expenses?

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Cost of Goods Sold is commonly known between business owners; however, many forget about the Cost of Service Sold.  Providing services often require a cost that very few business owners account for in their pricing.  We have to cover the base cost to provide a service or a product.  Can a business owner have both?  Yes, and many business owners do have both.  Cost of Goods sold is usually known as COGS.  Cost of Services Sold is COSS.  A business owner will have to cover this cost first   

Listen to the Podcast.  Episode 6162019

ecommerce 3530785 1920During May we covered pricing. You can visit all of the blogs on pricing by clicking on the name of the blogs below to read more.

Creating a package includes adding the various pieces to your package. What I have covered in the previous blogs are just the basics. As you grow, other costs add to the pricing; such as operations. Your growth will come out of your profit from reinvestment

Listen to the Podcast for additional information Episode 622019

Blog Post Top ImageWhen you calculate self-employment or payroll taxes use your state withholding rate, for example, NC is a flat rate of 5.25%, and Federal taxes vary, the minimum is 15.4%, rate includes FICA (Medicare and Social Security taxes). If you receive a refund each year, you can use the minimum. If you do not receive a refund, you need to account for federal tax withholding, and that is separate from FICA. Withholding rates vary and are based on earnings (tax brackets vary). You can look up your federal withholding rate here: https://www.irs.gov/pub/irs-pdf/p15.pdf

Listen to the podcast click play 

percent 1019730 1920We covered cogs/coss options in the last blog (click here to read "Pricing For Your Business"). We will cover the price break down this week. Many people don’t understand what is involved in a business price most often. Although unfair pricing is sadly a common occurrence, it doesn’t mean all business owners are greedy. People don’t understand how to price in their business and often allow people to bargain with them. If you are confident that your pricing is fair, there’s no reason to bargain. You have to be willing to let that person go to the next person.

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