I continue to be amazed at how many companies, especially startups, have no idea of their costs, profit margins, etc. Equipment can be confusing since it has a cost but how does one allocate it to different cost centers? First of all, please consult with an accountant to make sure that you are taking advantage of tax breaks and laws relevant to your particular situation. 

 

There is no one correct way of tracking your allocation costs so here are some suggestions to consider:

 

1. What is the cost of the equipment? Many people differentiate between Major and Minor equipment so that they can expense out items that either cost below a certain threshold (example: under $300) or have a one year use life and have to be replaced.

2. How often is the equipment used? The more expensive the piece of equipment, the more often it should be used to help reach that point that it has paid for itself. Although a $700 dry/wet vacuum system may look very efficient on paper, if it is used only twice per year, it may not be a good investment since it is not necessarily saving labor.

3. Where is the equipment used? It is assigned to one contract site and used daily or is it on a van transported to various sites due to either space limitations at the site or the need to maximize its productivity?

4. Should you purchase or rent? I never owned a pressure washer over twenty plus years of managing my own business. There simply wasn’t a justifiable need to invest in what I considered to be a temperamental (tune ups, rotting rubber parts, etc.) piece of equipment that I could rent for the occasional job.

 

Although you may “feel” like you are making money, you need to know what your true profit is after all your related expenses are captured. 

 

Your comments and questions are important. I hope to hear from you soon. Until then, keep it clean…

 

Mickey Crowe has been involved in the industry for over 35 years. He is a trainer, speaker and consultant. You can reach Mickey at 678-314-2171 or CTCG50@comcast.net.