Owner's Compensation
Shop owner describes his business and gets feedback on his numbers.
Question
I have a cabinet shop with 9 shop employees, 7 office employees including myself, and 2 installers. We also sub out some of our installations. We do residential cabinetry, commercial cabinets, reception desks, solid surface countertops and about 1,400,000.00 per year. I am good to my employees and good to my clients and always seem to struggle to make ends meet. I'm interested in learning what the percentage of income for owners of like shops is. I wonder if the money I make is in line with all the responsibility. Any thoughts?
Forum Responses
(Business and Management Forum)
Sounds like you need to find a CPA who has or can get data on industry standards for P&L ratios.
It sounds to me that you have too many employees for sales of $1,400,000. Your sales should be closer to $2,000,000 with that many employees. What is your total employee expense including salary, insurance, taxes, and any other benefits - including yourself?
If you join the Architectural Woodwork Institute, you will receive their "Cost of doing business survey report". You participate and receive in return all the data you need to be successful in the industry. It will answer your question and you will see what owners around the country receive as compensation. The report is confidential and there are no names given. This report alone is worth more then the membership cost. The Association is located in Reston, VA.
I'm struck by the number of office employees. We are a little bit smaller than you (1.2 million in sales) but get that done with 3 office employees. What are those people doing all day?
I agree. You have too many office people not directly generating revenue. Your present sales of $83,352 per employee ($1,400,000 divided by 17 employees) is low unless your margins are astronomical to cover salaries and benefits.
From the original questioner:
Thanks. Our sales are closer to 1.55 million. Before 911 we were running 1.8. After all the regrouping, we are getting back on track for the 1.8 and more. Competition has been really stiff and I think the market is getting better. have looked into the AWI and plan on joining. I have an accountant but I want to look for one that is more industry oriented. I think I try to do too many different things - commercial, residential, furniture. Maybe we are too custom. Maybe it just takes too much to administer - trying to be all things to all people.
Do you have a detailed business plan that outlines your vision of what the company should be along with operation and financial goals? This definitely helps. It helped me stay focused on what I want my primary business to be. It may sound cliché, but the plan can be a great road map. Also, I would definitely look for an accountant that 1) you trust, 2) knows the industry, and 3) provides another view from the financial standpoint of your business. An accountant like that is like a needle in a haystack. At my last company, I set up weekly/monthly benchmarks, sales, invoicing, expenses. Someone else did the leg work and I analyzed the numbers.
Way too many office staff. You wouldn't happen to have a couple family members in there? Design guy? There must be a legitimate reason to carry such a large overhead for support staff.
Your goal as owner should be a salary of 10% of sales, plus a profit of 10% of sales, which you can choose to use to grow your business, buy a boat, gamble away, etc. My understanding is that this is a simple but effective formula for small, owner-run businesses.
