Rules for expensing

[ear3]

I've been lucky to get more work in the past few months, and of increasing sophistication and remuneration.  But I'm butting up against the limits of my knowledge and experience when it comes to pricing out jobs, particularly when it comes to what things to expense.  So I just wanted to solicit some advice on what is standard practice for expensing when it comes to carpentry jobs.

Just some recent examples:

I made a bunch of surfaces from reclaimed oak.  I bought the Makita wheel sander specifically for the project.  I covered the cost of the machine (obviously), as well as the cost of an extra nylon brush.  But I did expense the wire wheel brush (around $150).  I justified this in part because it is technically a consumable, even though the brush will endure for additional projects.  But principally because I went through a process of testing samples with the client, and after they were not quite satisfied with the results of the two nylon brushes (one stock, one an additional purchase), I indicated that there was this additional wire wheel I could purchase and test.  I didn't say specifically that this would be an additional expense, but I would not have purchased the wheel at this time were it not for this particular job.

I also purchased a metal detector and a pneumatic nail remover to deal with stray nails that were still in the wood (which I would not have purchased were it not for this project), but I didn't expense these because they seemed more like capital investments.

I used a variety of different Dominoes to join together the various pieces I made from the reclaimed oak, ranging between 8mm and 14mm.  If memory serves: 12 12x140mm dominoes, 14 8x50 dominoes, and 25 14x75.  Rather than price these out individually, I just expensed and purchased a fresh box of 104 14x75mm dominoes.

I did not expense the sandpaper (I can't be sure, but I probably went through about 10 sheets of various grits of 150mm paper), glue or couple of screws, which are the only other consumables I used on the project.

What is the deal when it comes to screws and fasteners?  It's one thing if you are going to be going through several hundred or thousands of them, but what about when it's only a few, but you have to purchase a new box because you don't already have them?  So for a set of base cabinets for an entertainment center, I ended up using around 10 2" GRK screws to tie the cabinets together.  I didn't bother therefore to expense the $10 or so it cost to buy a box, however, which I had to do because I did not have these screws.  Same question with collated nails for nail gun -- is there a threshold past which you would expense a whole box of 1000 or 2000 nails, even though you're only using some portion of the box?

Any other rules of thumb for expensing?   

My goal BTW is not to nickel and dime, but rather just to be honest and professional.

 

[six-point socket II]

Hi,

From a customer's point of view:

I've had many quotes over time that would feature a lump sum for "installation materials" / "incidentals" or whatever you want to call it. This could (partially) cover your sanding paper, screws, dominos other consumables ... You can always increase or decrease the amount depending on the project.

Speaking of tools - well that's where it gets tricky in my opinion. I could understand if above mentioned lump sum contained a certain amount for wear on (very) expensive consumables. But I would not accept being charged in full for a tool/consumable unless we had a very specific agreement about this. And this has absolutely nothing to do with you keeping the tool/consumable to get some more use out of it, I'm not the greedy kind. But if I hire you for a project after being quoted, I expect you to have everything you need to do the project and not being asked to buy additional tools/pay for them. Like I said - this is as long as we don't have any different agreement set out up front.

So, if I like your work and we get to the point were you would take on a project for me that is entirely or partially a new field of expertise for you, I could see that we would agree that I will cover - up to some reasonable point - necessary tool/consumable purchases. Especially if this is going to be a "one of"/ highly customized type of project where it would be highly questionable if you ever would do a second one for a different customer utilizing those tools/consumables.

I think the best example I could offer is about a core drilling service/company I hired. It's something I don't have the tools for and the initial investment is quite big considering the machine wet/dry equipment, different sizes of diamond hole saws. What they do is offer the drilling at a lump sum that includes: partials for off setting of initial purchase, wear on the diamond head, journey and wage.

My 150mm hole, about 400mm deep was about 150,- Euro - they do a couple of them every day, as do the other teams of that company.

So what I'm trying to say is, try to find a couple of lump sums to include in your quotes depending on size/amount of project. That will cover your additional expenses. This way you will not have to explain large amounts of additional costs to a single customer but simply stretch it over all of your projects.

It's really what I'm used to as a (European) customer. From nearly all types of trades.

Hope this helps.

Kind regards,
Oliver

 

[ear3]

That makes sense, thanks.  I should probably also clarify that the types of jobs I've been doing have been cost plus jobs rather than ones working within the strict bounds of an initial estimate.  I've been giving a general range based upon materials and rough estimate of time it would take, but it has been clear from the outset that there would be additional incidental costs and based upon both time and materials.  I've set it up this way in part because I don't yet have a sense of how much time things take, but also to protect myself in case I have to go back several times to correct issues related to design flaws outside of my control or changes of mind, which has happened in a couple of cases already.

Hi,

From a customer's point of view:

I've had many quotes over time that would feature a lump sum for "installation materials" / "incidentals" or whatever you want to call it. This could (partially) cover your sanding paper, screws, dominos other consumables ... You can always increase or decrease the amount depending on the project.

Speaking of tools - well that's where it gets tricky in my opinion. I could understand if above mentioned lump sum contained a certain amount for wear on (very) expensive consumables. But I would not accept being charged in full for a tool/consumable unless we had a very specific agreement about this. And this has absolutely nothing to do with you keeping the tool/consumable to get some more use out of it, I'm not the greedy kind. But if I hire you for a project after being quoted, I expect you to have everything you need to do the project and not being asked to buy additional tools/pay for them. Like I said - this is as long as we don't have any different agreement set out up front.

So, if I like your work and we get to the point were you would take on a project for me that is entirely or partially a new field of expertise for you, I could see that we would agree that I will cover - up to some reasonable point - necessary tool/consumable purchases. Especially if this is going to be a "one of"/ highly customized type of project where it would be highly questionable if you ever would do a second one for a different customer utilizing those tools/consumables.

I think the best example I could offer is about a core drilling service/company I hired. It's something I don't have the tools for and the initial investment is quite big considering the machine wet/dry equipment, different sizes of diamond hole saws. What they do is offer the drilling at a lump sum that includes: partials for off setting of initial purchase, wear on the diamond head, journey and wage.

My 150mm hole, about 400mm deep was about 150,- Euro - they do a couple of them every day, as do the other teams of that company.

So what I'm trying to say is, try to find a couple of lump sums to include in your quotes depending on size/amount of project. That will cover your additional expenses. This way you will not have to explain large amounts of additional costs to a single customer but simply stretch it over all of your projects.

It's really what I'm used to as a (European) customer. From nearly all types of trades.

Hope this helps.

Kind regards,
Oliver

 

[sigmatango]

I resorted to adding a line to my invoicing labeled "Assorted Supplies". In brackets, I put the basic things this covers for that particular job, such as (fasteners, adhesives, etc.) or (lag screws, contact cement, etc.). I increase this price as I go through things like abrasives.

On the advice of my accountant, I've also added what is called and Administration Fee, which covers other aspects of the job specifically, such as fuel, accounting, and banking fees. This was specific to me, I would definitely recommend getting the advice of your accountant on this.

Hopefully, that is helpful.

 

[Gregor]

accounting, and banking fees... I would definitely recommend getting the advice of your accountant on this.

I would definitively get advice from your accountant, especially in Germany as these two positions in special are demed to be part of your normal operation (so you're expected to hide these inside your normal prices) thus you're not allowed to explicitly charge for them (at least not end customers, and in parts also not commercial ones - your Steuerberater should know more on the details) or if you do your customer could sue you to get the money back.

Happened to quite some banks here in the last years: fees they charged got ruled by court to be illegal and they have to pay them back

 

[antss]

[member=61712]six-point socket II[/member]  - let's say you've engaged Edward but the $150 brush wasn't discussed.  Under your guidelines you aren't keen on paying for it.  But, if he (you) buy this tool he can reduce your billable hours by 75% over doing it by hand.  Would you rather he charge you the xtra $150 for the tool  - or 6 additional hours at $95 ea?

Cost plus is usually the most fair and least expensive way for the customer _ assuming the tradesman is not milking the clock.  It is also the most transparent.

Edward - how much of your current billable rate includes any overhead expenses like tape, glue, screws, cleaning materials, drop cloths, wear and tear on your tools, capital funding for new tools , ect.  ?  If it doesn't incld. this stuff , then they need to be directly associated to a job and billed for.  I find it easier to to build this stuff into an hourly rate rather than keep track of stuff like this on a daily basis, but it can be done any number of ways. So , for instance $.08/hr of my billable rate is allocated for painter's tape.

 

[six-point socket II]

[member=61712]six-point socket II[/member]  - let's say you've engaged Edward but the $150 brush wasn't discussed.  Under your guidelines you aren't keen on paying for it.  But, if he (you) buy this tool he can reduce your billable hours by 75% over doing it by hand.  Would you rather he charge you the xtra $150 for the tool  - or 6 additional hours at $95 ea?

(...)

Hi [member=727]antss[/member] ,

Well, if he quoted me upfront and the step in question was clearly in it and he just underestimated the work/tools involved I wouldn't accept any additional cost. If he told me you can either pay 150$ for a tool or 570$ for additional labour while we're still discussing the project I'd be a fool to opt for paying 570$ instead of 150$. (An exception would be if it looked so much better done by hand... Which is always a possibility in my experience with high-end, customized/build to spec. stuff... )

But I understand now that not everyone works with fixed quotes upfront like I'm used to get here, or it might be not that common at all in NA. In that case there's not much of value I can add because I'd insist on a quote upfront in almost all cases - not keen on playing this type of guessing game and the type of discussion involved at the end when a bill is presented.

I did it once because I hired someone off a crew who previously worked for me and I was very happy with his work. But since he was a one man show with very small income (because he was only working on demand for that crew/boss) he gave me his hourly rate and I gave him cash upfront to pay for materials, bought materials myself once and even went shopping with him once. Dead honest soul, great work ethics - all good. But every other day he asked if I could give him his pay for already worked hrs. So we started a ledger to keep track of it all...

For that one time it was okay, but it's not how I like to do it for a couple of reasons.

Kind regards,
Oliver

 

[ear3]

[member=727]antss[/member] I don't explicitly build in overhead into my hourly rate, but I've set the rate at what I have understood to be the going rate for someone who's working with his own capital/equipment, as opposed to just a laborer.  And I'm transparent with all the materials, in the sense that I buy the wood for that job and simply bill them what I paid without doing a contractor's mark-up.  I really think cost+ is the way to go on both ends, and it allows you to stay away from that game of making up for tight margin jobs by profiting handsomely off others. 

I don't have an accountant, btw.

[member=61712]six-point socket II[/member]  - let's say you've engaged Edward but the $150 brush wasn't discussed.  Under your guidelines you aren't keen on paying for it.  But, if he (you) buy this tool he can reduce your billable hours by 75% over doing it by hand.  Would you rather he charge you the xtra $150 for the tool  - or 6 additional hours at $95 ea?

Cost plus is usually the most fair and least expensive way for the customer _ assuming the tradesman is not milking the clock.  It is also the most transparent.

Edward - how much of your current billable rate includes any overhead expenses like tape, glue, screws, cleaning materials, drop cloths, wear and tear on your tools, capital funding for new tools , ect.  ?  If it doesn't incld. this stuff , then they need to be directly associated to a job and billed for.  I find it easier to to build this stuff into an hourly rate rather than keep track of stuff like this on a daily basis, but it can be done any number of ways. So , for instance $.08/hr of my billable rate is allocated for painter's tape.

 

[jeh]

A customer wants a price for the job as a whole. You should not itemize any items with customer other than the final price. They have no need to know what consumables or tools you are using. In fact you need to factor these items into your cost as a part of your quoting.

If it is a large job and the customer ask for a breakdown you might provide it. An example would be the bathroom remodel is $X and the kitchen cabinet is $Y. However, I would not break out the installation portion as a line item, as it could end up with the customer buying the product from you, but getting the installation from someone else. This also leaves you in the awkward position of having them sharpshoot the pricing of your work (making the cabinets) and your installation costs. The only way I would provide this type of breakdown is if the customer asks for it up front so that you can adjust your pricing accordingly.