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Gross profit margin

Discussion in 'The Taxidermy Industry' started by Mossyback, Feb 13, 2013.

  1. coues_deer

    coues_deer New Member

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    Chris - In our business, which is in effect a manufacturing business not a retail sales business, accounting for overhead is included in the gross profit. In a retail establishment this is not the case and gross profit does not include O/H. This is established by GAAP which are the Generally Accepted Accounting Principles we must use as accountants.

    I am glad to see you have a profit margin built in, most do not. I would assume your business is a corporation or at least a multi-partner LLC to be paid a wage. Most studio's are SP's thus what they make is considered their income. You can put it in different piles but is still treated as income. You do not have a "profit" set back for the company as you are the company.

    If something breaks it comes out of your income, if you expand it comes out of your income. If you take a vacation the business is not making money thus it comes out of your income. That is unless you are an S-corp or higher.
     
  2. YA- WHAT HE SAID. LOL
     

  3. I think my first sentence should have been worded differently to avoid confusion. I meant if you are adding o/h to labor and materials to put into your equation, you are not going to come up with a gross profit. What you will get is a net profit, because all expenses have been accounted for. In this case your gross profit would be every thing you brought in. What I'm not sure about is what system you are saying we as manufactures should use. Is our gross profit everything we brought in or is it labor/materials subtracted from everything we brought in. Or something entirely different, I might be missing something here?

    I understand what you are saying about the difference between SP and LLC or other forms of incorporation. I am an SP right now, but I treat my business as if I were incorporated in some form. Yes, everything extra is considered income for tax purposes at the end of the year. However, if we treat everything left over like income, it could be dangerous in the event of an unexpected expense. I spend or personally invest my income. I don't want to get into the habit of digging into my savings or retirement to cover the cost of replacing a bandsaw. From a tax perspective I don't have any profit set back for the company, but I do have money that I keep separate that is only to be used for the business.
     
  4. WTH!! Gross profit doesn't apply to taxidermy? Gross profit applies to all businesses. I can't believe you said that. Taxidermy is not categorized as manufacturing or retail sales, it's a service. You can play with your numbers however you want and end up with the same bottom line number. The reason why you want to break up and categorize is so you can dissect your numbers and see why your succeeding or failing and where that is happening at. Expenses are just that, Expenses! It is anything you have to pay for that doesn't have a direct relationship with getting your taxidermy out the door. NEVER,, should you include your overhead in any business when you are calculating COGS or COGM which in my book are the same thing. Why dilute your numbers with overhead in you COG? The idea is to break it down and again, look at where you are failing or where you are successfull. Is your problems, price to high or low, are you paying to much for your material, is your labor cost to high. If your COG is in line with industry standards but your Net profit is close to zero, then what in your expense category needs to change. The same goes with projections. So you want to buy a new building, plug that number into your expense category and recalculate. can you with stand that expense? Buy new equipment, hire a new employee, These are all reasons you need to do a projection and see. Lets say you have a new marketing plan that will cost you $10,000 this year over the course of the year. So now you need to project how many more mounts you may get, add an employee and increase expenses. at the bottom line you will see if adding this will increase or decrease your net profit margin. You can do your books any way you want. But if you want to make an educated guess, show the banks your business is worthy of taking a risk on for a loan, or make changes based on numbers, then you need to break apart your financial. No intelligent business man would buy your business without this.
     
  5. You get it Chris.
     
  6. Really,, The only reason I started this post to get an industry standard for gross profit margin. Once again, that doesn't include "overhead" (expenses)
     
  7. Harry Whitehead

    Harry Whitehead I love to hunt Buffalos!!!!!

    Mossy, I've read some of this thread but it all seems a little confusing. I see where you are heading and what you are trying to find out but it is a little clouded how you get there. To get your gross profit you take your retail figure and subtract your cost of goods. That's it! That will be your gross profit. You can't take out labor because what if you pay yourself too much and there is not enough for expenses. Labor is just another expense. Taxidermy is a funny trade as you can categorize it as a service OR a manufacturing trade. It kinda falls inbetween. Tanning would be totally a service since there is no assembling while taxidermy definately has assembly involved. Now if your're a SP your pay will be defined as your Gross Profit minus your expensed NOT counting your labor that is unless you have someone else working for you and then their labor would be an expense. What is left over is your pay or better yet, Net Profit. Now if you are a LLC or a Corp S, then it gets a little more complicated but labor would still be an expense, inculding your own, and what is left over would be what the company makes which would end up your pay too. It's good that you guys are looking at the numbers, you'll find out that your not making enough!!!! LOL
     
  8. Hudson, I think you'd be surprised if 10 taxidermist posted their material list all at the same time. I've seen guys post their materials and it is over $100 less than mine. Eyes, form and tanning that's it right? LOL :) In fact, it is rare, but I've seen guys post final prices that are lower than my material costs. Even if you said to everyone, "What do the eyes, form and tanning cost you?", and have 10 taxidermists post it at the same time. You will have a difference. Some guys use marbles, some use $30 eyes. Some don't keep the 12% discount for themselves, some do. Some use the cheapest form they can find and just take the hit if they have to use a more expensive one, some use the more expensive one and pocket the extra if they can use one that costs less. Some send out their tanning and some will tell you it doesn't cost them anything because they do it themselves. If everyone was realistic about their materials, I don't think the numbers would be too far apart.
     
  9. KISS
     
  10. michael p.

    michael p. Getting better with age :)

    I agree Jake :) I know EXACTLY what you are saying!!
     
  11. I like crunching numbers, so maybe I am over complicating things. I'd rather over complicate it than be one of these guys charging $300 and saying they are making $150 profit.
     
  12. coues_deer

    coues_deer New Member

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    Mossyback - please go back and read the posts again with an open mind, in the business of taxidermy the O/H costs not associated with sales ARE included in the profit margin but not the gross profit margin as you calculated it. Gross profit margins are for retail sales only as we all pay basically the same give or take for materials.
    In service or manufacturing businesses we must use the COGM model and not the COGS model. I take it you don't use a CPA/accountant for your books as this would be clarified. The rules of accounting are set forth by GAAP these are not just made up to look at numbers differently. We as accountants use the standard methods so we can compare like businesses. In taxidermy labor is the business so to speak. Its what you can do with your hands and eyes that makes this business what it is. We all pay the same for materials but its the labor, talent and overhead that makes the difference!
    Just because someone buys a deer form and eyes does not mean he or she has a complete unit for the client.
    Chris said it best as "I like crunching numbers, so maybe I am over complicating things. I'd rather over complicate it than be one of these guys charging $300 and saying they are making $150 profit."

    That is normally what you hear when you ask a taxidermist if they are making a profit. That is why when we look at profit margins in a service/manufacturing business we must take into account labor and O/H. Without these you do not have a product for the customer.

    I am trying to help you here by understanding what the accounting world uses and why we use these figures. Materials only don't mean anything in this business unless you are running a taxi supply company.

    Again I am glad you are analyzing the numbers, most don't they just charge less than the guy down the street then wonder what happened.

    I always say to take care of the pennies and the dollars will take care of themselves! Maybe I should rephrase that with our current administration.........
     
  13. coues_deer

    coues_deer New Member

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    USA
    Mossy - part II - Overhead is one of the most important costs we have. We cannot work anywhere for free that I know of. These costs for O/H must be included in profit margin calc's because they can and often are one of our biggest expenses in any business. By ignoring them it will cost you dearly.
    In today's taxidermy world with our current materials, labor time is very similar from studio to studio. Its not like the old days when everything was done in house. O/H is your biggest cost and can make or break any studio. In any service business or MFG business from making sandwiches at subway to an accountant in an office to a taxidermist in his studio, O/H costs are a critical component of profit.
    Taxidermy is considered a manufacturing business from the standpoint that we take raw materials (literally...) and produce a tangible product. A service industry produces an intangible product.
    If we look a Subway sandwiches and compare Gross income between restaurants the industry standard incorporates labor and O/H into that profit margin number for each location. It is the only way we can compare numbers between identicle resturants. This is the same in our business.

    Thx Greg
     
  14. You can smoke what ever you want. Your right though, I don't use an accountant and I don't use a tax preparer, I use a CPA. I also use two business coachs through the SBDC. So what your telling me is all of them and Mike Boyce really don't know what they are doing based on your knowledge because you used to be an accountant?
     
  15. coues_deer

    coues_deer New Member

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    USA
    talk with your CPA, they will correct you on this, PS I still are one..................................
     
  16. coues_deer

    coues_deer New Member

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    USA
    Mossy - lets try this:
    you have 2 studio's both 1 man shops
    studio A charges $500 studio B charges $600 per deer
    both have identical material costs of say for example $143.
    What can you tell me about these 2 businesses and their income levels using your "Gross profit" method?
     
  17. Holy cow your thick skull-ed. You still don't get it. Gross profit margin is only one part of the equation. Your question is like asking "whats 2+#=?" I don't care what the other guys expenses are or how much he takes home. His rent, utilities, insurance, advertising, office supplies I don't care about. All I'm looking for is an industry standard for gross profit margin. Which,,, once again is, materials and labor cost for putting a mount together. I don't care about your accounting methods or if you used to be fly rocket ships.
     
  18. gab

    gab Active Member

    mine is 50% because I've set 50% as my goal.in my case 25% is material cost and 25% is what I pay the taxidermist to mount it.
    I multiply these by 2 to get retail.iMO a one man shop should multiply materials by 4.
     
  19. Thanks Gab, that's what I'm finding with other shops I've talked to on the phone also.
     
  20. What will knowing your gross profit margin do for you as a Taxidermist ? How will knowing this make me money or save me money ? What is the reason for these numbers? Someone enlighten me, because it's all about the money for me.