Hey guys, we're wrapping up the explanation of gross and net margins today with a net profit breakdown for you. In junk removal, net profit can vary drastically depending on the size of your company, your role, the salary you pay yourself, the services you use, and your market. Want more info about starting or growing your junk removal business? Check out https://junkremovalauthority.com or give us a call at 919-617-1975 today!
Welcome to another episode of Junk Removal Made Simple, brought to you by the Junk Removal Authority. Today we are going to follow up on our gross profit versus net profit video. A comparison we’ve been doing to help clear the confusions people were having. We covered gross profit in the last video, today covering net profit. Before we roll into all of the expenses that come out of your income to form your net profit, I would like to let everybody know what we have continually made some changes on the business package. We sold a couple of them at the higher rate at $15,000 to $20,000 rate. We’ve now come together with a start-up package, it’s the only package we offer now at $7,500. That includes a complete video training series and testing, both to help train you, team members and employees as you hire them up to speed and trained as they get going. You get the complete operations manuals first month out of our website. Get set up on pay per job and have the opportunity to come here for anywhere from three to five days for on the truck training and see exactly how an established and mature junk removal company is ran.
It’s all the same great knowledge and you get 10 hours of consulting afterwards. You get all that information for a less price with that new startup package. Just to give us called 919-617-1975 if you’re interested in that. Rolling in on net profit. We’re not going to give exact percentages on some of these because they can vary. Whereas on gross profit, it’s pretty much similar expense percentages across the industry and across different areas, net profit gives you some leeway here. Let’s just roll right into some of the expenses that go into net profit. To start off, I just want to make sure everybody understands what we’re covering. It’s EBITDA, earnings before interest, taxes, depreciation, and amortization.
We will cover those few expenses right at the very end, but we’re going to cover the net profit EBITDA. I’m just going to roll through the list. You’ve got any internet and telephone expenses, anything related to internet and telephone expense that would come off of your bottom line. Your management salary that can depend on how much money you’re making and how many hours your managers working. It can be anywhere from five to ten percent of income. We provide our managers with cars, so it includes any related expense to vehicle expense for management like manager vehicle’s auto expense and fuel. Another big one is insurance. We did mention worker’s comp as a gross expense but this does not include worker’s comp.
This is your auto and general liability insurance. Maybe have an employee dishonesty bond or something like that, that would fall under there. A lot of people think this is going to be a lot higher than it is but workers comp eats you up. Although in general liability it’s not that bad. It’s about two to three percent. It’s about for both the GL and automobile policy. You’re about what you pay for a workers’ compensation insurance. This can be a bit skewed if you have a smaller company, your insurance percent percentage will be higher. If you’re not grossing as much as we are or don’t have as many vehicles as we are, this is actually could be a bit more. This could be as much as five percent. But what happens when you get to 10 to 12 vehicles is, in each subsequent vehicle you add, the insurance company actually charges you less per vehicle. When you first go in and you might have one vehicle, you’re paying $300 to $400 depending on the cost. Whereas we can add a brand-new truck for $150. It’s another advantage of growing larger because it causes this percentage to come down. Vehicle lease payments, this would be on the trucks. If you’re leasing any of your trucks, it would factor into this. We are talking about EBITDA. Payments, if you’re financing a vehicle, that actually is going to come as part of the interest and loan amortization later on. Anything that you’re leasing is a direct expense. You up the entire cost of that payment throughout the course of the very same year. Whereas if you’re financing a vehicle, it is done a bit differently.
Dispatch secretary, call center or somebody who’s answering your phones. If you’re not using the JRA call center, it’s going to be somewhere around two to three percent. As you get more gross or depending on what you got going on, this figure can change. When you’re smaller, it could be higher but as you grow and could get lower or vice versa. When you’re really small, you’re the one answering your phone, so you’re not counting that as an expense. You’re counting your time as a manager. So, all this stuff can vary. These are just expensing you need to think about when you grow in business and when you’re setting your pricing. This is stuff you’re going encounter in business. This is everything that you could encounter to make your junk removal business run. You’ve got to have office supplies. These are all very small, so we’re not even assigning a percentage to them. Office supplies. This can be a big one.
You want to try and control this expanse as this is one you can control. Rent is something very easy for you if you want to get out and have a big office. You want to have something you can bring people to and show off. It was six years until we started Junk Removal Authority and got a professional office. The only reason we did it is we needed the space. We’re no longer just using our office as a spot in between jobs. If we’re one or two people operate out of the answer phone. It became something where we’ve got a tech people and call center reps that work here. We’ve got customers coming in learning how to run a junk removal business. We needed a nice space.
There was a business reason for us to make that decision. Before that we were operating out of a single wide mobile home and we did that for six years. Watch your rent expense, keep an eye on it because that is one fixed expense that can get out of control. Scheduling software, depending on what you use when you’re all in one or two trucks. This is not even an expense you have to worry about. You know when you have one to two trucks, you can use google calendar. You might have some corporate interface and may be paying like $15 to $20 a month. As you grow, this is actually an expense that is going to increase. Once you get to a certain point where you get into two trucks or three trucks especially, you’re going to need a sophisticated system. This isn’t a percentage I’m listing here, but I can tell you that we here at Junk Doctors pay about $500 a month for our scheduling system.
Uniforms, those of you that are watching this video, this is kind of a drive video. I think if you made it to this point, you’re probably wanting to have uniforms because you want a professional appearance. Those of you that haven’t made it and skipped out of this video before getting to this point, well you probably were going to put on uniforms anyway. You probably never would have made it here. So, to run a professional company you’ve got to have company uniforms, shirts and a consistent attire. Alright, so you got tools and truck supplies. That is one thing we do that a lot of companies don’t. We’ve got full tool sets on our trucks. We’ve got hand tools, trash bags, brooms and bedbug suit which are tied back hazmat suits, all that stay on our truck. All that will factor into your expense. It’s going to be somewhere under one percent, normally. It’s a very small expense, but you start thinking about all these small expenses like office supplies, your tools, trucks, uniforms and stuff we covered before like telephone expense. All that stuff starts to add up and you need to be mindful of it when you’re operating your business. Try to control those expenses the best you can.
Accounting, bookkeeping and legal fees. These expenses that we’ve covered in this video are generally going to be the main expenses you’re going to encounter when running a junk removal business. There is a lot of leeway, for example, vehicles. I’ve got a company vehicle, Christian’s got a company vehicle and we’ve got a manager with a company vehicle that manages our Greensboro and Charlotte location. We’ve got three company owned vehicles that don’t bring in any revenue. That’s just a vehicle that management uses to get around. When you first get started, the amount of money you spend on those vehicles is probably going to be less. If you’ve just got one company vehicle, it’s going to be less. When you get a business, you might as well as shift your car into a company vehicle as long as you have another vehicle, but that’s completely another debate.
I encourage you to keep an eye on all of this stuff. Watch it, especially when you’re young, starting to grow and getting a lot of income. Don’t get too loose on your funds and go out have all these purchases that aren’t required. If you keep operating smartly, that point will come where you’re able to go buy some of the stuff. You need to see at least six months to a year of really great success before you start going out and start buying stuff you don’t technically need. So, this is everything that goes into net profit. Now I mentioned before that we were talking about EBITDA. That is, earnings before interest, taxes, depreciation and amortization.
You’re going to have to pay the IRS, that’s the T, as long as you make any money. When you first start, you might not have to pay a whole lot of taxes. Why is that? That is because of the D, the depreciation. When you go buy a vehicle and you’re not leasing it. That vehicle is going to be amortized over a certain period of time or you can take, depending on the year, what’s called Section 179 Depreciation. That’s something we did, where you would take the entire purchase cost of a vehicle in one year. There would be years where we buy two vehicles. When we first started, we had $80,000 in vehicle and equipment purchases. We are talking about gross, so after our salaries are paid and everything like that.
The net profit of the business was less than that $60,000. So, for the first several years of business, we never paid taxes. That needs to be something you think about, if you’re growing and you’re going to be the point where you’re going to quickly need a second vehicle and it’s around the end of the year and you anticipate next year and definitely going to need a second vehicle. It’s pretty smart and good move to purchase that vehicle at that point so you can have that Section 179 Depreciation. Nobody knows until the end of the year exactly how much is going to be allowed under Section 179. Recently it’s been as high as $250,000, but I think the law was like $25,000 or $50,000, something like that. Fortunately, this is one of the things you don’t always know the rules before the congress gets together and figures out a budget and tells you.
That’s something to keep in mind. Interest on your loans and any loans you have. Any loans you’ve taken for that business while you’re taking that line of credit that will be part of that. As well as if you have that vehicle loan and you’ve got your interest for it and you got your loan pay downs that you’re going to pay. Afterwards, the amount of money on your tax return is going to take all of this out. So, you’ve got the profit you made EBITDA earnings before. You’ve got that and you take out the taxes, depreciation, amortization and interest, then that’s going to leave you with your taxable income. That is the rundown on net profit. Pretty quick but these are expenses that you can control there.
They vary quite a bit throughout businesses depending on what the owners chose to do. Final little point, Pay per Job. We have a waiting list now. We have got 12 companies that we’re doing beta run on. 12 companies are bringing them jobs and we’re fine tuning everything. We already are building pages in your market, however. The pages are going up all throughout the country. Search engine optimization is being run with all those pages. At some point, sooner or later a JRA page is going to be in the top of the search results in your city. It’s either going to be, we’re working with you or we’re going to be working with a competitor. You need to call us now. You need to get on our waiting list if you want have the opportunity to work with us. Call us at 919-617-1975 and visit us at junkra.com. Talk to everybody real soon.