March, 2010
Feature
Inspection News and Views from the American Society of Home Inspectors



The Cost of Doing Business

MICHAEL CASEY

Operating a business costs money, plain and simple. Nevertheless, we believe some home inspectors are unaware of the actual costs of running a business, especially sole proprietors/single inspectors operating out of a residence.

Many people see the checks coming in, but don’t realize the total expenses per inspection. Of course, costs will be less for this type of operation than for a multi-inspector firm with office space and so forth, but it’s still worthwhile to review expenses. It certainly helps when determining our professional fees for inspections and consulting as we need to make a profit for our business to survive. We’ve included the cost of Errors and Omissions and General Liability insurance in this discussion because we’ve seen statistics that indicate there are more than 100 million lawsuits filed every year. Regardless of whether you are “right” or “wrong,” you still need to defend yourself and those costs can add up fast.

Other statistics we have seen indicate that if you make more than $50,000 a year, you have a one-in-four chance of being sued. Not necessarily sued for errors or omissions, but that’s the most common risk in our business. We believe to be responsible for protecting both your family and your business, you must protect yourself with a good contract and good insurance.

We also included health insurance and disability insurance in the cost of doing business because most employers provide this for employees, so why would you not provide that for yourself?

In addition, if you’re self-employed, you do not have the workmen’s compensation normally provided by an employer. See the chart below for some real-world annual numbers to think about.

chart.jpg

Costs can also be examined on a per-inspection basis.
Subtracting weekends, holidays and a few vacation days, there are about 250 working days in a year. Let’s say an inspector does 275 inspections per year, a little more than one per working day — a reasonable number for most inspectors. At this rate, the cost of getting in the car to do an inspection is $135 based upon the expenses in the table.

These estimates do not include state and/or federal taxes, which you should consider based on your own personal situation. Also not included are costs associated with operating your business as a corporation. Doing so may have some separation of business and personal assets advantages, but forming a corporation creates additional fees to the state and additional accounting needs.

The estimates do not include any salary for the inspector. It’s up to you to determine what you consider to be a professional hourly or per-job rate after other hard expenses.

In addition, the figures do not include a salary for the person answering the phone or handling administrative work. If family members are doing this work, the cost of their services should be considered in the revenue generation necessary to make a profit — no one should be considered “free” labor.

Also not included are retirement plans, business transfer or bulk sale methods of retirement revenue generation. Please consider your retirement. Social security is not enough.

We’re pretty sure we may have overlooked some minor costs, but hope talking about this has enlightened all of us to the real costs of doing business and to consider expenses when setting retail prices for our services.


For more information on The Cost Of Business and to calculate your own detailed expense/fee schedule, you can purchase a program at www.CostOfBusiness.com.