Ron has always been handy with tools doing small home improvement jobs and repairs. A few months ago, his condo associate knew he had these skills and asked him to bid on the maintenance contract for the condo development. He bid on it and won the contract.

Not too long after taking on the project, he started the business and hired a couple of extra hands to help him out as work ebbed and flowed. However, he was constantly being surprised by taxes and other costs that go into running a business. He was smart and hired a new bookkeeper that helped him to understand that the hourly rate you pay for payroll is not all of the costs that you have to be aware of in setting revenue rates to your customers.

As he worked with the new bookkeeper, he found out that the employer has to pay into Medicare and Social Security. This is an extra cost to the employer that the employees wages do not cover. He also discovered that sales tax is not something he took into account when setting his prices to the client, nor did he account for it as an expense he had to pay to the state tax authorities. Plus he had business and occupancy (B&O) taxes that he did not account for in his presentation to the condo association.

Consider this data:

He is charging the client $60 an hour.

Ron, when he does pay himself, pays himself at $40 an hour.

He is paying his assistants $25 per hour.

B&O taxes are 4 percent of gross revenue.

Sales Tax is 10 percent of gross revenue.

Employer Medicare and Social Security Tax is 6.5 percent of gross wages.

How can you avoid the mistake Ron made in not knowing his costs?

What sources could help you identify these kinds of costs for your business?

How much money is Ron potentially losing with this client?

What can Ron do if the client is not willing to entertain a change in the hourly rate for services?

In your discussion answer the questions above. Do you feel confident about estimating the costs for your future business? What other financial information do you think you need?