It was exciting to watch the Vikes beat up the Dallas Cowboys this past Sunday, advancing them to the NFC championship game. As I watched the game I was impressed by the Vikings defense; they were relentless. Tony Romo will have nightmares of #91 Ray Edwards pursuing him for yet another sack.

Recently, I have been working on an inventory project at our company. In October, we sold our company assets along with 2 other companies to form a new entity in the Twin Cities, Noah Acquisitions, DBA Ben Franklin Plumbing now has 20 plumbing crews doing service and repair work. In this new business, our old system of inventory quickly became outdated.

In the fall of 1990, while listening to my mentor Frank Blau, I asked the questions, “When should I add a truck? When will I know it’s time to grow?” Frank looked me dead in the eye and said, “You should always be looking to grow. If you’re not growing — you’re dying.”

It’s no secret this past year has been different. This year, nearly everyone has been focused on staying alive. Congratulations! You made it this far alive. Know that many competitors around you are nearly out, or have gone out, of business. This is a growing opportunity for you. Let me explain how to grow when others are merely surviving:

As explained in the previous article, “productive” hours are those hours charged directly to a specific job, as opposed to the so-called “nonproductive” hours that are not charged to a particular job but must be spread across all jobs. The nonproductive hourly cost, therefore, is overhead, along with various other costs associated with equipment, office supplies, utilities, etc.

Nonproductive hours are a measure of the time spent by support personnel, as well as by field people engaged in something else besides working on a revenue-producing job, such as vehicle maintenance or stocking warehouse shelves. In order to calculate dollar-per-hour overhead cost, it is essential that all hours spent by mechanics working on a particular job be identified as a direct cost of that job. Likewise for the working owner, who may be involved in a multitude of activities ranging from estimating, trip to city hall for permits, material pickup at a supply house, or working with the tools, all of which should be identified as either direct or indirect (“nonproductive”) hours for the job at hand.

“Overhead” is often referred to as indirect cost, as opposed to direct cost. Direct costs include the wages-benefits you pay to your field workers and your cost for materials. They can be calculated rather precisely for each job.

Indirect costs include expenses for items such as tools, mechanical equipment, office supplies, trucks, fuel, advertising, liability and health insurance, utility bills, administrative salaries and various other things required to run a successful business, but for which it isn’t practical to figure the amount used in conjunction with each job. Instead you must measure the total expense over the course of a year and apportion it to every job performed.

Along the way you have to grasp the technique of providing for replacement of “expendables” – trucks, tools, etc. that wear out or become lost. Who should pay for the truck or tools that wear out? You personally, or the customers you serve?

The answer obviously is the customers, all of them. You could not expect the last customer served to pay for a new truck if the old one fell apart at his door, so its cost must be distributed among all the customers it serves during its working lifetime. It naturally follows that all customers must be called upon to share in the replacement cost of other expendables you provide in order to maintain an efficiently operating business.