A profitable company should be shooting for a minimum 10% net. You said you had $50,000 left over which is about a 4% net profit. You need to figure out what the profit margin should be to achieve that 10% net profit. Your partner is right but at least you are in the green. I know for my heating and air conditioning company I work for, we need a 40% profit margin to achieve double digit net profits.

To Grumpy - one thing to remember some of that 15-20% is taken up for coordination and administration costs. Depending on subs we will add more or less than that. If we have one sub that does really good work but is just a PITA we'll add more than someone who is pretty much self-sufficient. So of that 15% we will actually only see around half or less as true profit.

Now let’s walk all the way through to the net profit (remember this should equal 9% of the adjusted revenues). Contract Price                                               $220,150Closing Costs    (11%)                               24,217 Adjusted Contract Price (ACP)   195,934Costs of Construction                            119,000 (See above for land & cost per sq.)Direct Margin (Profit)                          76,934 (39.25% of Adjusted Contract Price)Indirect Costs (21% of ACP)       41,146 (Covers project management,taxes,vehicles etc.) Overhead (7% of ACP)                        13,715 (Office issues)Gross Profit before Taxes               22,072Taxes at 23%                                                   5,077FINAL NET PROFIT                         $16,995  (Exactly 8.6% of adjusted revenues/ACP)  This happens to equal 7.72% of the contracted price.Based on the above information, you can mathematically see that even at an 85% markup on costs of construction, it will be tight to make a 9% profit on the adjusted contract price.  You are really talking about a 7.75% overall profit on the contracted revenues.  Again, review the risks involved in being a contractor, look at all the auxiliary costs via direct and overhead.  It is apparent that even at

9% profit, this is a difficult business to own.  In the model above, I assumed the contractor paid himself about $85,000 a year in a salary to get this profit.  In effect, if you have contracted revenues of $1,348,300 ($1,200,000 divided by the adjusted contract % of .89) then you will earn a total of $225,280 before taxes.  You should expect taxes of approximately $51,800 plus payroll withholding for Social Security and Medicare of $6,502.  Therefore your final take home cash at year end equals $166,963.  Remember this only happens in the best years of business, about 4 out 10 years of construction.  There will be about three years of just your salary as the company will do its best to cover costs during this lean period.  Finally, this take home amount covers owning the business, industry risk, and your management compensation.  This is a tuff business to make money.   Knowledge is Power.