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4.19 Industry Payroll for Target Market Analysis Questionnaire

What does Industry Payroll analysis tell us in a business plan for Lights On Electrical, Inc.?

The Industry payroll analysis is done for Lights On Electrical, Inc. to give the reader of the business plan a clear idea of the average annual payroll for businesses in the Electrical Contractor in the target market of Cuyahoga. What is excellent about this analysis is that a business owner like Andy Powell as well as prospective lenders and partners are able to see the average number of employees per establishment and also understand what the average annual payroll is for the other firms that compete in the Electrical Contractor in the target market. We have also computed the average annual employee payroll and present that in our template to give a even clearer idea of just what kind of labor costs are faced by the Electrical Contractor in Cuyahoga.

What information can be gleaned by Andy Powell from the average payroll analysis?

The average annual payroll analysis tells Andy Powell what other shops in the Electrical Contractor in Cuyahoga are facing in terms of their labor costs. There is usually a slightly upward bias to these numbers since labor costs have to keep up with inflation, and so it is normal to see a slight movement upwards over a course of ten years that are covered in the analysis. In the event we see a substantial increase in the average annual payroll, it may indicate something is happening in the labor market place. For example, towards the end of the stock market bubble of 2001 we saw an increase in the labor costs for almost every sector of the economy including the Electrical Contractor. This had to do with the fact that we were in a bubble and unemployment was at a record low of 3% and small businesses were having to compete with one another when looking for talent and were also paying up for that talent steeply. The increase in the payroll also had a lot to do with the fact that business was very good and the demand for many goods and services was high and as a result small businesses were operating at a much higher capacity.

Likewise, when we see a slight decline in the average annual payroll for Electrical Contractor in Cuyahoga, it could indicate that there is a larger slow down in the economy and hence the compensation for those employed is also showing a commensurate decline. To continue with the example of the bubble era of 2001 - once the bubble burst and we entered into an economic slow down, there was a drop in the level of economic activity nationally and it resulted in almost all sectors of the economy slowing down.

What does the Average Employees per Establishment analysis tell a business owner like Andy Powell?

A small business owner like Andy Powell has many challenges - one of their biggest challenges has to do with keeping costs down and keeping productivity as high as possible. Especially in the small business world, where resources are limited, it is that much more important to know just how many folks you can hire and how it will affect your profitability and pricing. This part of the analysis tells Andy Powell just what is the average number of employees for establishments in Electrical Contractor. Usually this number will remain fairly steady over the years, since the profile and scale of the number of establishments rarely change dramatically. Thus if you are a fast food small business and you typically run the shop with 4 employees, there is no reason that it would suddenly require you to take on 8 employees, unless you were expanding out or changing the scale of your business.

How accurate is Average Annual Employee Payroll analysis?

The average annual employee payroll is actually a computation that is derived by us by looking at the industry payroll analysis for Electrical Contractor in Cuyahoga and the average employees per establishment. We think that this is a fairly logical calculation given that we have the two components that go into creating this third data point. The average annual employee payroll tells a business owner like Andy Powell just what they should expect the cost of hiring will be for each additional employee. Now bear in mind, this includes the official salary the the employee is getting on the books. In the event the wages are being paid to an undocumented worker in the form of cash or other benefits, this number will not be reflected in the official payroll numbers reported to the government. Also another point to remember is that in the case of businesses where employees make tips, the annual official reported income is often lower than the actual 'take home' pay of the employee since tips tend to vastly under reported.

Industries like agricultural, hospitality and construction are well known to have a higher percentage of undocumented workers than other industries and thus it is quite possible that you will find a lower number of average annual employee payroll than the actual costs since these businesses often tend to also take in a chunk of their income in cash which is not recorded on the books as income for tax purposes.

Quick Links:

  1. Go to the Corresponding Template section for this industry.
  2. Go to the Corresponding Business Plan section for this industry.

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