@transcendentallyblessed This is a problem with using COGS as a metric for the SBA application. Its not a GAAP term. Gross margin would have been a lot better but its more complicated.
If I were him and there was a toss up on direct vs. indirect, I would choose the defensible calculation that gives me the loan size I would want. This has to be legal mind you.
@lightworker0000 So when a professional service biz like a law firm says their cos is zero they are not correct ... I would think salaries would be included
@jennyfer88baker COGS is an expense either way. In the end it didn’t matter if the bottom line showed black...
All in all it depends on if the labor would be there whether or the not the services sold. I would believe salaried positions count on the bottom of the P&L as you don’t just send them home and stop paying when there are no customers. Pay is set and guaranteed, you don’t pay more for them working more and you also don’t pay less if they aren’t doing anything..
I mean, I could be wrong - but that makes the most sense to me. If your sales go up and in relation your labor $$ go up then I could see as COGS. I’ve just always seen labor on the bottom half off the P&L.
@lightworker0000 What about a software business, where software is licensed? Besides for programmer salaries, there are no other costs (except rent, which isn’t cogs anyway).
@lightworker0000 Also unrelated to EILD/PPP, but I needed this info right now! Question - regarding the 50/50 application, if more than half of their time is spent producing revenue, do you include 100% of their salary in COGS?
Is there any benefit/disservice to proportionately allocating service cost (salary) between COGS/OpEx? THANK YOU.
@joygurl It's always a benefit to put your costs in the right place because they affect your financial ratios which in turn affect what investors or banks give you down the line, if you should need to go that route.
@lightworker0000 Labor in selling goods is expense, unless those goods are manufactured. Corporate retail always used labor as largest controllable expense, at least in my experience.
@waltah Sales labor is an expense. So are COGS or that matter. Sales wouldn't expand linearly with goods so it wouldnt be COGS. It would generally be part of overhead of Cost of Sales/Revenue.
@lightworker0000 I’m confused.... I mean sales is revenue if you think of a can crossing the scanner. Unless you mean the labor of selling. The can had a cost so that is COGS but the sale itself is revenue (profit and regaining cost of goods)
@lightworker0000 Maybe posting a sample P&L would be a good learning tool for business owners who don’t understand it?
I was hit upside the head with the P&L every chance my boss had just so I knew what was happening. I guess the only way to really learn is to see what’s happening and put it together yourself?
@lightworker0000 COGS = Cost of Goods Sold. If you have no goods to sell then this number is 0. COR and COS are legitimate calculations to determine Revenue and profit margins and will definitely show on a P&L statement.
The EIDL only asked for COGS though. I think people were confused by the simplicity of this and overthought it, me included.
@applevai I think you are right but its ultimately a pretty BS metric. If I have a service company that has 10% materials and 90% labor, and have to claim both as COGS, why would a service-only company get to claim $0 just because they don't sell materials?
