Construction Overhead: How to Keep Costs Low
One of the biggest components of successful construction companies is effective budgeting. Overhead costs can become less of a liability when well-managed.
This guide demonstrates where a company's spending can go awry and provides valuable insight on ways to reduce costs and still maintain a high level of standards in your business. It goes into the who, what, how, when, and why of matters so you can get a clear picture of where your money is going and how you can gain better control of your spending.
Direct and Indirect Costs
There are two types of construction overhead costs that you'll be responsible for with any project requiring construction management. The first is direct costs. The second is indirect costs.
Direct costs deal with the construction project you're currently working on. Indirect costs are ones that are needed to keep the company running such as accounting services, marketing, legal fees, and travel expenses. Without the indirect expenses, it’s very difficult for contractors to land contracts and work on projects.
Eight Construction Overhead Costs You Need to Be Aware Of
There are eight different areas where construction overhead costs require your attention and they are:
The people that you hire to get the job done contribute to your construction overhead costs. Having a workforce that runs like a well-oiled machine can improve the quality of your projects and help you complete them according to your time budget. Using a time tracking software to track employee time reduces human error, holds employees accountable, and eliminates labor disputes.
2. Supplies, Materials, and Equipment
All supplies, materials, and equipment for a job must be priced out so that you don't go over budget. Knowing the cost of these items prior to starting a project allows you to account for them whenever calculating a bid to submit to a client. Finding vendors and suppliers that offer deep discounts helps you get what you need for less.
3. Onsite Facilities
These temporary trailers enable foreman and site managers to do their job. Like your permanent office location, there is rent to pay, utility costs to account for, internet services required, equipment needed, and housekeeping services required to get each specific job done on time and according to budget. The people you put in charge of a construction site must be able to do their job to the best of their abilities - which is possible thanks to the addition of onsite facilities. In some cases, buying your own travel trailer and transporting it to the job site makes sense economically.
4. Vendor Fees
If you use companies outside of your own for any reason, you'll need to pay them for their products and services. Keeping track of invoices so you can account for the construction overhead expenses is essential. Paying vendors on time can prevent late fees, interest, and legal issues to maximize profits.
5. Travel Expenses
The costs to travel to long-distance work locations make up this category of expense. It could include gas and mileage, meals for foremen and site managers, and even lodging if they're required to stay overnight to get the job done. If owning company vehicles makes sense, the cost of buying or leasing them as well as maintaining and repairing them also could fall under travel expenses. Keeping close watch over these fees is easy when you use online expense reporting software versus traditional paper expense reporting methods to keep track of construction overhead.
6. Financial and Legal Services
You'll need an accountant and lawyer to handle your finances and legal affairs. It's well worth the expense to know that you're working within the confines of the law and getting the tax breaks that your company needs to remain competitive in the construction industry. These indirect costs are a mainstay because you'll likely pay a fee to have access to them year-round whether they're needed or not. Some professionals charge by the hour while others charge a monthly fee to have unlimited access to them which is often the better deal.
7. Office Expenses
This includes rent, utilities, internet services, hardware, software, and housekeeping costs. Whatever it takes to run your company from its central location is key. These costs are fixed because they're paid on a regular basis. Investing in cost-effective solutions such as multi-functional electronic devices and software suites reduce office expenses which impact construction overhead.
8. Advertising and Marketing
An often overlooked and underutilized area of construction overhead spending, it's what makes your company stand out from the rest. When an advertising budget is spent correctly, itcan bring in more business, making it a wise investment in your company's financial future. Routinely evaluating the effectiveness of your advertising and marketing efforts in comparison to their costs allows you to make adjustments to your budget as needed.
Now you know what could drain your bank account fast as the owner of a construction company. Getting a handle on construction overhead costs allows you to take charge of your business' future and increases its sustainability in the industry. Building a scalable company requires a great deal of profitability which is best achieved by gaining new clients and keeping overhead costs minimal.
Gaining Control Over Payroll Helps Reduce Costs
A software solution such as ClockInEasy allows you to further reduce costs by keeping tabs on payroll expenses. Not only are you able to streamline the process by having employees clock in and out via their own smartphone (or a single device for all employees), you're also able to prevent costly wage and labor disputes by having an accurate picture of hours worked. The ClockInEasy app provides you with details about the worker's whereabouts thanks to GPS coordinates and facial recognition features. You're able to see that they're on location and that it's the employee themselves clocking in and out.
Labor is one area of construction overhead spending that can easily be reduced through the use of technology. You don’t need to rely on antiquated timeclock systems to keep track of hours worked. ClockInEasy does the work for you by keeping a running account of all hours worked, billed for, and paid out throughout the duration of a project. It's like having an entire payroll department in an app because the software creates payroll reports that can be exported as a PDF or Excel file and viewed by you and your employees for complete transparency.
Better and More Effective Ways to Deal with Construction Overhead
Learning how to lower overhead costs can be a process of trial and error until you find what works best for you. The suggestions listed here, however, can save you time, money, and effort by providing you with a starting point when it comes to lowering company expenses. Apply what feels relevant to you and see how your bottom line is affected by the choices.
You have options available that allow you to measure the value of the expenses you incur. By carefully studying how much you're bringing in compared to how much you're paying out, you're able to see which areas of overhead costs can be reduced or eliminated.