Costs add up quickly when you’re managing a construction company. Whether it’s purchasing costly machinery or paying the office staff’s salary, you have a lot of expenses related to your general business operations and specific projects.
Below are some of the most common indirect and direct overhead costs associated with managing a construction company, and how you can bring them down.
Indirect or general overhead expenses are expenses that are not tied to a particular project, but rather the company pays on a regular basis. For example, indirect expenses could include paying an accountant or lawyer for their work helping the business continue. These costs don’t change from project to project.
The most common indirect overheard expenses a construction company pays include:
Salaries and benefits of employees and personnel: The salaries and benefits of your permanent staff or contractors like your executive and administrative employees fall under indirect overhead. This does not include laborers you’ve hired to complete a specific project.
Property: If you maintain a physical office, the rent, utilities, supplies, phone, Internet and insurance are all indirect costs associated with using that space. Any vehicles and their associated costs, or storage for equipment, also fall into this category.
Miscellaneous ongoing expenses: Other indirect expenses include anything you spend to keep your business going, such as marketing, travel costs and the fees for the accountant and lawyer mentioned above.
Direct overhead expenses are tied to a specific construction project. These are expenses you would not have incurred otherwise without working on this particular project.
Some of the most common direct expenses you’ll encounter on a job site include:
Space and structures: If you need a home base while overseeing the project, that office space or temporary structure is a direct expense.
Project-specific salaries: The laborers you hire specifically for this project, including foremen, engineers, superintendents and schedulers, will comprise a substantial amount of your overhead expenses on any project.
Equipment costs: Construction equipment does not come cheap. While you may already have some equipment, you might have to rent additional machinery specific to the job.
Miscellaneous project expenses: There are other expenses you’ll have to spend as you complete a project, such as setting up sanitation for workers to use on site.
Overhead costs are a necessity in business, but can become especially steep in construction. If you can minimize the overhead you’re spending, both direct and indirect, you can maximize your profit margins. Look for ways you can make money from equipment you’ve already purchased, like selling under-utilized equipment or renting out equipment not currently in use. Identify inefficiencies in your work processes and see how you can fix them. Consider outsourcing tasks like bookkeeping and marketing so you don’t have to pay an employee a full salary and benefits.
If your construction company needs financial advice, our financial specialists are ready to help. Contact Patin and Associates today to get started.