02:10
Faizan
Zombies are bad. They eat your flesh and your brains. Who wants THAT?!
Same goes for your construction business. There are zombies that can ruin your bonding and eat up your business. And the worst part is... it's preventable!
Does the zombie have a name? Accountants call it "Fixed Overhead." This is a controllable expense that, if left unattended, can eat your flesh and brains (figuratively.) Let's define the monster:
Fixed Overhead - Construction companies incur common fixed overhead costs. These are costs that do not vary with the level of the company's output such as: tool rental, depreciation on construction equipment, insurance premiums, salaries, office expenses, licensing fees and safety equipment.
As opposed to Variable Overhead - These costs vary in proportion to the amount of production. Variable overhead mostly relates to hourly indirect labor costs, supplies and utilities such as electricity, gas and telecommunications expenses.
The danger of fixed overhead is that, during times of reduced volume / revenues, the expense does not go down. This means when sales are weak, your expenses have not diminished proportionately. These bills keep rolling in relentlessly. They just don't care.
The only hope construction managers have is to be cautious when incurring such expenses, and always work to reduce them so the company can survive the inevitable troughs that come between the peaks of activity.
Here are 40 ideas that may help reduce / eliminate fixed overhead:
Lease-purchase options for vehicles and equipment
Employ part-time mechanics and administrative staff
Pay employees for use of their vehicles
Keep equipment longer
In unprofitable years, slow down depreciation schedule
Overhaul facilities and equipment instead of purchasing new
Review / quote insurance annually. Consider self-insurance or association captives.
Eliminate overlapping insurance coverages
Improve safety program
Examine Workers Compensation classifications
Consider increasing deductibles
Eliminate over insurance, such as reducing inventories
Deactivate, de-register and uninsure unused vehicles
Challenge property valuations (taxes)
Avoid the expense of audited financial statements if possible
Reduce accounting fees by assisting your CPA
Consider using a local CPA rather than a national firm
Lease unused space
Consider a smaller building
Consider high density stacking and storage systems
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