Construction costs can get out of hand quickly and eat away at your bottom line. No one wants that! By tracking your spending, you will more easily be able to spot the areas you are overspending and work to fix them. All of this takes good record keeping but let’s talk about some areas you might want to check for overspending first.
Here are 5 common areas that construction companies overspend.
Employee Time
When you hire an employee, it is because you have a gap in the needs for your company that you are looking to fill. As you continue to grow and add more people, many times processes get more complicated with more people involved. If you aren’t keeping check on that, you could be overpaying through duplicated tasks and inefficient workflows. An area in the financial process that this can happen is the approving of payments and who is actually responsible. Is it the owner? Is it the project manager? Is it the bookkeeper?
It is important to evaluate your workflows, set clear roles and responsibilities, and ensure no duplication is happening and your team knows the process. Inefficiency means duplicated efforts, rework and more time spent on one task which all equals more money out of your pocket as the owner.
Subcontractor Costs
If you aren’t using purchase orders with your subcontractors, here is your sign to start. Purchase orders will help control costs because the work and pricing is agreed upon ahead of time and you can work this into your budgets. If you are just being invoiced when the job is done, you could potentially be paying more. By using purchase orders, you are not only putting measures in place to control your costs, it also helps with your vendor relationships. Purchase orders will protect both parties and can simplify workflows. Not to mention, everyone gets on the same page on the project in the beginning.
Tools & Small Equipment
Tools and small equipment, such as hammers and generators, are frequently purchased in the construction world to do the job. This is another area that can easily get out of hand if you are not keeping track of what and how often tools are being purchased. By not tracking this, you are likely missing and not accounting for these costs in your overhead or job costs. When you don’t account for them there, you are likely not estimately appropriately as well.
Overhead
Overhead is another area where if you are not careful, unnecessary expenses can add up. If you take the time to reevaluate your overhead expenses regularly, you may be surprised by what you find. There could be charges for software you are no longer using, or subscriptions that are no longer relevant. This is a good practice to get into and could save you from overpaying on things you are no longer using.
Commissions
Regardless if you have a flat rate or profit split commission structure, you are going to want accurate financials to base them off of. If you are calculating commissions off of unverified numbers, inaccurate, or before all costs come in, there is a good chance that you are overpaying.
Importance of Tracking
It can’t be said enough, tracking your finances is so important to running a successful company. If you do not know your financial status, you do not truly know your company. With regularly managed and accurate books, you are more aware of what is actually happening in your business and are able to control your costs. You are also able to make fixes and potentially free up cash. It will also make tax time so much easier than if you were to wait until the last minute before filing. You will be able to make decisions quicker and adjust as necessary. And probably the most important reason, you will be able to know how profitable you are.
Overspending can be a serious problem and the only way to know if you are is through continuously monitoring and tracking your expenses. The insight you gain from having accurate financial records will only help you and is a necessity.
If you need help with managing your financial books or getting your books caught up so you can determine if you are overspending, 24hr Bookkeeper is here to help. We can clean up your outdated books and help you keep them that way!
