These Common Administrative Costs Could Be Eating Away Your Profits
With Tax Day on the horizon, US construction companies may be feeling a little more sensitive to budgets this month. In fact, the day is most likely a reminder that the construction pays the highest corporate tax rates of any industry at 30.3%. Regardless of Tax Day, lowering construction costs are a constant consideration for any savvy project manager or owner. Most likely, the rising cost of materials, labor costs and schedule delays are key concerns that unavoidable and out of your control feel out of your control. If you’re not diligent, each one of has the potential to tighten your margins and eat away at your profits.
Given all the moving parts and stakeholders involved in your average construction project, it can be challenging to prioritize where and when you should be cutting and by how much. While materials and labor costs may be top of mind concerns, you might be missing the underlying, hidden costs that can really hurt your business–your administrative costs.
Your overhead is a significant portion of your yearly expenses. Nonetheless, you can’t function without overhead costs. You need to market your company, pay staff wages, manage accounts payable and receivable, keep your lights on, the list could go on and on. But when you add them up, the administrative costs for your business can be massive. Furthermore, some of these costs aren’t even factored into your project costs, which means that the expenditures are taken out of your earnings, eroding your profits even further.
While you may be spending far more than you need to, the good news is that there’s a chance for redemption and lower construction costs once and for all. Improving your overall organizational processes will mean time and profit savings. Below, let’s look at some of the biggest culprits in terms of administrative costs and how you can reduce them and increase your company’s profits.
Common Administrative Costs to Consider in Construction
Administrative costs cover a wide swath of your business. To put this into perspective, every person on your staff handles some form of administrative duties. If you’re paying them and your processes aren’t efficient, you’re losing money simply on lost time. And that’s not anything you can blame on the staff. They have protocols to follow, and it’s up to your firm to set those procedures.
Some common overhead costs include:
- Tools and Equipment. This might include the on the job tools you own, as well as equipment you rent, in addition to your fleet.
- Repairs. Repairs might include company-owned vehicles, construction equipment and office equipment. If something stops working, you either need to pay to repair or replace it, often immediately. While repair costs aren’t easy to predict, they will, without a doubt, occur at some point during the year or project.
- Paper and Office Supplies. This sounds minimal, but it can get quite expensive. If you’re not running on a paperless system, you’re spending a lot of money on copies, ink and in-house costs. Don’t also forget about the labor costs to create and organize the documentation in a paper system.
- Blueprints and Specs. Similarly, if you’re still using paper blueprints and specs, you’re opening your company to a few major risks. For instance, any subcontractor might accidentally be using outdated plans which increases your risk of costly mistakes and rework on the job. Even discounting the advantage of real-time updates, so every person is on the same page with the latest revision, paper blueprints and specs for each of your subcontractors can cost your company thousands of dollars a year.
- Theft. You’ll be pressed to find a contractor who hasn’t lost expensive tools and supplies on the job due to theft. Unfortunately, it can be an inevitable a cost of business. Nonetheless, you can mitigate the loss by keeping better records of supplies and keeping track of who signed out expensive tools. Furthermore, increasing accountability of tools and supplies helps make sure that every member of your project team is aware that they’re responsible for company property’s safe return at the end of a workday.
- Overhead Office Costs. If you have a brick and mortar office, or even run projects out of a trailer, your administrative costs may include rent, lights, IT and staff. For larger construction companies, it also includes things like marketing costs, web design and trade specific needs, such as equipment storage. If you’re fully digitized, file storage may also be an administrative expensive just to keep extensive records of previous jobs documents to refer back to.
- Regulatory Fees. Regulatory fees are ever increasing and unavoidable part of doing business in construction. To avoid any excess fees, ensure your team is aware of the most up to date regulations and are able to conduct business as needed.
3 Ways to Lower Construction Costs
To majorly lower construction costs, it’s less about cutting and more about investing. With the right systems, technology and processes in place, workflows will be better streamlined and administrative functions will become more productive.
1. Adopt Automation to Improve Efficiency and Reduce Errors
Automation is one way to massively reduce administrative overhead costs. While automation certainly improves efficiency, allowing staff to accomplish more and faster, it also helps to reduce common human error that can add up. The reality is that no matter how good your staff is, automation can help them streamline those issues better with fewer mistakes.
Companies like Fannie Mae know that “honest” mistakes from a manual system like Excel can result in millions and even billions of dollars lost. While stakes at your company may not be as high, if you’re not utilizing automation to control mistakes, you could still at least losing thousands of dollars annually.
Here are a few ways automation can reduce your administrative expenses and lower construction costs on a whole:
- Budgeting and Accounting. Excel spreadsheets are a thing of the past, not least of all because they’re prone to human error. With a robust system, you can easily see past cycles, overall expenditures, costs per project and even projected profits.
- Streamline Submittals. Those in the industry know how tedious creating submittals can be and how important accuracy is for success. Automating the process with the help of construction technology eliminates a great deal of the manual time and costs involved.
2. Implement Better Document Management
The construction industry is one with many documentation needs. As mentioned above, no doubt will digitizing your documents and blueprints reduce administrative costs. Furthermore, choosing an effective and collaborative document management system can help you improve efficiency. One major way that implementing a good system decreases your overall expenditures is by adding an extra level of transparency to all your efforts. With a cohesive document management system, you can create robust reports to show exactly where your most significant expenses are, to help you determine where to invest and where to cut costs.
Additionally, a robust document management system can improve your administrative efficiency through:
- Administrative Support. A robust document management system means that your administrative support staff can more easily access, file and work with any open project they need to in your office. This can save countless hours in finding files and information. It also allows staff to better monitor time-sensitive information, such as when permits need to be pulled.
- Communication. Communication is essential in the construction industry to execute design plans and manage changes. A comprehensive system will allow you to keep all information up to date and centrally located so that any stakeholder in your project can access the information they need when they need it.
A robust construction document management system will help you better assess your current needs to make changes that lower construction costs across the board.
3. Keeping Track of Time, Tools and More with Technology
Construction is an industry where little things can add up fast. You can’t do much about the cost of regulations or materials. You only have so much cushion to provide a profit margin, so it’s important to keep an accurate accounting of the small expenses.
Moreover, to lower construction costs, technology can be effectively used to help with:
- Time Management. This can be a difficult thing to monitor, but it’s essential. Taking stock of how long projects take for your staff can tell you where you would be better off delegating and where you need automation to improve the process. It’s important to develop a good system to manage where employees spend their time.
- Tools and Equipment Tracking. Tools can pose a huge expense, especially when they wander off the job. It might not seem like much to lose one or two low-cost items. When you multiply that by job sites and incidents, it becomes a large expenditure.
When considering ways to lower construction costs, you should also consider outsourcing a portion of duties like IT services. Often IT is handed off to someone in the office whose key experience is in another area of the business–such as secretarial or administration. Outsourcing to an IT company can improve the time frame for specific tasks and save your company money in the long term.
Lowering Construction Costs is a Process
It’s easy to say “cut here” or “cut there,” when attempting to lower construction costs. Nevertheless, to make a real impact in reducing administrative costs, it needs to be part of a larger process. By evaluating systems and processes and identifying inefficiencies and ways to automate and optimize, you’ll find it exponentially easier to melt down expenses, line item by line item.