overhead

E604: Year End Overhead Review

Overhead costs can erode our profits if we are not using the correct markups.

 

  1. We are closing out 2016
    1. Time to start reviewing our year
    2. We need to take a look at how we did
    3. A key area to review is our overhead
  2. Overhead and administrative costs can be a silent killer
    1. Most contractors price overhead as a percentage of costs
    2. Often times we calculate our overhead as a function of revenue
      1. This is a common mistake that can cost you – make sure you are comparing the right numbers
    3. Another common mistake is not calculating overhead properly or regularly to adjust markups
  3. Review your overhead in detail
    1. Don’t just rely on your Profit / Loss statement – dig into the details and verify
    2. Double check your markup percentages – will your markup give you enough money to cover overhead
    3. Create your new budget for 2017 and compare to projected revenues to adjust markups

E559: Managing Fixed Costs

Stay on top of fixed costs to protect your business.

 

  1. Overhead and fixed costs
    1. Office space, land, buildings, etc.
    2. Insurance, bonds, lead services, etc
    3. Computers, printers, etc.
    4. Supplies and other office related items
    5. Staffing
  2. All part of the business we need to manage just like a project
    1. We need to create a budget and use it
      1. I worked with a firm that did not create a budget, marked up projects by 15%, we later calculated that their overhead was actually 22%
    2. We need to carefully track versus our revenue
    3. Plan and manage these costs just like a project budget
  3. Evaluate regularly and trim the fat
    1. Operate a lean business
    2. Look at everything
      1. Even the small bills add up to big numbers
    3. Get value for every dollar you spend

E406: Ask Coach – Is Your Overhead Estimate Right?

Tracking and correcting overhead is just as important as job productivity.

 

  1. Common miscalculations
    1. Using a standard overhead markup and not checking it
    2. Not allowing for fluctuations in sales
    3. Not checking and tracking overhead
  2. The best way
    1. If it’s job-related it should be part of your cost of goods sold (COG)
    2. Set your rates based on real historical data
    3. Try to cover your overhead in 9 to 10 months
      1. If you overhead is $500K and you do $5M in sales our overhead is 10%
      2. Your markup should be 12% to cover the $500K in 10 months
  3. Track and adjust just like productivity
    1. Track your billings and earnings for each month
    2. If you are falling behind make adjustments
    3. Trim you overhead, increase productivity or get more sales
      1. Just watch lower numbers too much for the sales

Episode 64 – Managing Overhead

“To increase profits you must fist control your costs.”

Today we look at getting a handle on our overhead costs.

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Episode 32 Overhead vs Job Costs

Today I discuss a topic I get questioned about all the time from my subcontractor clients, overhead costs versus job costs.

This usually comes up in a conversation about a change order on a project where the contract limits the allowable overhead percentages to 10% or 15%.  The argument is always, “my overhead is more than 15%, I can’t make money on a change order with limits like this.”

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