Seven Ways to Reduce Overhead Fears

Overhead is a necessary evil for every construction company, but it does not have to cause nightmares in the corner office. It is possible to gain a measure of control over these expenses by instituting some “common sense” ideas.

Start by identifying overhead expenses, both large and small, that may be reduced. The following are seven logical ways to cut overhead down to size.

1. Determine the staff needed for the business to be successful. To arrive at the optimal figure, compare the number on board during the “slow season” to the number employed on an average day. When possible, try to downsize closer to the lower figure. It is usually more cost-effective to hire temporary workers than it is to keep employees who are not needed year-round.
2. Focus on office space. Rent is usually one of the main overhead expenses. In today’s market, it may be possible to renegotiate a lease for a lower rate or a longer term that will subsequently save money. Compare renting to owning a building. If the company already owns a building, refinancing the mortgage may reduce monthly payments. Also, consider having employees share office space, especially those who spend most of their time at outside locations.
3. Take steps to reduce utility costs. For instance, some potential energy-savers are adding insulation, replacing old air conditioning units with newer models and wrapping hot water heaters with thermal coverings. Converting to fluorescent lighting may also result in savings. Question the utility company about heating and cooling bills that appear to be too high based on prior experience.
4. Do not “phone it in.” Review current costs relating to the telephone system. It does not make sense to pay for options that are not being utilized. To avoid unnecessary duplication, consider how cell phones are being used. Institute a policy among employees that restricts long-distance calls for personal reasons. Only reimburse those expenses that adhere to the policy.
5. Investigate insurance options. Do not assume that the status quo is the best plan for the company. Various alternatives may be available now that did not exist before. In addition, tax savings may be realized through the implementation of a flexible spending arrangement (FSA), a Health Savings Account (HSA) or some other tax-advantaged device. Finally, it may be wise to shift a greater percentage of the health insurance premiums to the employees.
6. Stock up on supplies. Try to buy office items—everything from pens and paper to ink cartridges—in bulk to obtain volume discounts. It may be less expensive to purchase supplies online than it is to visit an office supply store—and less time-consuming, as well.
7. Review advertising techniques. Of course, it is necessary to maintain a presence, but there may be a better methodology. For instance, instead of routinely advertising in every available phone directory, target only those that have been the most profitable. Research what has been working and what has not. It may be advantageous to keep advertising in certain places, but to reduce the size of the ad.

Do not be scared off if this process seems like an uphill battle. It can be divided over time—perhaps taking one step per month—if that is more manageable. The most critical element is to recognize the drain that overhead has on resources and to do something about it.

February 2008