KEEPING LABOR AND OVERHEAD COSTS DOWN

Controlling Labor and Overhead Costs as a Long Term Strategy

Definition of Overhead

• Definition 1• General: Resource consumed or lost in completing a

process, but which does not contribute directly to the end-product. Also called burden cost.

• Definition 2• Accounting: Cost or expense (such as for

administration, insurance, rent, and utility charges) that (1) relates to an operation or the firm as a whole, (2) does not become an integral part of a good or service (unlike raw material or direct labor), and (3) cannot be applied or traced to any specific unit of output. Overheads are indirect costs.

IDENTIFY AND TRACK YOUR LABOR AND OVERHEAD

• 1. Identify costs. • 2. Track all labor and overhead expenses.• 3. Track all of your income.• 4. Control and modify these costs.

1. Identify costs.

• Labor and payroll costs for all personnel including office, sales and laborers including any part time or temporary workers that draw a wage.

• Rent, mortgage, utilities, vehicle expenses, equipment expenses, insurance, communications, marketing and advertising and office expenses.

2. Track all labor and overhead expenses.

• Develop a system for tracking all of your expenses, preferably a computer program. The key is the system has to be set up to work well for you and your operation.

• As part of the system, there must be a method of collecting the receipts that match up to the expenses.

3. Track all of your income.

• Input enough information into the computer program to produce a profit and loss statement.

• Subtract income taxes and other applicable taxes and this will show your net income and expenses.

4. Control and modify these costs.

• Use your P&L statements and other system generated reports to target and address any changes you want to make .

BREAKDOWN, REVIEW AND CONTROL YOUR LABOR AND OVERHEAD

• 1. Operations• 2.Building / Facility • 3. Office• 4. Crews and Production

1. Operations• Management• Finance and Accounting• Insurance & Bonding• Health Insurance• Contracts, Agreements and Other Pricing• Sales and Marketing• Education & Training• Equipment and technology

Management

• Build an organizational design where each employee answers to only one boss.

• Schedule and conduct employee effectiveness evaluations.

• When hiring use background checks and references as well as thorough interviews.

• Hold weekly meetings.• Have only as many employees as you need.

Finance and Accounting

• Structure the business to pay down debt.• Develop and keep a strong relationship with a

bank.• Timely payment of bills.• Use an accounting and inventory control

system.• Track labor and apply it to correct job.

Insurance & Bonding

• Safety programs and good driving records will help keep your insurance costs down.

• The ability to provide good financial information combined with profitability will help in getting lower bonding rates and keep you more competitive on bonded work.

Health Insurance

• The higher the in company enrollment in health insurance programs will usually lower rates.

• Check rates every 2-3 years to insure the best program costs and benefits.

Contracts, Agreements and Other Pricing

• Track renewal dates for contracts and agreements.

• Negotiate any price with any vendor when possible.

Sales and Marketing• Use a customer management file system.• Identify different target groups in your

customer base and diversify mailings.• Monitor and review your use of phone book

and internet advertising.• Obtain bids in writing from subs.• Use estimating standards for your crews.• Structure your proposals with clearly defined

scope of work.• Conduct credit checks on customers.• Obtain signed change orders for any change in

scope

Education & Training

• Invest in education and certification that gives the business an advantage

• Provide the employees with the any training that will make them more capable and

efficient

Equipment and technology

• When investing in equipment or technology, don’t buy more than you need.

• Sell equipment that you don’t use.• Barter and share with other companies.• Be sure all personnel are properly trained on

all equipment.• Keep all equipment on a maintenance

schedule.

2.Building / Facility

• Location• Facility Layout• Operation and Maintenance

Location

• Are all necessary utilities available?• Can you get service for equipment?• Is the access good and safe? • Is the fuel depot close?• Is your facility close to a main access road?

Facility Layout

• Install fencing and security • Layout your yard and warehouse in an

organized fashion.• Incorporate systems for handling job debris,

trash and empty containers.• Make changes in the facility to mirror changes

in your business.

Operation and Maintenance• Make all repairs to the building.• Be sure the building is properly insulated and

sealed.• If buying new or replacing heating/ac

equipment be sure to match the building size.• Use climate control for heating and ac.• Consider new forms of power such as solar

panels and windmills.• Keep entry roads, parking lots etc. in repair.• Take care of all site issues.

3. Office

• Design your office with ergonomic, well lighted, comfortable and ample work space.

• Be sure you have the right amount of employees for the work load.

• Hold weekly meetings.• Stock enough office supplies.• Trade in used printer cartridges for rebates or

discounts.

4. Crews and Production

• Provide proper training.• Provide schedules.• Provide detailed work orders.• Be sure that all materials are ordered on time.• Anticipate problems with the weather or

schedule.• Try to plan sales calls in the same area.

WHEN YOU HAVE DONE ALL OF THIS, GO BACK AND DO IT AGAIN.