Secrets of Bonding 141: Surety Bonds and Zombies

[ad_1]

Zombies are bad. They eat your flesh and your brains. Who wants THAT?!

Same goes for your construction business. There are zombies that can ruin your bonding and eat up your business. And the worst part is… it’s preventable!

Does the zombie have a name? Accountants call it “Fixed Overhead.” This is a controllable expense that, if left unattended, can eat your flesh and brains (figuratively.) Let’s define the monster:

Fixed Overhead – Construction companies incur common fixed overhead costs. These are costs that do not vary with the level of the company’s output such as: tool rental, depreciation on construction equipment, insurance premiums, salaries, office expenses, licensing fees and safety equipment.

As opposed to Variable Overhead – These costs vary in proportion to the amount of production. Variable overhead mostly relates to hourly indirect labor costs, supplies and utilities such as electricity, gas and telecommunications expenses.

The danger of fixed overhead is that, during times of reduced volume / revenues, the expense does not go down. This means when sales are weak, your expenses have not diminished proportionately. These bills keep rolling in relentlessly. They just don’t care.

The only hope construction managers have is to be cautious when incurring such expenses, and always work to reduce them so the company can survive the inevitable troughs that come between the peaks of activity.

Here are 40 ideas that may help reduce / eliminate fixed overhead:

1. Lease-purchase options for vehicles and equipment
2. Employ part-time mechanics and administrative staff
3. Pay employees for use of their vehicles
4. Keep equipment longer
5. In unprofitable years, slow down depreciation schedule
6. Overhaul facilities and equipment instead of purchasing new
7. Review / quote insurance annually. Consider self-insurance or association captives.
8. Eliminate overlapping insurance coverages
9. Improve safety program
10. Examine Workers Compensation classifications
11. Consider increasing deductibles
12. Eliminate over insurance, such as reducing inventories
13. Deactivate, de-register and uninsure unused vehicles
14. Challenge property valuations (taxes)
15. Avoid the expense of audited financial statements if possible
16. Reduce accounting fees by assisting your CPA
17. Consider using a local CPA rather than a national firm
18. Lease unused space
19. Consider a smaller building
20. Consider high density stacking and storage systems
21. Renegotiate rent or move
22. Get indefinite lease with 6-month cancellation rather than fixed term
23. Pay moderate salaries with bonuses for exceptional performance
24. Reduce number of management staff
25. Reward managers with stock instead of cash
26. Trim fringe benefits (deferred compensation, automobiles, club memberships, etc.)
27. Cut managers first
28. Pay bonuses to field staff first
29. Pay raises based on merit, not cost of living
30. Cross train office staff to eliminate temporary employees
31. No vacations during “busy season”
32. When hiring, seek individuals whose employment qualifies for tax credits
33. Four day work week
34. Charge employees for replacement tools
35. Put company ID on tools, keep records
36. Centralize tool storage with check in / out system
37. Close dormant companies
38. Consider solar panels and solar water heat
39. Monitor unemployment claims
40. Consider an office maintenance service instead of employing a janitor, or use a part-time after hours person

Conclusion

Companies can achieve better financial performance, support their bonding and banking and survive the weak years by controlling these relentless expenses.

Remember: You can’t kill a zombie because technically they’re already dead. And you can’t get rid of fixed overhead either – but good managers work to control it.

[ad_2]

Source by Steven Golia