Regardless of its legal standing, any business is compelled to bear some or all costs connected with day-to-day operations. These costs are commonly referred to as overhead in accounting. Calculating the overall cost of your construction business will allow you to develop financial forecasts and decide the selling price of your services.
What does the term “overhead” mean? What costs are included in this category? What’s the difference between a fixed and a variable fee? What technique can calculate the overhead rate, and how does it factor into job pricing? This page contains the solutions to these questions.
Accounting overhead
Overhead: Definition
The daily costs of running a firm are known as overhead costs. They are made up of both fixed and variable costs and should be included in the interim budget of the company. Rent, insurance, wages, and travel fees are regular expenses.
Unlike personal charges, overheads in the construction sector are expenses you cannot trace to the facility itself. They are used to compute the price of a service or a product for sale, among other things. As a result, they are critical factors in establishing a company’s break-even point.
What is the difference between variable and fixed fees?
Fixed and variable overhead costs are the two categories of overhead costs. It’s critical to distinguish between the many types.
- Fixed or structured costs relate to all costs incurred because of the company’s existence. They don’t alter much overtime or only a little, and they expire irrespective of the company’s activity or turnovers. Take, for example, the rent, which stays the same from month – to – month. Please keep in mind that your rent may rise year to year if your lease has a rent indexation clause.
- Variable expenses, often known as operating expenses, are proportional to a company’s operations volume. Travel expenses are frequently variable costs, depending on the quantity of work to be done, the distance between the worksite and the client’s home, the requirement to remain overnight on-site, etc.
Please keep in mind that some fixed costs may change or evolve.
As a result, the rent subject to indexation will rise year after year. Insurance firms also use the FFB index to reevaluate house coverage every year. That’s why it’s critical to examine overhead costs regularly. It will allow you to alter the rate to match the actual prices of your business.
Overhead for a construction company
While total expenses may vary depending on the type of business, the same basic categories are frequently seen. The construction business is one of the industries with the most spending to consider. They do, however, differ depending on the body.
If a carpenter requires a workshop to create wood products, a plumber does not. A ten-person construction business will have a substantially higher overhead cost like a self-employed individual artisan.
Main costs
The following is a summary of the most significant costs faced by most construction companies:
Rent
If you have an office, workshop, or commercial space where your business operates, these costs are relevant to you. The lease may also include rental vehicles or ground equipment for professional use.
Water, gas, and electricity are all available.
Professionals who benefit from the location are always invited. These costs will differ based on the size of the facility, the number of employees that use it, and the general level of presence (heating/air conditioning, one or more computers running all day, etc.).
Professional taxes, real estate taxes, and local taxes are all types of taxes.
You should include social charges, VAT, and company taxes for managers and employees.
Salary of an executive
Only the salary of the so-called unproductive people is listed as general expenses. Includes occupations such as secretaries, assistant managers, and others not directly tied to construction site operations.
Expenditure on external service providers and education
If you engage a chartered accountant to perform your bookkeeping (which is highly advised), keep in mind their prices. The same is true if you encounter a lawyer to handle all aspects of the legal system (CGV, legal notices, contract drafting, etc.). Finally, consider the price of hiring a surveyor or a design firm.
Travel expenses
Artisans visit construction sites regularly, and this project is often quite vital. Fuel and transportation tickets, tolls, parking, meals, and potentially hotel accommodations are all included.
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