Every business needs to deal with employee expenses, but few have as many varied and vital employee expenses as construction job sites. The construction industry is rapidly growing, and the nature of the work is complex. Job sites vary in location, scope, materials, and costs. The purchasing needs of a construction business are different than any other, so you need to take a strategic approach to managing construction employee expenses—wherever they may occur.
As we work with construction companies, we’ve learned some of the particulars for operating across multiple job sites. Today we’re sharing our best tips for effectively managing your employee expenses on a construction job site.
“It’s cut down so much time we spent hunting down receipts. What used to take 90 hours a month, takes two.” – James Streeter, Westland Construction
1. Clearly define overhead vs. job costs
The first task for managing your employee expenses is to more clearly define your overhead and indirect costs. Why? Because managing your business expenses as an ambiguous line item total prevents you from identifying patterns, maximizing revenue, optimizing tax deductions, and appropriately pricing your construction projects.
What is overhead? Overhead is all the operating expenses you’d need to pay even if you weren’t taking jobs.
Examples of overhead:
- Mortgage or rent for office space
- Office expenses (phones, printers, utilities)
- Professional services like CPA or legal counsel
- Vehicle & equipment financing
Far too many construction company owners lump more general job costs into overhead, such as project managers, which leads to underestimating the indirect cost of each job and miscalculating the margin on a particular construction project. For example, if you add equipment rental to overhead costs instead of defining it as a specific job cost (which it should be), the equipment costs won’t be attributed to a specific job. Jobs using that equipment won’t show it as part of the operating expense, and jobs that didn’t use that equipment will incorrectly factor it in as part of the overhead. Both cases will have incorrect calculations of revenue and profit.
After estimating your overhead costs for the year, you can break it down monthly and then use that as a baseline when you calculate job costing. Your overhead should remain as low as possible, and then job costs can be more explicit and reflect actual need. Each job should cover your overhead costs, all direct and indirect job costs, and then leave margin for profit. Pay close attention to cash flow as you consider yearlong overhead and the projects that come and go. You can’t manage your construction employee expenses on each individual job site if you don’t first understand and budget for each job.
2. Outline job costs
Construction site expenses are (usually) necessary to keep your project on track and on time. From replacements to additional materials, it’s likely that your contractors and employees will need to make frequent purchases to keep the wheels turning. These job site expenses can quickly become a money pit if you’re unable to define acceptable expenses and your method for processing them—especially if they’re indirect costs.
A helpful approach is to outline each of the direct cost job site expenses you’ve incurred in the last six months. Categorize the expenses in a way that makes sense for you and your employees, with clear definitions for each expense. You may consider including recommended price points or preferred vendors. A list of unapproved expense claims might also prove useful, preventing employees from asking for forgiveness instead of permission.
Bonus tip: Create an employee reimbursement policy and make it accessible via mobile at each and every job site.
3. Set budgets by job site
The construction industry requires management of multiple sites, and multiple budgets. Instead of telling your project managers, site managers, or contractors a general budget for each project, or worse—giving them no budget at all—you should help everyone manage business expenses better by setting your budgets according to the job site and project in question.
A larger project will likely have a bigger onsite budget. Some projects may have pre-ordered materials and strict guidelines about the job costs, which will mean highly controlled budgets. Set your budgets by each individual job site, with clear expectations. Going over budget with employee expenses or labor cost may need to happen occasionally, but should always go through you first (not after you’ve already blown the budget—and your profit margin).
4. Switch to mobile expenses
It’s 2021. Each of your contractors has a smartphone in their pocket. There is no reason for your construction employees to be babysitting receipts and expense report paperwork across chaotic job sites.
As a construction company owner you’re probably bouncing around multiple job sites, and chances are your best project managers are, too. Being able to log your expense tracking with mobile expense reporting is critical—and just so much more efficient. Use an expense management solution or accounting software that provides receipt capture and automatic expense reports on the go.
5. Cards for every contractor
How are your contractors paying for the necessary job site expenses? If you have one or two trusted project managers they might have a corporate card. Some business owners in the construction industry may hand off their business credit card as needed, or drive around making the necessary purchases themselves. Still more common is reimbursing employee expenses after the fact, but asking your contractors to float (potentially large) expenses comes with its own set of problems.
Instead, we recommend providing corporate cards for every single contractor who may need to make purchases. With carefully constructed budgets and smart expense reports you’ll actually have better security and visibility into your employee expenses. For example, Divvy allows you to set locked budgets for each user that they can access whenever needed—no handing off cards or phone tag approvals necessary.
6. Review expenses regularly
After a job has concluded is not the time to add up all of your employee expenses from the job site. Waiting until the job is wrapped or even the end of the month can be too late to realize you’re way beyond your approved expense limit.
We call this “dead data.” The money has already been spent, and the client has already been quoted a price or billed. It’s too late for this information to help inform your strategy, other than making you feel stressed and committed to cutting costs in the future. Instead you need live data, updated regularly. Review employee expenses and update the budgets weekly (or even more frequently) so that you can curb any excessive spending faster, or give modified quotes to your customers. The extra bookkeeping is worth it to increase your expense visibility.
7. Price match & get quotes
Employee expenses can be made in moments of need or without due process of research. In order to manage your employee expenses, you want to encourage finding the lowest prices for the materials and purchases you need to make. You can set the standard by regularly cataloging market prices for the most common employee expenses submitted on your job sites, and even listing the recommended prices for common expenses. For larger employee expenses, you can require employees to provide two or more price quotes before they decide.
Build it better
In the construction industry, your bottom line is built brick by brick as you manage the expenses on each job site. It will take work to set up your expense policies and to begin tracking the data more closely, but the increased visibility will pay off as you get a better grip on that profit margin.
Divvy gives you mobile expenses, cards for every contractor and their crew, enforceable budgets, and the analytical tools you need to manage spend on every construction site you run—all for free. Sign up now.