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How to Determine Overhead Expenses for Your Construction Business

By Brown Ezilon.com Articles Published 12/4/2010 | Construction

Most construction companies have to allow for margins in order to be able to cover business costs and these can be difficult to calculate in a construction project. Basically there are three main types of overhead expenses you can consider and these come under the categories of direct expenses, indirect expenses and fixed expenses. You must be able to understand and account for all these expenses during the bidding process in order for a construction company to be able to profit from the contract.

Here is a look at the various overhead expenses in detail:

Direct Overhead Expenses will be present in construction contract sites and there will be several of these, including offices, equipment rental, administrative salaries and utilities for the construction site. Obviously construction sites need water and electric power to carry out construction work and these expenses are charged to the clients and must be considered in the budget when the bidding process is carried out.

The Indirect Overhead Expenses will include all those costs such as utilities, insurance, employment taxes and retirement plans. A construction company is bound to pay these expenses regularly even if they are not constructing anything. When preparing an estimate for a construction bid, these estimates must be considered and included if a company wants to make a reasonable profit from the construction contract. There are also other expenses to consider, which may be rental costs as well as communication and equipment costs that are used for more than one jobs, these too can be considered indirect overall expenses.

Fixed Business Overhead Expenses must also be considered and you will find these under payroll taxes, unemployment insurance, bid bonds, and licensing. These expenses can change according to the fluctuations in the bidding numbers and how much labor is needed during the construction process.

These three main overhead expenses must be considered if you want your construction business to keep a safe margin on costs and profit from the construction contract.