You need to cut and do not know what is safe to cut
Cutting blind takes out the thing that was producing revenue and leaves the thing that was not.
Overhead is not one thing. Some of it protects revenue, some of it was bought early for a size you have not reached, and some of it is there out of habit. An owner staring at a heavy overhead line usually cannot tell which is which, so the cut falls on whatever is easiest to cancel rather than on whatever is costing the most and returning the least.
Three moves, in order
What CFOS does about it
The overhead calculator lists your overhead lines from QuickBooks Online and the CEO Report grades the total against the published average and CFOS target. That gives you the amount to close and the lines to sort. Sorting each line as protects revenue, bought early or kept out of habit is your judgment.
Who owns this: Owner and controller.
At $5M, the first cut is usually a subscription or a vehicle no one uses. Sort every line before you cancel any. At $25M, assign each overhead line to an owner and review the lines by owner each month.
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Step 03: Overhead calculation
What indirect cost really comes to at your size, and the rate your estimating template should be using.
Other problems step 03 solves
Other things that go wrong
What owners ask
What overhead should a construction company cut first?
Cutting blind takes out the thing that was producing revenue and leaves the thing that was not. Overhead is not one thing. Some of it protects revenue, some of it was bought early for a size you have not reached, and some of it is there out of habit. An owner staring at a heavy overhead line usually cannot tell which is which, so the cut falls on whatever is easiest to cancel rather than on whatever is costing the most and returning the least.
Which part of the system fixes this?
The step is number 03, overhead calculation. What indirect cost really comes to at your size, and the rate your estimating template should be using. It's drawn from chapter 3 of CONTROL: C.F.O.S. Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M to $5M averages 7% before taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.
Where do I start?
Sort every overhead line into protects revenue, bought early, or kept out of habit.
Can I fix this without touching anything else?
You can try, and it doesn't hold. Step 03 depends on step 01, job cost structure and step 02, equipment cost basis. Install it ahead of those and it produces numbers the field won't trust, which is worse than the problem you started with.
Wrote CONTROL, the 8 step system behind these figures. More about the author.