How to Budget for New Overhead Costs
An HVAC Contractor in Iowa asked:
Does your company have a strategy in place for when to add new overhead costs relative to total revenue?
Two-thirds of the audience in attendance responded no, while one-third responded that they did. EGIA faculty member Gary Elekes explained that having a budget was important because it allowed owners and company leadership to accurately predict expenses that will need to be paid during the course of a set period of time for which money is budgeted.
“If I have a budget, I should understand the overhead of my company,” stated Elekes. “It’s not as complicated as some people would have you believe.”
Elekes further explained that most of the expenses that a company would need to keep track of in their budget are direct expenses, meaning they are much easier to establish and then calculate.
“Let’s say I pay $5000 a month in rent, that’s a consistent number that repeats itself for the 12-month period,” said Elekes. He continued to explain that in accounting terms, that would be considered a fixed cost that can be accounted, projected and budgeted for months in advance.
On the other hand, variable costs, such as the example Elekes uses in gasoline, can still be coded into the budget as a projection. Still, citing the experience that Elekes has had with over 1000 consulting clients and decades of experience in the trades, he can say that about two-thirds of business expenses will be fixed cost, and another one-third will be variable cost.
“If only one-third of my expenses are growing in one area of the company, why not grow those profitable areas?” ended Elekes.
Gary Elekes is a serial entrepreneur with a passion for helping others become more successful by sharing what he has learned over the past 3 decades working closely with all facets of the contracting industry. During his career, Gary has held senior management positions at Lennox and Service Experts. In 2003, Gary began acquiring contracting firms with a focus on developing turn-around opportunities. He also opened and operated several start-up businesses. In 2010, he added web design/SEO and online marketing to his company portfolio starting iMarket Solutions as a co-founder.
Our faculty members have also answered questions on other topics related to financial structure in the contracting world, including Sales Goals Based on Labor Capacity and How to Compensate Managers.
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