The following is excerpted from Alan Hanbury's 1992 seminar "15 Guaranteed Ways to Cut Your Overhead by 15%." Though he taught the class 11 years ago, the same principles still apply today, especially as local economies may be experiencing slowdowns in remodeling activity.
Bad debts
To avoid the pitfall of bad debt, you must attempt to collect all bills in a timely manner. You should be budgeting for "deadbeats" and, in poor economies, an increase in bad debts. This area, in fact, could prove to be your biggest overhead increase of the year.
Choose your customers and dictate the payment schedule to eliminate more than a 10% holdback at the end of the job. Be sure to write concise contracts, use written change orders, and use language that makes it clear you'll collect attorney's fees if need be. Don't be afraid to stop work when payment schedules aren't being followed.
Sales and administration
The largest single item in the overhead figure is bound to be your salary. Cut it, and, if possible, set up incentives for you to regain at least some of the lost amount by reaching legitimate goals, such as sales, volume, or gross profitability. That way, you've reduced weekly overhead, and if you meet your goals, you've earned the money by being a better businessperson.
At House of Hanbury, we're careful with our computer payroll and job costing to charge the company owner's direct job time and supervision to the job as direct labor. This further reduces the impact of our salaries on the overhead side of the equation.
Set up goals for your key people in production, sales, and the office. You may negotiate "no raises" and let employees earn more through improved margins or volume sold, hours under, reduced warranty work, more timely and accurate billings, and better prequalified leads. You can also have a payroll service produce weekly checks and quarterly or yearly reports for less than it costs to pay someone on staff to do it. Lastly, learn to file easy tax reports yourself and save your accountant for the more difficult budget and tax areas.
--Alan Hanbury is treasurer of House of Hanbury Builders, Newington, Conn.
