News from Living Stone Construction, Inc.

The Real Cost of Doing Business

Just as there are inherent risks in running a business, there are hidden costs that are incurred just by operating a business. The ability to stay in business and become profitable comes first with knowing what your costs are.
"Cost" as defined by Webster's dictionary is "the amount of money, time, effort, etc. required to achieve an end." When operating a small business, it is imperative to identify what your costs are so that you can properly price your product or service. "Hard" costs are easily identifiable; however, it is usually the "soft" costs that trip most small business owners up. Many small business owners who operate out of their home think that they have no overhead. Think again! An office lease is only one item to cross off your list.
Different businesses have various associated costs, but the typical small construction company shares the same burdens. The soft costs of doing business are almost too many to name. There are multiples of cost associated with payroll; taxes for federal, state, and local municipalities, unemployment, social security, and retirement plans. Insurance is another necessary sea of expense when you consider general liability, workman's compensation, automobile, disability and property. You will have an "office" (and lease or mortgage to go with it), hardware, software, and office supplies. Then there is large equipment (vehicles, tractors, etc.), small equipment (computers, tools, etc.), office furnishings and utilities. With equipment comes maintenance, and wear and tear.
Identifying costs and appropriately pricing your product, or service, is essential to the success of a business owner. Costs vary from business to business and every owner has some degree of control over those costs. In the construction industry, it is very common to find a good builder who doesn't understand business, or a good business man/woman who doesn't understand building. This has become more evident in the last couple of years as the housing market has become more demanding. Builders who don't know what the "cost" of running their business is may not be around to finish their next project.
Enlist the help of a CPA (Certified Public Accountant), or a special business consultant, and learn what your costs are. Price your service accordingly and never work for less than that. Resist the urge to succumb to doing a project under your "cost" just to keep the cash flow running. Leave the underbidding to those builders who are willing to risk disaster and those homeowners who are willing to assume the disaster.
Everybody expects you to make a profit, after all, that is why you are in business and how you stay in business! On occasion, when you come across a buyer who doesn't value what you offer, take it from me; it's best to let that job go!

This article was written by Sean Sullivan for submission in the Black Mountain News, ACT, and NC Builder Magazine.