Secrets of Bonding 141: Surety Bonds and Zombies

Zombies are bad. They eat your flesh and your brains. Who wants THAT?!

Same goes for your construction business. There are zombies that can ruin your bonding and eat up your business. And the worst part is... it's preventable!

Does the zombie have a name? Accountants call it "Fixed Overhead." This is a controllable expense that, if left unattended, can eat your flesh and brains (figuratively.) Let's define the monster:

Fixed Overhead - Construction companies incur common fixed overhead costs. These are costs that do not vary with the level of the company's output such as: tool rental, depreciation on construction equipment, insurance premiums, salaries, office expenses, licensing fees and safety equipment.

As opposed to Variable Overhead - These costs vary in proportion to the amount of production. Variable overhead mostly relates to hourly indirect labor costs, supplies and utilities such as electricity, gas and telecommunications expenses.

The danger of fixed overhead is that, during times of reduced volume / revenues, the expense does not go down. This means when sales are weak, your expenses have not diminished proportionately. These bills keep rolling in relentlessly. They just don't care.

The only hope construction managers have is to be cautious when incurring such expenses, and always work to reduce them so the company can survive the inevitable troughs that come between the peaks of activity.

Here are 40 ideas that may help reduce / eliminate fixed overhead:



Lease-purchase options for vehicles and equipment

Employ part-time mechanics and administrative staff

Pay employees for use of their vehicles

Keep equipment longer

In unprofitable years, slow down depreciation schedule

Overhaul facilities and equipment instead of purchasing new

Review / quote insurance annually. Consider self-insurance or association captives.

Eliminate overlapping insurance coverages

Improve safety program

Examine Workers Compensation classifications

Consider increasing deductibles

Eliminate over insurance, such as reducing inventories

Deactivate, de-register and uninsure unused vehicles

Challenge property valuations (taxes)

Avoid the expense of audited financial statements if possible

Reduce accounting fees by assisting your CPA

Consider using a local CPA rather than a national firm

Lease unused space

Consider a smaller building

Consider high density stacking and storage systems

Renegotiate rent or move

Get indefinite lease with 6-month cancellation rather than fixed term

Pay moderate salaries with bonuses for exceptional performance

Reduce number of management staff

Reward managers with stock instead of cash

Trim fringe benefits (deferred compensation, automobiles, club memberships, etc.)

Cut managers first

Pay bonuses to field staff first

Pay raises based on merit, not cost of living

Cross train office staff to eliminate temporary employees

No vacations during "busy season"

When hiring, seek individuals whose employment qualifies for tax credits

Four day work week

Charge employees for replacement tools

Put company ID on tools, keep records

Centralize tool storage with check in / out system

Close dormant companies

Consider solar panels and solar water heat

Monitor unemployment claims

Consider an office maintenance service instead of employing a janitor, or use a part-time after hours person

Conclusion

Companies can achieve better financial performance, support their bonding and banking and survive the weak years by controlling these relentless expenses.

Remember: You can't kill a zombie because technically they're already dead. And you can't get rid of fixed overhead either - but good managers work to control it.

Steve Golia is an experienced provider of bid and performance bonds for contractors. For more than 30 years he has specialized in solving bond problems for contractors, and helping them when others failed.

The experts at Bonding Pros have the underwriting talent and market access you need. This is coupled with spectacular service and great accessibility.

Contact us today and discuss how you start a new bonding relationship for your company, or increase your current bonding capacity. Call 856-304-7348.

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 By Steven Golia


Article Source: Secrets of Bonding 141: Surety Bonds and Zombies