13 tips for reducing costs with construction & rental businesses
Whether you’re in the construction business, or a landlord of rental properties, there’s a lot to keep track of when it comes to financials. The good news is, there are easy ways for you to keep more of the money you earn.
It’s not just about expenses. Proper record keeping can increase income too. Are you warehousing material without knowing what you paid for it? Are you guessing on cost of goods for leasehold repairs or common area maintenance? If so, are you sure you’re making money on the jobs you quote? Even if you are, it’s probably less than you think.
Don’t despair. Paying attention to just a few of these items can save you money in reduced taxes and lower expenses. You can also increase income while saving time & headaches. Do yourself a favor. Pick four items to target in the next quarter. That’s one a month. If you’re too busy to even do that, we can create easy solutions that take all this off your to do list, often for less than the cost of a monthly cable bill.
Simple ideas for reducing costs with construction & rental businesses
- Automate billing. One of the biggest challenges smaller general contractors and landlords face is falling behind on invoicing. It takes a backseat to urgent client and property concerns. If you’ve delegated it your receptionist, she’s busy responding to calls and emails. Besides getting paid faster and more frequently, automated billing makes it easy to charge interest on late payments by generating monthly statement updates. There are a variety of options for this, but QuickBooks is the most popular.
- Reduce interest costs. If you’ve had to take out loans to complete jobs or cover monthly operations in lean times, now’s the time to renegotiate. Banks are competitive with rates right now on both lines of credit and term loans, but interest rates are going up. Lock in on a fixed rate if an old loan is variable. You may need to shop around a bit for the best solution for you. Don’t feel you must do your borrowing with the same bank that holds your business checking account. Billing on time and requiring a deposit for material costs before you start a job will help you avoid needing a loan. This can also help you to pay off borrowed money faster.
- Consider engaging an energy procurement service. Whether you’re managing commercial properties or have a construction business in a large plant, you can save a lot through negotiated pricing. The right representative will work hard for you to find big savings. Annual contracts are generally the best approach as prices can fluctuate wildly year-to-year, but contracts can be as long as five years. There is no additional cost to you. Your rep is paid by the energy company you choose as a percentage of the sale.
- Know your inventory. If you have a warehouse with supplies you’ll use for future jobs, know what’s there. Storage costs aren’t free, even if you own the building. It pays to have a detailed list of what’s in stock. It’s also wise to keep accurate records of your actual purchase costs. With today’s crazy increases in lumber prices and other construction items, poor record keeping can mean the difference between making and losing money on a job. If you haven’t carefully recorded price and quantity at purchase time, consider documenting what you have on hand now. Then set up a system that allows you to easily calculate cost of goods in the future.
- Streamline expense record keeping with employees. If you struggle to get your employees to collect and record receipts for purchases, you’re not alone. Consider setting up company accounts at all stores and suppliers you frequent so all billing goes through a company credit card or account. There is now AI software available to not only record, integrate, and reconcile between accounts in almost real time, but also learn your habits for more accurate categorization.
- Track mileage. This can be a huge number on your tax returns at the end of the year. Not only for the miles you travel, but also those of your employees. The current mileage reimbursement rate is 65.5 cents per mile. That means if you and your workers, on average, are driving vehicles 300 miles a week (likely a low estimate), that’s over $10,00 a year. There are a number of apps that can track mileage for you, or it can be done manually in a notebook. The IRS has become more particular about what’s recorded to qualify for tax deductions, so an app is a better solution for most.
- Analyze existing costs. Are you still paying for a beeper service or unread magazine subscription? It’s amazing what companies unknowingly keep paying for due to default auto-renew payment settings. A qualified and detail-oriented financial professional can help you quickly identify these unnecessary expenses. You might find yourself saving thousands of dollars simply by delegating bookkeeping to a pair of professional, objective eyes.
- Use depreciation wisely for maximum tax benefits. Knowing how to depreciate equipment and when to replace it for the greatest tax savings can have a substantial effect on what you owe Uncle Sam. It’s important to consider the tax ramifications before you decide to repair or replace. You can also slow your depreciation schedule on company assets in unprofitable years to gain tax benefits. Knowing when and how to do this can make a significant difference in your annual profit.
- Analyze account profitability. The 80/20 Rule is a factor in every business. It makes sense to periodically assess which clients, or type of contracts, are costing you the most. Of course, you’ll want to determine your most profitable areas too. Typically, 20% of your clients will make you the most money. Conversely, 80% of your customers will bring the biggest headaches and lowest margins. We can help you know your numbers to determine if it makes sense to reconsider some of the services you offer. You might even decide, once you see reality, to let some clients go.
- Outsource bookkeeping. It rarely makes sense, even for relatively small general contractor or landlord company owner, to hire an employee to manage company finances. Today, you can contract this out to an industry expert monthly for less than it costs to pay a weeks’ salary. Just be sure to find someone who can offer you the financial reports you need in almost real time. You’ll also want to confirm high-level professionals are reviewing your account at least monthly.
- Take payroll off your company to do list. The tax reporting requirements alone these days for employee compensation are onerous enough to make you want to scream. Gone are the days where it makes sense to do this internally. The time, money, and stress costs you’ll save by delegating this to a provider who specializes in this service are enormous. This one is kind of a no-brainer. If you’re curious about how affordable this can be, reach out.
- Think long term. It’s hard when you’re in daily putting-out-fires mode, to get past what needs to be done this week. If you want your company to not only survive, but thrive in the future, it’s important to think strategically. This means being open to ideas for running your business that are different from what you’ve done before. It’s no longer smart to look at reducing expenses without considering how much more income you could realize with outside, professional help. Take a look at what you’re trying to do internally and ask yourself if it’s working. Chances are, there are better, less expensive ways to do it.
- Replace old technology with new. Software and hardware opportunities have come a long way in recent years. Reducing costs with construction & rental businesses requires considering opportunities that weren’t available a decade ago.
We’ve adopted bleeding-edge technology to help you do your job better, faster, and cheaper than what’s been possible in the past. Schedule a free discovery meeting to explore if our AI-supported bookkeeping, payroll, and financial management services might be a good fit for you. We’ll tell you if we’re the right solution, or let you know if it’s not a good fit. Either way, what do you have to lose? Why not take 15 minutes out of your day to see if we can help you transform your business and your quality of life?
Of course, these tips apply, whether you choose to reach out to us or not. Please do consider committing to tackling at least one of the tips above this month. Your employees, clients, and family will thank you. You will too as you jettison stress and unnecessary time drains.