What are Overhead Expenses for a Home Renovation Contractor?
For many years, we have included a line item labelled “Overhead” in our Renovation Agreements; the document you sign when finalizing the details of your home renovation. Some call this paper a quote, contract, or estimate. Several times, clients have asked what overhead means for Adlyn Construction. A legitimate question for sure, especially considering many expenses in the overhead category are ones most people don’t consider. Each overhead expense needs to be considered into the cost of a renovation, or a home renovation contractor would surely suffer financially and eventually shut the doors.
So, what is “Overhead”? Let’s break it down.
Tools are a massive expense for contractors, especially home renovation contractors. We require tools for demolition, framing, some HVAC, plumbing and electrical, drywalling, painting, and exterior work. These include things like compressors, generators, and a ton of finishing tools such as saws and sanders. There are also a lot of speciality tools that increase productivity and quality of work which helps us stay competitive and hopefully profitable! All these tools cost a lot of money. They all must be maintained, repaired, duplicated as the company grows, and eventually replaced. Without them, there would be no home renovation.
2. Vehicles & Trailers
With multiple crews of carpenters and apprentices comes trucks, vans, and possibly a variety of trailers for hauling dirt, building materials, and tools. They are work vehicles and take a bit more abuse than the average daily commuter. They are loaded down, pulling heavy loads, putting on a lot of kilometers, and getting dirty! Like any vehicle, they all need maintenance such as brakes, windshields, oil changes, suspension work, tires, lots of gas, and let’s not forget the payments either! They also need to be insured, registered, and kept clean. All of this adds up to a hefty, ongoing expense. The more vehicles on the road, the more time, effort, and ultimately money it takes to keep everything running smooth.
3. Insurance & Licensing
In addition to vehicle and trailer insurance, there is business liability insurance. As everyone knows, the more liability insurance you carry, the higher the premium. Adlyn Construction carries a $2 million liability policy which costs a pretty penny. We also have WCB insurance and a surety bond. For licensing, there is the annual City of Edmonton Business License renewal fee, a Prepaid Contractor’s License (this is legally required to accept project deposits and ongoing progress payments), and some neighboring municipalities require that contractors have their local business license too, as is the case in the City of St. Albert. All this adds up to thousands of dollars annually. You definitely want your home renovation contractor to have all these in place, and just like everything else in life, if you want it, you’re going to have to pay for it.
4. Office & Shop Space
Another overhead cost is renting and/or leasing a space to operate the business. For larger businesses, it could mean warehouse(s) with fenced in yards, as well as multiple storefronts. For a small, home-based business, it could require one leased shop and office, or possibly setting up 10% of your home as an office. In addition, there might be a garage, sea can, storage unit, or a combination of all of those to store construction related tools and materials. With each of these spaces comes the cost to have internet, heat, electricity, and security. Renting and leasing are big expenses that must be worked into the cost of proposals to consumers in order stay afloat and turn a profit.
5. Accounting & Bookkeeping
Few things are more important than knowing your numbers and paying your taxes when considering all the elements of running a small business. Being careless with these, or thinking you are as skilled as an accountant or bookkeeper in these areas can result in a financially (and legally) unhealthy company. If a business owner doesn’t know what he/she is doing, cash flow dwindles, sub-trades and suppliers don’t get paid, lien’s end up on the client’s home, and it becomes a disaster for everyone. Not to mention having the CRA upset with you. This is when bankruptcy and/or lawsuits can happen. These valuable professionals obviously charge a fee and that ultimately gets passed onto the consumer. Whether it’s a small, home-based business, or larger, the consumer absorbs the cost of accounting and bookkeeping.
6. Marketing & Advertising
I’m very happy that you’re reading this blog! That means my marketing is working! Now you’ll have the opportunity to have your dream bathroom renovation, kitchen remodel, basement development, or any other home renovation completed by a great Edmonton home renovation company! Guess what…we likely paid to get you here and reading this. Google advertising for example is one way we do that, and you can bet that Google doesn’t help us for free. They earn massive profits off the backs of business owners trying to grow their small business. On top of that, a home renovation contractor has a lot of other expenses related to marketing and advertising such as vehicle wraps, employee uniforms, signage, and online marketing on other platforms such as Houzz, Facebook, and Instagram.
7. Office Supplies & Equipment
In point 4 above, you read that a small business obviously needs an office, but what good is an empty office? Office and field staff need computers and cell phones (don’t forget cell phone bills) to conduct business. Printers, desks and chairs, cabinets, pens and highlighters, paper, folders, shredder, laminator, hole punch, filing cabinets, and the list goes on of supplies needed in an office. If you work in an office or own a small business, you know how many drawers and cabinets are filled with everything imaginable off the shelves at Staples. They all need constant restocking, replacing, and as internal systems get modified, they often need to be swapped with something different. Again, it’s an expense that must be accounted for.
8. Office Staff
Now that we considered our fully stocked office, who is going to occupy it? You guessed it, office staff is another overhead expense. With mid-sized to large renovation companies, there are office staff such as estimators, maybe a salesperson or two, project managers, and an admin assistant. These employees are obviously not in the field swinging a hammer or installing doors but are a critical part of a renovation company. Their wages ultimately trickle down to the client.
9. Personal Protective Equipment (PPE)
Safety First! We’ve all heard that in the construction industry. It’s a policy we must abide by if we want to keep our fingers and toes. At most home renovation companies, carpenters and labourers are responsible for providing their own CSA approved work boots and gloves, but there is much more PPE required to keep everyone safe. Here is a list of just some of the PPE that we need to keep our team and clients protected during a home renovation:
- Hard Hats & Safety Glasses
- High Visibility Vests
- Hearing Protection (plugs & muffs)
- Dust Masks & Respirators
- Safety Harnesses
- Ice Cleats
- Air Scrubbers & Filters
- First Aid Kits & Eye Wash Stations
As you can see, there is more involved regarding a home renovation than simply tools and skills. When considering a basement development, bathroom remodel, or kitchen renovation, be aware that the cost of the project will include more than just materials and labour. An overhead line item on a renovation agreement is essential to the health of a small renovation company, and a healthy company is surely who you want to work with. If all these overhead expenses aren’t accounted for, you might not get that great team back for your next renovation because they won’t be around anymore!
If you have a home renovation project for Adlyn Construction,
contact us today.