The Operating Costs of a Construction Business

Planning and budgeting are crucial aspects of any business. This applies to construction firms, most of which have to deal with higher overhead expenses, longer payment terms, and more specific construction insurance policies. Because of these factors, running a construction company is often more challenging than operating any other small business.

What are some of the costs that construction firms typically have to deal with? How much does it cost to run a construction company? This article discusses some of the common operating expenses of small to medium construction businesses.

Common operating expenses of construction firms

Raw materials

One of the biggest expenditures that construction firms have to contend with is the cost of raw materials. Construction companies need to maintain adequate inventory to avoid costly delays and work stoppages while in the middle of a project.

Materials costs can vary depending on the type and size of the project. Commercial construction materials cost from $16 to $20 per square foot on average. Add finishing to the equation, and you’re looking at a range closer to $30 or $40 per square foot. For residential construction, expect the cost to be around $150 per square foot.

Equipment

Tools and equipment are a significant expense for most construction companies. For this reason, many smaller firms opt to rent specific pieces when the need arises instead of purchasing and maintaining an expensive inventory.

Of course, you have to consider the relative benefit of renting equipment that you use frequently versus purchasing it outright. In most cases, rental costs average $40 to $60 per $1,000 of the equipment’s price. This means that you will have to pay $500 a month for a machine that costs $10,000. If you use that particular piece often, it might make more sense just to buy one.

Labor

Labor is another major expense in the construction industry. Lead employees generally earn $40 per hour. Framers usually get $25 per hour, while newer workers average $15 per hour. That’s already $80 per hour in labor costs for only three employees. With larger teams, you might have to spend as much as $640 per day.

And then, there are labor burden costs, such as meals, benefits, payroll taxes, insurance, and more. Add it all up and multiply the figure by the number of employees, and you will get a clear picture of how much labor burden will cost you per month.

Licenses and permits

Don’t forget the cost of licenses, permits, and license renewals. Expect to pay around $0.80 per square foot for these essential expenses.

Miscellaneous expenses

Many construction firm owners focus on the ‘big’ investments such as equipment and labor, but the smaller expenditures can add up to a considerable sum.

Some examples are rent and utilities. Although construction firms benefit from not needing a dedicated space to operate, they do need a place to perform off-site assembly and construction tasks and store inventory and equipment.

Insurance

Many new owners neglect to consider insurance when calculating their operational expenses. But this represents a significant expenditure, costing as much as $1,200 a year in some cases. Even with the relatively high insurance cost, construction firm owners should sign up for an appropriate policy to protect their investment and personal assets.

Factors that can affect operating expenses

The operating costs of construction firms can vary considerably depending on certain factors. One example is geographic location. All other conditions being equal, materials may be more expensive in one city than another. The price paid for labor and utilities could also differ depending on local laws, applications, and power rates.

The size of the construction firm and the projects they undertake often make a significant difference in operating expenses. For example, companies that mainly handle plumbing jobs have different budgetary requirements than home remodeling firms and building construction companies.

Calculating the cost of running a construction business

Calculating the cost of running a construction firm is similar to any other business. It generally involves determining the price of labor and materials and adding a markup that enables the company to generate profit.

But as mentioned previously, estimating these costs can be difficult due to the various factors that need to be considered. It would be helpful to use specialized software such as ProEst, Stack, and Clear Estimates to make it easier to determine an accurate figure. An experienced project manager could also help you arrive at a more precise estimate.

About Daniels Insurance, Inc.

At Daniels Insurance, Inc., we have a unique understanding of the risks that businesses like yours face on a regular basis. With the backing of our comprehensive coverages and our dedication to customer service and quick claims resolution, your business will be fully protected. For more information, contact us today at (855) 565-7616.