Estimating Overhead Adjustments

Adjusting Overhead Costs

When figuring an overhead percentage for your business, you may need to adjust either the overhead totals or the gross volume, because of special situations. Unfortunately there is never a 'snapshot' you can take of your business that will tell you exactly what overhead percentage to use!

Adjust the overhead calculations in any of these situations:

• Major changes in bank balance--if you bank balance is drastically different between the beginning and end of the period you are using, you may have taken out too little profit (or too much profit). If you figure overhead on Total Costs, adjust the total business volume.
• Major bills outstanding--if you have a large number of unpaid bills when you figure overhead, figure them into your overhead calculations. If you paid off many old bills at the beginning of the period you are using, don't include them.
• Unusual costs--if the overhead for the period was unusually high for the period, adjust the calculated Overhead percentage downward. If it was unusually low, adjust the Overhead percentage upward.

Using an Estimated Overhead

If you are not actually a construction company, or if you are just starting out and have no past financial records, then you'll need to use an estimated overhead percentage to calibrate the BidMagic construction estimating software program.

If you are a planner, architect or developer, start with the overhead percentage used by typical builders in your area. If that number is not available, use whatever overhead percentage it takes to hit 'on the nose' for past projects that you've done.

If you are just starting out in a construction business, start with a rough estimate of your overhead, based on the type of business you have (or plan to have). If you are a 'low overhead' builder with no formal office,12-15% of hard costs (or 9-11% of overall costs) is a reasonable number to start with. If you have an office, your overhead will probably be about 16-20% of hard costs (12-15% of overall costs), and if you have a showroom or salespeople, 25% of hard costs (18% of overall costs) is a more reasonable number.

Refine the estimated overhead percentage after you see firm bids or actual project costs for projects you have estimated. Adjust overhead (and any other percentages) upwards or downwards depending on how accurate the estimate was.