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June 01, 2018

Shining a Light on Hidden Costs

Hidden fees, contract adjustments and unmonitored vendor accounts: all of these share a hiddencommon trait that can impact your bottom line. While a small business may be better positioned to monitor for contract fluctuations and other unplanned expenses that can skew the numbers, many large construction businesses overlook these disparate costs drivers that run unchecked.

In today’s world of third-party relationships with vendors providing access to a cutting-edge application or even with a trusted business partner that hasn’t had its contract reviewed in years, changes in monthly service fees or hidden costs can eat away at your profitability, and not necessarily in big bites. Months of single-dollar increases can remain undetected for years, like a termite infestation that doesn’t reveal itself until a window frame erodes.

In many cases, the cost increases are not malevolent in nature. Nevertheless, taking the time to understand the most common culprits of what is known as “profit fade” could help your business run more efficiently and avoid unnecessary profitability drains. Let’s take a look at some of the most common culprits.

The Cost of Innovation

It’s not uncommon for businesses of all kinds to invest in new applications and technology that help streamline operations. That’s the beauty of the constant deployment of new tech assets. However, many businesses forget to evaluate the performance and usefulness of that technology investment after it’s been deployed. If it involves a monthly service fee or any type of contract with additional built-in equipment rental costs, the monthly cost impact adds up quickly – especially if it’s not being used to its full potential.

Of course, the company that designed the contract is not in the business of asking if the end-user is enjoying its investment, just as much as an automobile manufacturer isn’t likely to check in and see if you’re happy with your car payment. That’s why companies like United Solutions perform comprehensive on-site technology assessments before you invest in new software, to ensure that your investment is one that will be fully utilized and provide measurable ROI.

The bottom line for these types of expenses is simple: make sure your investments with recurring monthly service costs are making a measurable impact on your business operations.

Estimating for Profit

When we think of estimating in the construction world, it’s oftentimes lumped in with the basic costs of pursuing new work and business development. However, poor estimating is just as much a culprit of profit fade as is a costly service contract. When estimating isn’t accounting for every direct and indirect cost, profitability is the first place this weakness is exposed. Without knowing in advance what revenue number is required in order to cover the costs of the job and achieve some level of profitability, construction companies are effectively flying blind.

This is where cutting-edge estimating software comes into play. Solutions like Sage Core provides you with a completely integrated estimating solution that automates and streamlines the entire estimating process, so you have the confidence you need to stand behind your numbers and ensure your profit margin every time.

Remember: price your jobs to account for expenses and revenues to protect the profits you intend to make.

Vendor Management 101

The final area of unforeseen cost drivers involves basic errors on the part of vendors that often have lengthy service contracts in place. Otherwise known as price increases, these are charges that a contractor has likely been paying for years as part of a monthly or annual contract that hasn’t been inspected by human eyes in months. If a cost rises due to an invoicing mistake, will a contractor notice it among the piles of bills it pays every quarter? Not likely.

These price increases can apply to a range of services, from contracts with an Internet service provider to a firm that provides monthly payroll processing. Without a regular review of these contracts, an unexplained uptick in monthly fees could run rampant for months – while providing no additional service in return and depleting your bottom line.

Accounting solutions like Sage 300 Contractor and Real Estate features a tool called MyAssistant, which proactively monitors key performance indicators, providing instant alerts about issues needing attention and the information needed to take action on a per-project basis to flag anomalies in real-time so they can be addressed quickly.

The Art of Due Diligence

Due diligence is a critical aspect of preserving your hard-earned profitability. Businesses of every size across every industry have an obligation to protect themselves from unnecessary cost drivers and accounting errors that threaten their bottom line.

That’s why companies like USI deploy software solutions that make establishing this system of checks and balances easier than ever before. Contact United Solutions for an evaluation and recommendations on which construction technology solution will work best for you.

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