April 2012 • Hard Hat News • Page 12
Hey Fred
Fred Ode, CEO/Chairman, Foundation Software
Hey Fred I’m the new office manager at a masonry company and recently met with our CPA for the first time. He started asking me about how I run overhead allocation reports, but I have to admit that I was caught like a deer in headlights. Exactly what is overhead allocation? - Laura Hey Laura Overhead allocation can be a difficult concept to grasp, so I’m glad you asked. Let’s start with overhead. Overhead is the group of costs that are crucial to keeping your construction company a functioning business and to ensure that you can continue to bid and work on jobs. The tricky part about these costs, though, is that they are not directly applied to any given job. Let me explain. Examples of over-
head include rental fees for office space, electricity to run said office, and even some of the office staff’s wages — all necessities of running your business and your jobs. Without these expenses, there would be no office staff to maintain data, no electricity to run the computers, and perhaps no office at all! You can see why this is so important. So when you allocate overhead, you’re basically distributing all of the necessary costs of running your business appropriately over all of your jobs. This is why it is important to consider overhead allocation in financial planning and analysis. In fact, estimators should be including an overhead amount in every bid to ensure that the job’s profit will be great enough to cover these fixed costs. I hope this helps! - Fred
Call for Questions: Thank you for reading “Hey Fred!” CEO/chairman of Foundation Software, Fred Ode is here to answer any question you might have. Plus, he loves getting e-mails, so
send a question to heyfred@foundationsoft.com and he’ll get you an answer. Your question may even make the Hard Hat News website. Thanks!
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