We often hear stories of promising companies that burned through their initial investments faster than anticipated. Other companies never seem to bring in enough revenue to keep their doors open. However, what we don’t hear about as often are the dozens of small, seemingly harmless expenses that accumulate over time, gradually suffocating a business. These often-overlooked costs can erode a company’s financial health, limiting its ability to innovate, grow, or even survive.
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In this article, I’ll explore just a few of the many ways these expenses can devastate a business. From overpaying middle and top managers to overspending on advertising and travel, I will break down how these small costs, when left unchecked, can snowball into significant financial problems. I’ll also discuss strategies for budgeting and how to avoid these pitfalls before they become fatal to a company’s bottom line.
Overpaying Middle and Top Managers
One of the biggest financial drains for many companies, especially startups and small businesses, is excessive compensation for middle and top managers. In an industry like offsite construction, which is already capital-intensive, offering salaries that are too high can be a death sentence. While it’s important to attract experienced leadership, overpaying for managers who don’t deliver value can quickly drain resources.
Overcompensated managers might not be incentivized to keep a close eye on costs. Furthermore, these salaries can create a toxic hierarchy within the company, where operational workers and production teams feel undervalued. The disconnect between managerial compensation and on-the-ground performance can lead to disengagement, reduced productivity, and ultimately, a struggling business.
Solution: Tie Compensation to Performance
To avoid this trap, companies should tie managerial compensation to performance-based incentives rather than offering large base salaries. This not only keeps payroll costs under control but also motivates managers to focus on efficiency, growth, and profitability. Performance metrics such as revenue growth, cost savings, and operational improvements should be part of a manager’s compensation package. This approach aligns the interests of the managers with the long-term success of the company.
Attending Too Many Industry Conferences
Industry conferences offer excellent networking opportunities and the chance to stay up-to-date with the latest trends and innovations. However, attending dozens of conferences a year and sending large delegations can become an enormous expense for offsite construction companies.
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The costs of registration, travel, lodging, meals, and time away from day-to-day operations can quickly add up. For some businesses, especially startups, the return on investment (ROI) from attending numerous conferences may not justify the cost. While it’s essential to stay connected with the industry, spending too much time and money at conferences can divert attention and resources away from the core operations.
Solution: Attend Selectively and Strategically
Companies should approach conference attendance with a strategic mindset. It’s far more beneficial to carefully select a few high-impact events than to attend every possible conference. Additionally, businesses should limit the number of attendees per event. By sending only one or two representatives, companies can reduce costs without sacrificing the benefits of networking and industry visibility. The team attending these events should return with actionable insights that can be immediately applied to improve the company’s operations.
Overspending on Advertising
Marketing and advertising are crucial for growth, but in the offsite construction industry, it’s easy to fall into the trap of overspending without a clear ROI. In an attempt to build brand recognition or attract new clients, some companies invest heavily in digital ads, print media, or other expensive marketing campaigns without properly evaluating their effectiveness.
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In some cases, companies might spend on flashy ads without properly targeting the right audience, or they may invest in a high-cost campaign before their operations are capable of meeting increased demand. This not only wastes financial resources but also sets the company up for potential reputational damage if it fails to deliver on its promises.
Solution: Budget for Scalable Advertising
Companies should treat advertising as an investment, not an expense, and ensure that every dollar spent is delivering measurable results. A detailed marketing budget based on scalable goals is key. Additionally, tracking the effectiveness of campaigns through analytics can help businesses make informed decisions about where to allocate resources. Experimenting with lower-cost, highly-targeted digital ads and social media campaigns before scaling up can help avoid over-committing to expensive initiatives.
Hiring Inexperienced Consultants
Consultants can be invaluable when expanding into new areas or solving specific business challenges. However, hiring consultants who lack experience in the offsite construction industry—or worse, hiring them for tasks that don’t require their expertise—can be another way businesses bleed money. Too often, companies spend a fortune on consulting services that ultimately provide little value.
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Consultants who do not fully understand the complexities of offsite construction may offer generic advice, leading to misguided strategies or operational missteps. Additionally, the company’s internal team might become dependent on external advice rather than developing their own problem-solving capabilities.
Solution: Vet Consultants Thoroughly
To ensure value from consultants, companies should rigorously vet candidates before hiring them. Focus on consultants who have a proven track record of success in the offsite construction industry, and make sure they offer specialized expertise that fills a genuine gap in your company’s knowledge or capabilities. Additionally, limit their scope of work to specific projects with clear, measurable outcomes. Whenever possible, build internal expertise rather than relying on external consultants long-term.
5. Unlimited Travel Expenses
Travel is a necessity in offsite construction, whether for client meetings, site visits, or attending industry events. However, unchecked travel expenses can quickly spiral out of control. Frequent last-minute bookings, first-class flights, and expensive accommodations can turn necessary business travel into an extravagant drain on resources. Many businesses also fail to put caps on expenses for meals, entertainment, or other incidentals, leading to bloated travel budgets.
What’s more, employees who are frequently traveling may not be as productive as they could be if they were focusing on the operational needs of the business. The time and resources spent on excessive travel often outweigh the benefits.
Solution: Implement a Strict Travel Policy
To prevent runaway travel costs, companies should implement a strict travel policy. This should include limits on flight classes, hotel ratings, and per-diem allowances for meals and other expenses. Additionally, companies should explore opportunities for virtual meetings or conference calls to cut down on the need for travel altogether. By keeping travel focused and lean, companies can ensure that travel dollars are spent efficiently.
The Myriad of Other Hidden Expenses
In addition to the main culprits we’ve discussed, countless other hidden expenses can slowly chip away at a company’s financial health. These include:
Over-the-top office spaces: Some companies lease lavish offices far beyond what’s necessary for their team size and function.
Unmonitored utility costs: Excessive heating, cooling, and lighting can add unnecessary costs to a business.
Excessive software subscriptions: Many companies sign up for multiple software platforms, some of which may overlap in functionality.
Poor inventory management: In offsite construction, holding too much inventory can result in unnecessary storage costs and tied-up capital.
Employee turnover: High turnover rates lead to increased recruiting, training, and onboarding costs, as well as disruptions in productivity.
Budgeting for Success
To avoid death by a thousand cuts, offsite construction companies need to be proactive in managing their expenses. This means establishing a detailed budget, regularly reviewing expenditures, and making adjustments as needed. Successful companies build a culture of financial discipline from the ground up, ensuring that every expense is scrutinized for value and efficiency.
A strong budgeting process involves:
Regular financial reviews: Review spending quarterly to identify areas where costs can be cut.
Creating a contingency fund: Allocate a portion of the budget to unexpected expenses to avoid having to scramble for cash in a crisis.
Investing in cost-effective technology: Use technology like accounting software or enterprise resource planning (ERP) systems to track expenses and identify areas of waste.
When Expenses Become More Important Than Operations
In some cases, companies get so caught up in maintaining an image of success—by attending lavish events, paying for flashy ads, and jet-setting for meetings—that they lose sight of what really matters: running a successful operation. When these secondary expenses begin to overshadow the company’s core mission, it’s only a matter of time before the business starts to struggle.
To survive and thrive, companies must maintain focus on their operational efficiency and financial discipline. Otherwise, even the most promising offsite construction companies can fall victim to death by a thousand cuts.
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