With a population of 4 million and an economy dominated by SMEs, most New Zealand businesses have limited opportunities to scale their operations. It is therefore not surprising that business owners are looking at opportunities to improve margins by managing their costs.
For construction companies, staffing is often one of the biggest overhead cost drivers. Revenue generating roles are critical to business success but there are other parts of the value chain which do not necessarily need to be undertaken in-house. Take, for example, the finance function. Medium sized construction companies in New Zealand generally have a Financial Controller (FC) supported by anywhere between 1-10 finance staff. Sure, managing your finances is critical, but, what is this truly costing you and are you getting maximum value for your spend?
In the 2015 remuneration survey run by the Chartered Accountants Australia and New Zealand the average total remuneration for a FC (with accounting reports) was $162,520 (this was based on 231 responses). In Auckland the figure was $174,429. Similarly, the Global Salary Survey completed by recruitment specialist Robert Walters found that across New Zealand, the salary range for a FC is between $120,000 and $200,000.
On the basis of these findings we can assume that the average base salary for a FC is likely to be around $150,000. The reality is that this role will likely cost your business twice that amount. That's right. Take what you are paying them and double it. You will face high on-boarding costs, including legal fees, training costs (including wages of other staff involved in training the new employee), equipment and even recruitment fees. For these types of roles, these recruitment fees alone can be up to 20% of the base salary. Consider also all the ongoing costs of this employee ... on top of bonuses and KiwiSaver, non-wage costs may include a company vehicle, cellphone, ACC, share of overheads (rent, power, water, rates), ongoing training costs, software licences, IT support, sick leave and holiday pay, meals and entertainment, share of administrative overheads … all the way to the coffee they drink from the kitchen on a daily basis. The list goes on.
Once you consider all the associated costs, these employees can significantly impact your bottom line. So, what are your options? Some construction companies have outsourced parts of this function and eliminated a significant portion of this cost in their business. How? Simple. Instead of employing a full-time FC, a business will have a Financial Accountant (which is usually, but not always, a Chartered Accountant) or a skilled bookkeeper running their finance team. A professional services firm will do the rest. A professional services firm supports these businesses by producing the high level financial reporting, analysis, management and input a FC would oversee - ranging from statutory accounts, monthly management accounts, budgeting, assistance with all tax matters (including yearly income tax returns), KPI reporting and cashflow forecasting, right out to benchmarking, capital raising, business acquisitions and valuations.
What's the benefit of this operating model?
- Immediate financial gain. Rather than incurring a $300,000+ cost, businesses could potentially save up to half of this amount by using an existing financial accountant/bookkeeper and partnering with a professional services firm.
- A professional services firm should provide access to wider expertise. Some have specialists in the construction industry and will be able to provide services over and above financial services. Some professional services firms have the ability to keep you informed as to changes in legislation (both construction and tax legislation) and how this will impact your business. They can also provide an independent view of your business and be able to advise how your company is performing in the marketplace.
- Improved accessibility and flexibility. Professional services staff should always be available and, given the size of their staff base, there is always someone to contact at all times.
- Stronger governance and professionalism. A professional services firm should have strong risk management practices and will always be up to date with compliance requirements and industry best practice.
When additional resource is needed, staff secondments are also possible. Professional services firms will have staff with a wide range of skills that can be a temporary or long-term solution to your business needs.
What about small construction companies with say 5-10 staff? They can gain access to expertise without paying a full year salary (and associated costs) of a skilled finance employee. Simply, they can pay for expertise from a professional services firm when they need it but don’t pay for it when they don’t use it.
Gone are the days of trying to do it all, the stress of finding the right person and paying top dollar for these services. Focus on what you do best, leave the rest to the experts and leverage these collective strengths to improve your business, and, while you're at it, your bottom line.