Why Your Jobs Look More Profitable Than They Are: Indirect Allocations and Overhead in Construction | Ep. 377

If your jobs always seem more profitable on paper than they feel in the bank, indirect costs might be the reason.

In this episode of Construction Genius, I sit down with Kathe Barrington, CPA—a fractional Controller and CFO who has worked exclusively with construction companies for over 20 years—to tackle one of the most confusing and costly blind spots in construction accounting: indirect cost allocations, equipment costing, and overhead structure.

Most contractors know they have overhead. Most don’t fully understand what’s in it, how it should be tracked, or how it quietly erodes the margins they think they have. Kathe fixes that.

Key Topics Covered:

• – The real difference between indirect costs, overhead, and G&A—and the debates contractors get into about where to draw the line
• – Why indirect costs are “hidden costs” that distort true profitability if not allocated back to jobs
• – How to cost owned equipment using market rental rates (PAPA, Sunbelt, United Rentals)—and where contractors get lazy
• – Why equipment sitting on a jobsite for storage reasons shouldn’t be charged to that job
• – The 2008 lesson: why treating equipment as a liquid asset almost sank heavy equipment contractors
• – Common chart of accounts mistakes—especially indirect costs buried inside G&A—and how to clean them up
• – Why bank and bonding companies scrutinize your G&A ratio, and what happens if it’s artificially inflated
• – How cost code inaccuracy feeds estimators bad historical data, making future bids less competitive
• – Why estimating and accounting rarely sit in the same room—and why they should
• – What fair overhead allocation looks like across jobs, and how to handle PM pushback
• – Two areas to look at first when hunting for indirect cost leakage: equipment and insurance
• – Why monthly review of indirect allocations is non-negotiable

Listen or Watch the Episode

Episode Chapters

• – 1:00 – What Are Indirect Allocations and Why Do They Matter?
• – 3:00 – Indirect Costs vs. Overhead vs. G&A: The Key Distinctions
• – 5:00 – Costs Nobody Debates: Bank Fees, Office Rent, and True G&A
• – 7:00 – How to Cost and Track Owned Equipment in a Construction Company
• – 10:00 – The Equipment Trap: When Sitting ≠ Charging
• – 12:00 – The 2008 Warning: Why You Can’t Rely on Equipment as Your Safety Net
• – 14:00 – Chart of Accounts Mistakes That Distort Job Profitability
• – 16:00 – How Indirect Costs Affect Banking, Bonding, and GNA Ratios
• – 18:00 – Why Estimating and Accounting Must Speak the Same Language
• – 20:00 – Fair Overhead Allocation and How PMs Push Back
• – 22:00 – Every Dollar Needs a Home and a Purpose
• – 24:00 – Where to Look First: Equipment and Insurance
• – 26:00 – Three Takeaways and How Often to Review Your Numbers

About the Guest

Kathe Barrington is a CPA who specializes exclusively in construction accounting. She has over 20 years of experience as a fractional Controller and CFO for construction companies. She works with GCs from $10M–$100M and subcontractors from $10M–$50M, providing experienced financial leadership for companies that aren’t yet ready for a full-time CFO.

Resources

Connect with Kathe Barrington

Website: kbcpa.biz

LinkedIn: Kathe Barrington

Facebook: Kathe Barrington CPA

This episode is Part 5 of an ongoing Construction Accounting Series with Kathe Barrington:

Part 1 — Ep. 357: WIP Reports Made Simple: The Key to Stopping Hidden Job Losses

Part 2 — Ep. 359: How to Use Your WIP to Protect Cash and Grow Profitability

Part 3 — Ep. 364: Why the Field and Accounting Are Both Right

Part 4 — Ep. 368: Underbillings Bad. Overbillings Better: The Cash Flow Truth Construction Owners Can’t Ignore