EBITDA Stuck Below the Industry Average

Introduction - EBITDA Stuck Below the Industry Average

Many construction and engineering business owners come to us with the same question:

“We’re making good gross profit… so why does the bank account still feel tight?”

They’re often sitting at:

• 45–50% gross profit margins

• strong job demand

• busy engineers

• growing turnover

Yet EBITDA, the true operating profit, is stuck below the industry average.

Typically around:

• 8–10% instead of 15%+

And the reason is almost always the same:

Overheads are quietly killing profit.

At Jones Financial Accounts (JFA), we work with fast-scaling SMEs in construction, compliance, mechanical and engineering services.

What we see is clear:

Gross profit looks strong… but overheads leak unnoticed until it’s too late.

This blog explains what EBITDA really means, why overheads matter even for small firms, and the practical steps to fix it.

What Is EBITDA (In Plain English)?

EBITDA stands for:

Earnings Before Interest, Tax, Depreciation and Amortisation

But forget the jargon.

In simple terms:

EBITDA is the profit your business makes from day-to-day operations before financing and tax.

It tells you:

• Is the business actually profitable?

• Can it support growth?

• Can it survive shocks?

• Is there money left after overheads?

For construction SMEs, EBITDA is one of the best indicators of business health.

Why This Is Not Just a “Big Business” Metric

Many smaller contractors assume EBITDA is for corporates.

It isn’t.

If you’re doing £500k–£5m turnover, EBITDA matters hugely because:

• margins are tight

• labour is expensive

• overheads creep quickly

• one bad quarter hurts cashflow

A business turning over £2m with 10% EBITDA makes £200k profit.

If overheads push that down to 5%…

That’s only £100k.

That difference could be:

• the owner’s income

• the buffer for VAT

• the ability to hire

• the ability to survive downturns

The Construction Trap: “50% Gross Profit Should Be Enough”

On paper, 50% GP sounds excellent.

But gross profit only tells you:

Jobs are priced well.

It does not tell you:

The business is being run efficiently.

The real question is:

What happens after gross profit?

That’s where overheads sit.

What Are Overheads in Construction and Engineering?

Overheads are all the costs that don’t belong directly to one job, such as:

• office salaries

• project management time

• vans and fleet costs

• software systems

• insurance

• rent

• rework from poor processes

• excessive admin

• unbilled downtime

Overheads feel “fixed”…

But in reality, many grow uncontrolled.

The Hidden Threat: Overheads Expand Faster Than Revenue

Fast-growing contractors often add:

• more engineers

• more supervisors

• more tools

• more management layers

But without control, the overhead base becomes bloated.

Common Myth:

“More turnover fixes everything.”

Reality:

If overheads rise in step with turnover, profit stays flat.

Or worse, declines.

Done Right vs Done Wrong

Done Right ✅	Done Wrong ❌
Overheads tracked monthly	Costs lumped together and ignored
EBITDA reviewed as a KPI	Focus only on turnover and gross margin
Clear accountability by department	Costs spread with no ownership
Scalable processes reduce admin	Growth creates chaos and extra headcount
Profit improves as revenue grows	Turnover rises but profit stays stuck

The Most Common Overhead Leaks We See

Here are the biggest killers of EBITDA in construction SMEs:

1. Too Much Unproductive Management Time

If customers can’t reach managers, managers spend all day firefighting.

2. Inefficient Job Systems

If JobLogic or job tracking isn’t updated, admin time explodes.

Work gets repeated. Invoicing gets delayed.

3. Subcontractor Cost Drift

Subcontractors help scale, but without controls they damage margin.

See:https://www.jonesfa.co.uk/blog/subcontractor-due-diligence

4. Rework and Callbacks

Every return visit is overhead disguised as service.

5. Overstaffing Without Productivity Measures

Hiring ahead of revenue is dangerous unless utilisation is tracked.

Practical Steps to Raise EBITDA (CFO Approach)

Here is what we advise construction and engineering firms to do immediately:

Step 1: Split Costs by Department or Service Line

You cannot control overheads if everything is in one pot.

Example:

• compliance work

• projects

• reactive maintenance

• small installs

Each should show its own profitability.

Step 2: Track EBITDA Monthly, Not Annually

Annual accounts are too late.

Monthly EBITDA reporting gives early warning.

Download our free KPI pack here:https://www.jonesfa.co.uk/resources

Step 3: Set an Overhead Ratio Target

A simple rule:

Overheads should not rise faster than revenue.

Monitor overheads as a % of turnover.

Step 4: Identify the “Silent Costs”

Ask:

• how much time is wasted chasing information?

• how many jobs are unbilled?

• how many callbacks occur each month?

These don’t show clearly in accounts, but destroy EBITDA.

Step 5: Price for True Operating Costs

Many contractors price labour and materials correctly…

…but forget management overhead recovery.

That’s why EBITDA stays stuck.

The Opportunity: EBITDA Growth Unlocks Real Scale

The contractors who fix overhead leakage gain:

✅ higher profit without extra sales

✅ stronger cash reserves

✅ better valuation

✅ ability to hire confidently

✅ resilience in slower markets

If you move EBITDA from 10% to 15% on £3m turnover:

That’s an extra £150k profit per year.

That is transformational.

Key Takeaways

• Gross profit doesn’t guarantee real profitability

• EBITDA shows what is left after overheads

• Overheads creep fastest during rapid growth

• Monthly reporting and department tracking unlock profit quickly

If your construction business has strong margins but profit still feels stuck, JFA can help you control overheads, raise EBITDA, and scale with confidence.

Explore our free resources here:https://www.jonesfa.co.uk/resources

Wrapping up today's insights, tomorrow we simplify another accounting challenge.