As the 2014 construction season is about to get underway, this is the ideal time to take stock of your construction business. Finally, it appears there’s a real chance to grow your business, and you want to make the most of it.
Here are some tips to strengthen the business end of your construction firm.
Get a grip on your true costs.
You have to spend money to make money, but you have to spend wisely. Cutting costs to increase profitability is also a valid concept, but that, too, has to be handled strategically. Cash flow management should include evaluating which costs are really necessary and how they impact your business. That insight helps you plan more effectively and adjust more smoothly to business fluctuations. It can give you more credibility when you need support from your bank, too.
Every construction business has general business expenses and job-related costs. Labor is always a significant portion of those costs, and for many contractors it’s an area where personal feelings can produce poor business decisions. You’d do anything to keep from laying people off, but will you sacrifice your entire business for your crew? Realistically, it’s better to lose a few people so others can retain their jobs.
Often contractors are tempted to “save” money by doing more work themselves. But here’s the thing: you’re better off hiring people to handle accounting, marketing – things that are important but not construction-critical – so you can focus on the work you do best. You’ll be able to manage your business more efficiently.
Evaluating cost vs. impact extends to your equipment, too. Are you better off purchasing machinery, or leasing or renting it? Each of those options impacts your bottom line differently, when you consider total costs including insurance, maintenance, etc. If you own equipment, consider the added value of extended warranty coverage.
When you understand your true costs, you can bid jobs more accurately so you actually make money.
Head off financial trouble before it’s too late.
Dun & Bradstreet says that in 2012, construction companies made up the second-largest percentage of failed businesses in the U.S. As lousy as the past few years have been for most contractors, you can avoid becoming a statistic in 2014 by recognizing the early warnings of financial trouble. In reverse order of significance, they are:
- You or family members are working your construction jobs without pay.
- You aren’t taking a regular salary.
- You’re cutting prices to secure jobs.
- You’re having to carry over credit card debt from month to month.
- You can’t pay all your bills when due.
- Income from new jobs is paying off old bills.
- Your employees aren’t paid on time.
- Your checks are bouncing.
Don’t wait until you get to the bottom of this list to re-evaluate how you’re bidding and managing jobs and your business overall.
If you aren’t already, getting bonded reinforces your professionalism as a construction business, and that can bring in more work. Your bonding agent can be a surprisingly valuable financial advisor, too.
Don’t neglect marketing.
Promoting your construction business doesn’t have to be onerously complicated or expensive, but ignoring marketing because it’s a “cost” is about as smart as getting rid of your phone to save money. You have to promote your business in order to grow. That includes having a quality, up-to-date website. Getting professional advice will help you create an effective website and develop an overall marketing plan that’s both cost-effective and sales-effective.