Remaining profitable in the construction industry, especially with all the economic change that has been happening in the world lately, takes some true focus and adaptability. The good news is that there are some key traits that we’ve seen will keep the financial health of your construction business, regardless of the market demand or situation. Here are some of those traits, and ways to make them a part of your operation:
A recent study done by Autodesk shows that construction firms with high levels of trust perform twice as well on their business metrics. This translates to increased financial benefits for contractors, achieving gross margins of 2% to 7% higher than those companies with only above average levels of trust. Ways to increase levels of trust include working with repeat customers, keeping consistent systems, timely project delivery, and excelling in both external and internal communications. The research also showed that building trust internally sets the tone for your business, so generate employee engagement and encourage your team to share their views as well!
Good communication is key in building trust, which is crucial for success – as just mentioned! When delays or issues come up, it’s so important to talk about it with key personnel and clients, so that there is no feeling of deceit and everyone feels a part of the solution. Often when small issues aren’t noticed or brought up, then they lead to big problems that have a huge impact on the overall project. It often happens just from sheer misjudgment that it’s not worth bringing up and that it can be resolved quickly before it really affects things. That’s why it’s important to make sure your company culture doesn’t discourage your staff to alert management to any problems, you want to reward them instead so that you can fix things before it starts to spiral out of control.
One of the biggest issues that will cut into profitability on a project is the amount of overtime hours that accumulate. It can really get out of hand quickly when you’re low on labor, especially if it’s unauthorized or unplanned. Similarly, change orders will incur extra expenses that weren’t accounted for in the original contract – so if it’s not clear with your client, then these changes may be called into question at billing time. With the economic uncertainty we’ve been experiencing during COVID, project interruption and change is even more likely than ever – so keep a close eye on your building projects, and plan as much as possible in order to minimize budget confusion and overtime as you’ll certainly continue to adapt to new circumstances.
Cash flow can really make a big difference in keeping your business financially healthy! You need it to pay your people and expenses, reinvest in your operation, and cover you in times of emergencies. In order to keep that positive cash flow, you’ll want to make sure you’re billing and getting paid for each project in a timely manner, keeping your accounts payable and receivable up to date, and properly managing project budgets. Research surprisingly shows that most construction companies don’t do anything to penalize late payments or incentivize early payments from clients! So if you can negotiate favorable contract terms for your company when it comes to payment terms and changes, you’ll be way ahead of the game.
It might seem ironic to say this, but if you’re growing your business too fast, it can lead to all kinds of financial problems! The issues arise when you don’t have enough materials, craftsmen labor, or even experience managing more and different kinds of projects. New geographic areas, new and innovative processes, and larger projects can really be wonderful ways to expand – just be careful to give yourself extra time and budget to adapt to the changes. Make sure you plan your growth in small incremental chunks if possible!
As with any company, you have to have the right people on board to ensure financial success, and make sure your craftsmen feel valued and engaged so that they’re giving you their best work. If you need help recruiting and retaining the best of the best, contact Madden Industrial Craftsmen today! We’ll match workers that have the experience and training you need for the job openings you have.