Construction is a capital-intensive business. Each phase of the process requires considerable fund outlay and takes a long time to complete. If not planned properly, you could face a cash crunch that could be debilitating for your business.
There are unquantifiable processes in construction, such as the exact amount of materials required in any activity. Normally, wastage levels are high. To account for this, construction companies have relatively fixed indirect costs. With several construction companies popping up to cater to specific niches, companies are hard-pressed to amp up their marketing strategies to drive higher sales. Whether you’re just starting in the industry or looking to expand into other markets, you need to plan carefully to avoid major pitfalls.
Here are some tips to make your construction business successful.
Build a Good Team
Most construction projects are off-site. Any reporting and accountability can only come from on-field managers or the sub-contractors hired for a project. For the project to be successful, a reliable team is vital. Experienced personnel can handle the business effectively and ensure the costs are kept to a minimum.
The construction business, due to the stiff competition, runs on word of mouth and aggressive marketing. Only when the management has rich experience in construction and real estate can they hire marketing professionals who can generate leads and convert them to sales.
Specializing in a niche is useful in building a targeted audience. However, it also runs the risk of obsoleteness with changing technology. Companies need to keep abreast of technology trends to stay competitive. Updated technology can help in reduced costs in the long run, even if it requires substantial initial capital expenditure.
The other thing that companies need to invest in is a suitable accounting procedure. Most management teams hesitate with a structured system to avoid paying higher taxes. They prefer unstructured, internally generated reports for receipts and payments. This is problematic because gut instincts are not reliable. Unless you have a system that accounts for every penny spent and received, you’re likely to lose money throughout the project.
Every sufficiently large company has leaks. This is due to the fact that large companies have several unquantifiable elements. These leaks can cause costs to exceed budgets. Materials such as concrete, sand, and other resources can only be estimated. That is why management needs to establish transparent channels to communicate requirements and usages. When it doesn’t proactively try to plug the leaks, expenses rise and profitability decreases.
Construction projects usually involve reserve money. This is paid after the completion of the project. Reserve money ensures that the constructed project passes the test of time. If the project isn’t planned correctly or if the materials used are substandard, companies may face litigation because of problems like mold, shoddy workmanship, or water damage. To avoid this, you need to have comprehensive documentation of the materials used and any disclaimer provided to the client regarding the project.
Build Strong Partnerships
A network of strong relationships with subcontractors is essential for a job. Each project is a team effort, and partners that understand your needs are vital for the success of your job. Apart from subcontractors, partnerships with technology firms can benefit your endeavors as well. Several firms deal with experimental technology or developing software that can ease some bottlenecks in your process. Having startup agreements with these firms can help in exclusive IP or novel technology that can assist in your construction projects. Whatever relationships you make, you need real estate agreements to prevent competing performance or to ensure contractual performance.
Kansas City homebuilder, Hearthside Homes, utilizes their website blog to highlight the various subcontractors they work with. It not only brings exposure to these various small businesses, but also strengthens the working relationship between them and their subcontractors.
Prepare for Bidding Processes
The value you bid for determines your profit levels. If you overbid, you won’t be awarded the project, and the fixed costs invested become sunk costs. If you underbid, your company will not make the required revenue. The key is to do your homework. Companies that bid need to account for leakages and wastages in the process. Assumptions based on tight budgets will always be flawed because on-ground conditions might be drastically different. Bidding should be done after painstakingly accurate assumptions. While companies can’t guarantee perfect assumptions, each accounted cost and presumption must still be vetted appropriately before and during the bidding process.
Construction businesses are volatile. The revenue sources can get affected by socio-economic and political conditions in the country. A project might not even see fruition because of changing political climate. In that case, all the costs incurred might become sunk costs. Without appropriate provisions and reserves, companies could suffer losses. A successful company is one that has an understanding of the ground-level project without needing to micro-manage.
This is a guest article from Jessica of Agreements.org.