It’s no secret that the renovation and construction business is booming. Since the onset of the COVID-19 pandemic, many homeowners have come up with renovation plans to improve their space. This has created an opportunity to grow your construction business.
To take advantage of this current expansion, you need to know the necessary steps to grow with the market.
Here are 8 ways to grow your construction business to handle the increased demand.
Manage Your Cash Flow
Cash flow issues are the primary cause for the failure of construction businesses. When your company doesn’t have enough liquid cash to meet demand, you have a cash flow problem. While the renovation boom signals more projects for contractors, meeting this higher demand involves risk.
For example, signing multiple projects might seem like a good thing—an indicator of growth, of money flowing your way. But handling multiple construction projects at once comes with an increase to your up-front material and labor costs. The turnaround time for payments in the construction industry can create lag in your cash flow and drag your business down.
As you grow your construction business to meet demand, make sure you have a handle on any lag in your cash flow. Monitor your financial statements so you can accurately forecast your company’s future cash conversion cycles (CCC). This will help you make better business decisions—like whether you take on a new project, and what your margins need to be—and avoid potential cash flow problems down the road.
You can also finance your up-front materials costs. This way, you can allocate your budget to more urgent matters, such as employee wages and benefits.
Consider Getting Lien Rights
To grow your construction business, having sufficient funds on hand is critical to maintain it on an upward trajectory. More projects mean more clients, which also means a greater risk of payment delays—or even defaults.
To avoid this, consider filing a mechanic's lien. It’s a legal claim that gives you leverage to receive payment for your services.
Filing a mechanic's lien may seem like an extreme measure, but it's a standard practice, more likely to make your business look professional. It’s also often the only way to get paid when you’re dealing with clients who delay payments or default on them.
Set Clear Payment Expectations
Setting clear payment expectations with your clients from the very start of your interaction is important. Some may come to a project with unrealistic expectations. For example, a given homeowner may be familiar with renovation projects only from watching their favorite home makeover shows. These typically underestimate the true cost of construction projects by a significant amount.
Before you start a project with a potential client, be sure to explain all costs to make your estimate as accurate as possible. Let them know that you are willing to file a lien if they do not pay you on time.
Honest and open communication with your clients can avoid future conflict and litigation. And if you want a long-term relationship with them, trust is the foundation upon which to grow your construction business.
Choose Your Clients Carefully
Given high demand, it can be difficult to choose your clients wisely. As you grow your construction business, you may be tempted to take on any client who comes your way. However, you should exercise caution when choosing clients, as some can cause serious headaches. Worse, a high-risk client may hamper the growth or even threaten the survival of your construction business.
Make sure the services you offer match the client’s needs. For example, if your client wants to redesign their entire kitchen, but your company only does construction, not design, then the job may not be a good fit. High demand means you can be picky, so there's no reason to get in over your head on a job.
One factor to consider, if you want to grow your construction business, is the location of your construction site. If you’re working on a project that’s miles away from your company’s headquarters, it may be more difficult to keep an eye on your subcontractors, and travel time may cut into your margins.
Make sure your personality matches well with the client's. This is key to working long-term together. Are they overly concerned about things outside of your control, like materials delays? Are they always asking for changes? "High maintenance" relationships can be difficult in the long run.
Lastly, make sure to choose subcontractors who have good track records and have been in the business for a while. Reliability is key, but it’s also a good idea to check their payment history to ensure that they’re not going to place a mechanic's lien on a client's property without your knowledge.
Overbidding and not following through will cause you to lose clients, which can hinder your ability to grow your construction business.
To avoid this, compare your previous projects to the current one to arrive at an accurate estimate of the cost it will take to complete the project.
Research can also help you to determine the current costs of a renovation. This gives you enough data to back up your bid, should the client question it.
Automate Your Process
Automation software can help reduce the time you spend on repetitive tasks like payroll and invoices, freeing up your time to focus on more important projects. It can also help you be more efficient and organized, allowing you to get more done in less time, which helps grow your construction business.
For example, using a cloud-based payroll system can improve time efficiency and reduce your workload since you won’t need to manually calculate wages each month.
Automating field time entry can also save you time and resources, as you’ll no longer need to spend hours on data input.
Technology has come a long way in recent years, and integrating automation into your business can help you make the most of the current market expansion.
It is important to constantly monitor your assets and be proactive in protecting them. This is especially true when trying to grow your construction business
To do this, you need to establish effective communication with your suppliers and employees to prevent delays or damage in the production process. This also makes your workflow more efficient.
Regularly check your maintenance schedules using effective management software to ensure that your equipment runs smoothly, your people are in the right places at the right times, and there are no unexpected failures.
Inventory tracking is another important aspect of safeguarding your assets. Make sure you have an effective system in place to track all inventory back-to-front, from raw materials to finished products. This will help you quickly identify any discrepancies and take corrective action, protecting your margins.
Protect Your Profit
Fluctuating materials costs have a major impact on profits, which can limit your ability to grow your construction business. The cost of raw materials can rise and fall quickly, well within the horizon of a particular job. This unpredictability can make it difficult for your construction business to make accurate growth forecasts.
To protect your construction business from materials cost changes, manage change orders and run predictive models that give you a range of possible front-loaded costs. This will help you stay ahead of the curve and keep your profits from shrinking beyond a critical point that will impact your ability to grow your construction business.
Integrate your labor cost reports, which are more predictable, with your materials cost range to help you see whether you can afford to pay both the current and predicted rates for raw materials.
These approaches can help you reduce risk, allowing you to take advantage of high market demand to grow your construction business effectively and responsibly.
The construction industry is booming right now, and as a contractor, you can benefit from it as long as you're prepared. By setting expectations with your clients, taking legal precautions, monitoring your assets, accounting for materials cost fluctuations, automating your processes, bidding accurately, and managing your cashflow effectively, you too can grow your construction business.