An upturn in home-buying and commercial development is a boon for the construction industry, but the pressure to grow can squeeze construction companies grappling with cash flow, expenses and expansion.
— In April, privately-owned housing starts jumped 12.4%, to an annualized rate of 1.319 million units, according to the U.S. Census Bureau and U.S. Dept. of Housing and Urban Development.1
— Cost and availability of labor and developed lots, as well as building material prices, are the top problems builders expect to face this year, according to a recent survey of builders from the NAHB/Wells Fargo Housing Market Index.2
— Construction companies anticipate 5% growth in 2018, up from a strong 4% in 2017, according to a consensus forecast from Oldcastle Business Intelligence.3
You might think it takes a truckload of cash on hand to take advantage of growth in the sector, but here’s how seasoned operators meet the new demand for homes, offices and new locations without drowning in new expenses.
Lining Up New Suppliers in New Areas of Operations
Many construction firms are taking on out-of-state jobs as opportunities arise in regional rebuilding areas like Houston and California. But starting up in new markets is hard.
“When you go to a different area, you need to be able to establish a new set of vendors and that's very time-consuming,” said Ray, a vice president of operations for a large concrete company.
Financial partners can help firms quickly gain the trust of new vendors, no matter the market.
To quickly scale, out-of-towners have to establish credibility. A trusted third-party can help, say construction decision-makers. In particular, financial partners can help firms quickly gain the trust of new vendors, no matter the market.
When Ray needed a new concrete materials supplier in Texas, for example, he took advantage of the existing relationship he had with his business Credit Card financial representative to negotiate with the supplier he wanted to work with, which allowed him to get the materials he needed quickly and at the best price possible.
Managing the Cash Crunch
As builders take on more projects to meet growing demand, it’s taking longer to complete construction jobs. There’s simply not enough construction workers or sub-contractors to get the job done on normal schedules.
“We'd love to build a home in 90 days but in reality, it's taking 130,” said William, a small home builder that does about $40 million a year in revenue. “We accept that and budget for it. As much as we want to build a home in 90 days, it's just not happening.”
Longer timelines mean builders get paid later. Managing cash flow for extended timelines delays your payments to builders. It can turn into a juggling act, particularly when you’re looking to start a new job while previous projects are winding down.
Using a business Credit Card for purchases or materials generates rewards savings that can help defray additional expenses.
To help manage the cash flow crunch, general contractors say they are increasingly working with financial partners that can build custom solutions for their firms. These partners play a helpful role by fully understanding the company’s business needs and helping to ensure their lines of credit are sufficient to allow them to make needed purchases, as well as providing the flexibility they need to jump on demand for new projects.
“Usually it's getting materials for a new job that’s starting up,” said Hal, a vice president of a mid-size building construction contractor. “We may need to purchase specially-ordered materials that are expensive and end up in a catch-22 because we can’t bill for them, but we need them to prepare for the job.”
Having a dedicated financial partner can help contractors and builders avoid the juggling act by developing custom financial programs and solutions. Also, using a business Credit Card for purchases of materials or other items generates rewards savings that can help defray additional expenses due to project delays.
Cards Instead of Cash on the Job Site
Keeping track of expenditures on the jobsite is key to managing cash flow. That challenge becomes even more acute as builders and developers take on projects outside of their normal territories.
Keeping track of expenditures on the jobsite is key to managing cash flow.
Jake, director of operations at a general contractor for commercial construction projects, said his firm has a good idea of what his sub-contractors are going to buy because they get approval from his firm first. But there are always workers on site who need to make purchases.
“Having clear visibility into what are our superintendents’ unexpected expenditures are is really important for our business,” Jake said.
1U.S. Census: Monthly New Residentail Construction, April 2018
2Eye on Housing: Building Materials Prices and Labor Access Top Challenges for 2018
Related Stories
| Jul 23, 2014
Architecture Billings Index up nearly a point in June
AIA reported the June ABI score was 53.5, up from a mark of 52.6 in May.
| Jul 22, 2014
Herzog & de Meuron unveil curvy concrete condo in Manhattan
Herzog & de Meuron have released renderings of their new $250 million New York building, a 12-story condominium with 88 luxury apartments.
| Jul 21, 2014
Designing the process of leadership transition
Transition planning can be one of the more complex challenges that firms face. Effective plans begin by determining the gap between a firm’s current state and the future it envisions for itself. SPONSORED CONTENT
| Jul 21, 2014
16 utility questions to answer during your building project
We need electricity to power our building projects, along with water and gas and a faultless sanitation system. That’s what we think about when we think about utility requirements for our building project, but are we missing something? SPONSORED CONTENT
| Jul 21, 2014
Commercial real estate development growing at strongest pace since recovery began: NAIOP report
Industrial, warehousing, office, and retail sectors see strong gains; Texas leads the nation in construction-value stats.
| Jul 21, 2014
Economists ponder uneven recovery, weigh benefits of big infrastructure [2014 Giants 300 Report]
According to expert forecasters, multifamily projects, the Panama Canal expansion, and the petroleum industry’s “shale gale” could be saving graces for commercial AEC firms seeking growth opportunities in an economy that’s provided its share of recent disappointments.
| Jul 21, 2014
Workplace trends survey reveals generational patterns in office use
Data analysis from Mancini•Duffy indicates significant variations among age cohorts in the workplace.
| Jul 21, 2014
Schindler Elevator Corp.'s new manufacturing facility receives LEED Green Excellence Award
Pennsylvania plant is the first LEED Gold certified elevator manufacturing facility in North America.
| Jul 18, 2014
Contractors warm up to new technologies, invent new management schemes [2014 Giants 300 Report]
“UAV.” “LATISTA.” “CMST.” If BD+C Giants 300 contractors have anything to say about it, these new terms may someday be as well known as “BIM” or “LEED.” Here’s a sampling of what Giant GCs and CMs are doing by way of technological and managerial innovation.
