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
| Jun 6, 2014
KPF, Kevin Roche unveil design for 51-story Hudson Yards tower in NYC [slideshow]
Related Companies and Oxford Properties Group are teaming to develop Fifty Five Hudson Yards, the latest addition to the commercial office tower collection in the 28-acre Hudson Yards development—the largest private real estate development in the history of the U.S.
| Jun 6, 2014
Shipping container ship terminal completed in Spain
In Seville, Spain, architectural firms Hombre de Piedra and Buró4 have designed and completed a cruise ship terminal out of used shipping containers.
| Jun 5, 2014
International Parking Institute names best new parking structures
Winners include garages that are architectural delights, an airport's canopied parking atrium, and an environmentally friendly garage under America's oldest park.
| Jun 4, 2014
Want to design a Guggenheim? Foundation launches open competition for proposed Helsinki museum
This is the first time the Guggenheim Foundation has sought a design through an open competition. Anonymous submissions for stage one of the competition are due September 10, 2014.
| Jun 4, 2014
Market update: A difficult first quarter for construction spending comes to an end
This year's unusually difficult winter took its toll on construction activity. Nonetheless, first quarter spending for all the major groups was up compared to the same period in 2013.
| Jun 4, 2014
Construction team named for Atlanta Braves ballpark
A joint venture between Barton Malow, Brasfield & Gorrie, Mortenson Construction, and New South Construction will build the Atlanta Braves ballpark, which is scheduled to open in early 2017. Check out the latest renderings of the plan.
| Jun 3, 2014
Must see: World's tallest LEGO tower built in Budapest
The tower, built in front of St. Stephen's Basilica, is topped with a Rubik's cube and was built using thousands of blocks.
| Jun 3, 2014
Great leadership comes down to one thing
While it’s often said that strong leadership is an organization’s competitive advantage, is there a single characteristic that can predict which leaders will be most effective? SPONSORED CONTENT
| Jun 3, 2014
Libeskind's latest skyscraper breaks ground in the Philippines
The Century Spire, Daniel Libeskind's latest project, has just broken ground in Century City, southwest of Manila. It is meant to accommodate apartments and offices.
| Jun 2, 2014
Nonresidential construction spending expands in April
Ten of 16 nonresidential construction subsectors posted increases in spending in April, according to the latest U.S. Census Bureau data.