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
| Feb 26, 2014
Adaptive reuse project brings school into historic paper mill
The project features nontraditional classrooms for collaborative learning, an arts and music wing, and a technologically sophisticated global resource center.
| Feb 26, 2014
Startup PocketCake aims to bring virtual reality simulations to the AEC masses
Founded in 2012, the development firm offers custom virtual reality simulations for the price of a typical architectural illustration.
| Feb 26, 2014
Billie Jean King National Tennis Center serving up three-phase expansion
The project includes the construction of two new stadiums and a retractable roof over the existing Arthur Ashe Stadium.
| Feb 24, 2014
First look: UC San Diego opens net-zero biological research lab
The facility is intended to be "the most sustainable laboratory in the world," and incorporates natural ventilation, passive cooling, high-efficiency plumbing, and sustainably harvested wood.
| Feb 21, 2014
Naturally ventilated hospital planned in Singapore
The Ng Teng Fong General Hospital will take advantage of the region's prevailing breezes to cool the spaces.
| Feb 21, 2014
Calatrava ordered to pay millions for 'shortcomings in his work' on conference center project
Famed architect Santiago Calatrava must pay 2.9 million euros due to faulty design work on the Palacio de Congresos project in Oviedo, Spain.
| Feb 19, 2014
Why you should start with a builder, part two
When it’s time to build or expand, the first step is finding a builder that fits your needs. Once you have found a builder, checked their references, visited with their previous clients and are ready to move forward, the next step is answering an initial set of questions that will direct your project.
| Feb 19, 2014
Obama Administration moves to boost fuel efficiency standards on heavy-duty vehicles
The Obama Administration wants to boost fuel efficiency of medium- and heavy-duty trucks for models made in 2019 and later.
| Feb 19, 2014
Slight rebound for Architecture Billings Index
After consecutive months of contracting demand for design services, AIA's Architecture Billings Index inched up nearly two points to 50.4 in January, indicating favorable business conditions.
| Feb 19, 2014
Harvard's 'termite robots' can build any thing, any way [video]
The robots build by observing thier environment and then obeying a set of traffic rules programmed by researchers.