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
| Jan 4, 2012
Shawmut Design & Construction awarded dorm renovations at Brown University
Construction is scheduled to begin in June 2012, and will be completed by December 2012.
| Jan 4, 2012
Skanska acquires Industrial Contractors
Industrial Contractors Inc. is a contractor in the commercial, industrial and power markets of the Midwest. The company employs 2,400 people and in 2011 the revenues are estimated to be approximately $500 million.
| Jan 4, 2012
HDR to design North America’s first fully digital hospital
Humber River is the first hospital in North America to fully integrate and automate all of its processes; everything is done digitally.
| Jan 4, 2012
New LEED Silver complex provides space for education and research
The academic-style facility supports education/training and research functions, and contains classrooms, auditoriums, laboratories, administrative offices and library facilities, as well as spaces for operating highly sophisticated training equipment.
| Jan 3, 2012
Gilbane awarded $88M Contract for Ohio elementary school construction
The new award, which comprises the construction of five new elementary schools and demolition of 11 older facilities, is the latest K-12 building program managed by Gilbane for the Ohio School Facilities Commission since 1998.
| Jan 3, 2012
AIA's ABI November Index reaches 52.0
The Architecture Billings Index (ABI) reached its first positive mark since August.
| Jan 3, 2012
Callison acquires Barteluce Architects & Associates
This acquisition will grow Callison’s New York team to over 75 architects.
| Jan 3, 2012
VDK Architects merges with Harley Ellis Devereaux
Harley Ellis Devereaux will relocate the employees in its current Berkeley, Calif., office to the new Oakland office location effective January 3, 2012.
| Jan 3, 2012
Weingarten, Callan appointed to BD+C Editorial Board
Building Design+Construction has named two new members to its editorial board. Both are past recipients of BD+C’s “40 Under 40” honor.
| Jan 3, 2012
New Chicago hospital prepared for pandemic, CBR terror threat
At a cost of $654 million, the 14-story, 830,000-sf medical center, designed by a Perkins+Will team led by design principal Ralph Johnson, FAIA, LEED AP, is distinguished in its ability to handle disasters.
