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
University Buildings | Jun 14, 2023
Calif. State University’s new ‘library-plus’ building bridges upper and lower campuses
A three-story “library-plus” building at California State University, East Bay (CSUEB) that ties together the upper and lower campuses was recently completed. The 100,977-sf facility, known as the Collaborative Opportunities for Research & Engagement (“CORE”) Building, is one of the busiest libraries in the CSU system. The previous library served 1.2 million visitors annually.
Resiliency | Jun 14, 2023
HUD offers $4.8 billion in funding for green and resilient building retrofit projects
The Department of Housing and Urban Development (HUD) recently released guidelines for its Green and Resilient Retrofit Program (GRRP) that has $4.8 billion for funding green projects.
Arenas | Jun 14, 2023
A multipurpose arena helps revitalize a historic African American community in Georgia
In Savannah, Ga., Enmarket Arena, a multipurpose arena that opened last year, has helped revitalize the city’s historic Canal District—home to a largely African American community that has been historically separated from the rest of downtown.
Building Materials | Jun 14, 2023
Construction input prices fall 0.6% in May 2023
Construction input prices fell 0.6% in May compared to the previous month, according to an Associated Builders and Contractors analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data released today. Nonresidential construction input prices declined 0.5% for the month.
Contractors | Jun 13, 2023
The average U.S. contractor has 8.9 months worth of construction work in the pipeline, as of May 2023
Associated Builders and Contractors reported that its Construction Backlog Indicator remained unchanged at 8.9 months in May, according to an ABC member survey conducted May 20 to June 7. The reading is 0.1 months lower than in May 2022. Backlog in the infrastructure category ticked up again and has now returned to May 2022 levels. On a regional basis, backlog increased in every region but the Northeast.
Mass Timber | Jun 13, 2023
Mass timber construction featured in two-story mixed-use art gallery and wine bar in Silicon Valley
The Edes Building, a two-story art gallery and wine bar in the Silicon Valley community of Morgan Hill, will prominently feature mass timber. Cross-laminated timber (CLT) and glulam posts and beams were specified for aesthetics, biophilic properties, and a reduced carbon footprint compared to concrete and steel alternatives.
Industry Research | Jun 13, 2023
Two new surveys track how the construction industry, in the U.S. and globally, is navigating market disruption and volatility
The surveys, conducted by XYZ Reality and KPMG International, found greater willingness to embrace technology, workplace diversity, and ESG precepts.
Mixed-Use | Jun 12, 2023
Goettsch Partners completes its largest China project to date: a mixed-used, five-tower complex
Chicago-based global architecture firm Goettsch Partners (GP) recently announced the completion of its largest project in China to date: the China Resources Qianhai Center, a mixed-use complex in the Qianhai district of Shenzhen. Developed by CR Land, the project includes five towers totaling almost 472,000 square meters (4.6 million sf).
University Buildings | Jun 9, 2023
Cornell’s new information science building will foster dynamic exchange of ideas and quiet, focused research
Construction recently began on Cornell University’s new 135,000-sf building for the Cornell Ann S. Bowers College of Computing and Information Science (Cornell Bowers CIS). The structure will bring together the departments of Computer Science, Information Science, and Statistics and Data Science for the first time in one complex.
Museums | Jun 6, 2023
New wing of Natural History Museums of Los Angeles to be a destination and portal
NHM Commons, a new wing and community hub under construction at The Natural History Museums (NHM) of Los Angeles County, was designed to be both a destination and a portal into the building and to the surrounding grounds.