Fifty-eight percent of contractors say they are having trouble finishing projects on deadline, according to the National Association of Home Builders.1
“It’s an issue with everyone I know,” said Richard, general manager of a mid-size building construction contractor. “We used to build a house in 90 days. Now our timeline is pushed out to 180.”
The result is shrinking margins. The longer your timeline, the more chances there are for cost overruns and uncertainties to creep into your project, potentially squeezing companies when they can least afford it.
58% of contractors say they are having trouble finishing projects on deadline1
“We’re in an industry where net income as a percent of revenue is not high compared to a lot of other industries,” said Barry, the president of a private home building company that does about $50 million in annual revenue. “We need to be smarter than ever to make our numbers.”
The culprit behind shrinking margins in the construction industry is, ironically, the rebounding economy. Dropping unemployment rates have led to a lack of skilled labor. Without enough construction workers to lay foundations, frame houses, and do finishing work, jobs are taking longer to complete. But an unexpected challenge demands a different kind of solution, one that allows construction companies to ease financial pressure without compromising the quality of projects.
Here are three ideas for protecting your margins in a tough market.
Get Strategic About Purchasing
Giving yourself the ability to quickly pull the trigger on purchases in time-sensitive situations can help keep profit margins healthy and your project on schedule.
Frequently, construction firms are also able to get great time-sensitive discounts when they’ve made bulk purchases.
Jumping on these types of opportunities, however, can require significant expenditures at a moment’s notice. Having a corporate card program backing up your business is crucial, so you can move quickly.
The key to keeping your cash flow positive in shifting circumstances is flexibility.
Similarly, strategically timing purchases to ensure that you’re not financing projects for owners will limit the amount that delays eat into your profit margins. “If I’m being delayed on a job because of weather, my bills are still rolling in,” said Joe.
The job site is never a static place. Things are changing constantly, and new challenges are always arising. The key to keeping your cash flow positive in shifting circumstances is flexibility.
Centralize and Digitize Your Expenses
Runaway expenses can take a big bite out of your profit margins. Loose cash almost always saps profits. It’s hard to account for and is time-consuming to track.
As a result, project managers and superintendents are increasingly looking to centralize their billing structures to create efficiencies and eliminate as much paper as possible. The more paper floating about, the more likely it is that information is being lostor seen out of context. Central offices want the ability to see the combined spending in one spot.
Additionally, centralizing your billing helps with post-project analysis. Applying the lessons learned from spending and expenses on one project helps to forecast the next project much more accurately.
Applying the lessons learned from spending and expenses on one project helps to forecast the next project much more accurately.
This is particularly relevant for firms that operate in multiple states. They often need custom financial solutions that are tailored to their ongoing project needs.
“Controlling costs by knowing what the spend is going to be every day can make the difference in knowing whether a job is going to be profitable --- or not,” said Richard.
Take Advantage of Rewards
In the construction business, taking advantage of every tool at your disposal to ease the squeeze on your margins is just good business sense. This is why a robust rewards program is increasingly attractive to contractors and firms.*
“Frankly,” said home building company president Barry, “we’re looking to save money wherever we can.”
That’s why most of the small private builders Barry knows take advantage of business credit card rewards programs by plowing those rewards straight back into the business.* After all, gaining a percentage point on thin profit margins, can make a difference to your bottom line.
1National Association of Home Builders, "More Builders Report Labor/Subcontractor Shortages"
Related Stories
Affordable Housing | May 14, 2024
Brooklyn's colorful new affordable housing project includes retail, public spaces
A new affordable housing development located in the fastest growing section of Brooklyn, N.Y., where over half the population lives below the poverty line, transformed a long vacant lot into a community asset. The Van Sinderen Plaza project consists of a newly constructed pair of seven-story buildings totaling 193,665 sf, including 130 affordable units.
University Buildings | May 10, 2024
UNC Chapel Hill’s new medical education building offers seminar rooms and midsize classrooms—and notably, no lecture halls
The University of North Carolina at Chapel Hill has unveiled a new medical education building, Roper Hall. Designed by The S/L/A/M Collaborative (SLAM) and Flad Architects, the UNC School of Medicine’s new building intends to train new generations of physicians through dynamic and active modes of learning.
MFPRO+ News | May 10, 2024
HUD strengthens flood protection rules for new and rebuilt residential buildings
The U.S. Department of Housing and Urban Development (HUD) issued more stringent flood protection requirements for new and rebuilt homes that are developed with, or financed with, federal funds. The rule strengthens standards by increasing elevations and flood-proofing requirements of new properties in areas at risk of flooding.
Government Buildings | May 10, 2024
New federal buildings must be all-electric by 2030
A new Biden Administration rule bans the use of fossil fuels in new federal buildings beginning in 2030. The announcement came despite longstanding opposition to the rule by the natural gas industry.
Mass Timber | May 8, 2024
Portland's Timberview VIII mass timber multifamily development will offer more than 100 affordable units
An eight-story, 72,000-sf mass timber apartment building in Portland, Ore., topped out this winter and will soon offer over 100 affordable units. The structure is the tallest affordable housing mass timber building and the first Type IV-C affordable housing building in the city.
K-12 Schools | May 7, 2024
World's first K-12 school to achieve both LEED for Schools Platinum and WELL Platinum
A new K-12 school in Washington, D.C., is the first school in the world to achieve both LEED for Schools Platinum and WELL Platinum, according to its architect, Perkins Eastman. The John Lewis Elementary School is also the first school in the District of Columbia designed to achieve net-zero energy (NZE).
Healthcare Facilities | May 6, 2024
Hospital construction costs for 2024
Data from Gordian breaks down the average cost per square foot for a three-story hospital across 10 U.S. cities.
MFPRO+ Special Reports | May 6, 2024
Top 10 trends in affordable housing
Among affordable housing developers today, there’s one commonality tying projects together: uncertainty. AEC firms share their latest insights and philosophies on the future of affordable housing in BD+C's 2023 Multifamily Annual Report.
Retail Centers | May 3, 2024
Outside Las Vegas, two unused office buildings will be turned into an open-air retail development
In Henderson, Nev., a city roughly 15 miles southeast of Las Vegas, 100,000 sf of unused office space will be turned into an open-air retail development called The Cliff. The $30 million adaptive reuse development will convert the site’s two office buildings into a destination for retail stores, chef-driven restaurants, and community entertainment.
Codes and Standards | May 3, 2024
New York City considering bill to prevent building collapses
The New York City Council is considering a proposed law with the goal of preventing building collapses. The Billingsley Structural Integrity Act is a response to the collapse of 1915 Billingsley Terrace in the Bronx last December.