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
Contractors | Jul 23, 2021
The aggressive growth of Salas O'Brien, with CEO Darin Anderson
Engineering firm Salas O'Brien has made multiple acquisitions over the past two years to achieve its Be Local Everywhere business model. In this exclusive interview for HorizonTV, BD+C's John Caulfield sits down with the firm's Chairman and CEO, Darin Anderson, to discuss its business model.
Coronavirus | Jul 20, 2021
5 leadership lessons for a post-pandemic world from Shawmut CEO Les Hiscoe
Les Hiscoe, PE, CEO of Shawmut, a $1.5 billion construction management company headquartered in Boston, offers a 5-point plan for dealing with the Covid pandemic.
Wood | Jul 16, 2021
The future of mass timber construction, with Swinerton's Timberlab
In this exclusive for HorizonTV, BD+C's John Caulfield sat down with three Timberlab leaders to discuss the launch of the firm and what factors will lead to greater mass timber demand.
Multifamily Housing | Jul 15, 2021
Economic rebound leads to record increase in multifamily asking rents
Across the country, multifamily rents have skyrocketed. Year-over-year rents are up by double digits in nine of the top 30 markets, while national YoY rent growth is up 6.3%. Emerging from the pandemic, a perfect storm of migration, enhanced government stimulus and a hot housing market, among other factors, has enabled this extremely strong growth.
AEC Business Innovation | Jul 11, 2021
Staffing, office changes at SCB, SmithGroup, RKTB, Ryan Cos., Jacobsen, Boldt, and Adolfson & Peterson
AEC firms take strategic action as construction picks up steam with Covid openings.
K-12 Schools | Jul 9, 2021
LPA Architects' STEM high school post-occupancy evaluation
LPA Architects conducted a post-occupancy evaluation, or POE, of the eSTEM Academy, a new high school specializing in health/medical and design/engineering Career Technical Education, in Eastvale, Calif. The POE helped LPA, the Riverside County Office of Education, and the Corona-Norco Unified School District gain a better understanding of which design innovations—such as movable walls, flex furniture, collaborative spaces, indoor-outdoor activity areas, and a student union—enhanced the education program, and how well students and teachers used these innovations.
Market Data | Jul 8, 2021
Encouraging construction cost trends are emerging
In its latest quarterly report, Rider Levett Bucknall states that contractors’ most critical choice will be selecting which building sectors to target.
Multifamily Housing | Jul 7, 2021
Make sure to get your multifamily amenities mix right
One of the hardest decisions multifamily developers and their design teams have to make is what mix of amenities they’re going to put into each project. A lot of squiggly factors go into that decision: the type of community, the geographic market, local recreation preferences, climate/weather conditions, physical parameters, and of course the budget. The permutations are mind-boggling.
Industrial Facilities | Jul 2, 2021
A new approach to cold storage buildings
Cameron Trefry and Kate Lyle of Ware Malcomb talk about their firm's cold storage building prototype that is serving a market that is rapidly expanding across the supply chain.
Contractors | Jul 1, 2021
Nonres construction spending down again in May
And the industry is still beset with labor and materials issues that could impede future growth