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
AEC Tech | Mar 9, 2024
9 steps for implementing digital transformation in your AEC business
Regardless of a businesses size and type, digital solutions like workflow automation software, AI-based analytics, and integrations can significantly enhance efficiency, productivity, and competitiveness.
Sports and Recreational Facilities | Mar 7, 2024
Bjarke Ingels’ design for the Oakland A’s new Las Vegas ballpark resembles ‘a spherical armadillo’
Designed by Bjarke Ingels Group (BIG) in collaboration with HNTB, the new ballpark for the Oakland Athletics Major League Baseball team will be located on the Las Vegas Strip and offer panoramic views of the city skyline. The 33,000-capacity covered, climate-controlled stadium will sit on nine acres on Las Vegas Boulevard.
Adaptive Reuse | Mar 7, 2024
3 key considerations when converting a warehouse to a laboratory
Does your warehouse facility fit the profile for a successful laboratory conversion that can demand higher rents and lower vacancy rates? Here are three important considerations to factor before proceeding.
Shopping Centers | Mar 7, 2024
How shopping centers can foster strong community connections
In today's retail landscape, shopping centers are evolving beyond mere shopping destinations to become vibrant hubs of community life. Here are three strategies from Nadel Architecture + Planning for creating strong local connections.
Market Data | Mar 6, 2024
Nonresidential construction spending slips 0.4% in January
National nonresidential construction spending decreased 0.4% in January, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau. On a seasonally adjusted annualized basis, nonresidential spending totaled $1.190 trillion.
MFPRO+ Special Reports | Mar 6, 2024
Top 10 trends in senior living facilities for 2024
The 65-and-over population is growing faster than any other age group. Architects, engineers, and contractors are coming up with creative senior housing solutions to better serve this burgeoning cohort.
Office Buildings | Mar 5, 2024
Former McDonald’s headquarters transformed into modern office building for Ace Hardware
In Oak Brook, Ill., about 15 miles west of downtown Chicago, McDonald’s former corporate headquarters has been transformed into a modern office building for its new tenant, Ace Hardware. Now for the first time, Ace Hardware can bring 1,700 employees from three facilities under one roof.
Green | Mar 5, 2024
New York City’s Green Economy Action Plan aims for building decarbonization
New York City’s recently revealed Green Economy Action Plan includes the goals of the decarbonization of buildings and developing a renewable energy system. The ambitious plan includes enabling low-carbon alternatives in the transportation sector and boosting green industries, aiming to create more than 12,000 green economy apprenticeships by 2040.
MFPRO+ News | Mar 1, 2024
Housing affordability, speed of construction are top of mind for multifamily architecture and construction firms
The 2023 Multifamily Giants get creative to solve the affordability crisis, while helping their developer clients build faster and more economically.
K-12 Schools | Feb 29, 2024
Average age of U.S. school buildings is just under 50 years
The average age of a main instructional school building in the United States is 49 years, according to a survey by the National Center for Education Statistics (NCES). About 38% of schools were built before 1970. Roughly half of the schools surveyed have undergone a major building renovation or addition.